Evans v. Hamby
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Cite as 2011 Ark. 69
SUPREME COURT OF ARKANSAS
No.
10-411
Opinion Delivered 2-17-11
JERRY EVANS,
APPELLANT,
VS.
MICHAEL HAMBY AND WALTERS
LAW FIRM, P.A.,
APPELLEES,
APPEAL FR O M THE LOGAN
COUNTY CIRCUIT COURT, NO.
CV-08-99, HONORABLE TERRY M.
SULLIVAN, JUDGE,
AFFIRMED.
ROBERT L. BROWN, Associate Justice
Appellant Jerry Evans appeals a summary judgment in favor of appellees Michael
Hamby and the Walters Law Firm, P.A. He raises two issues on appeal: (1) that the appellees
failed to raise usury as a defense in the underlying trial on the promissory note; and (2) that
the appellees failed to advise him to reinstate the corporate charter of Northwest Amusement
Company, Inc. (“Northwest”) in light of a new act relating to revocation of a corporate
charter for failure to pay state franchise taxes. Neither point has merit, and we affirm.
This appeal arises out of a legal malpractice claim filed by Jerry Evans against Hamby,
who was then employed as an attorney by the Walters Law Firm. Jerry Evans and his brother,
Raymond Joe Evans (Joe), were the officers, directors, and sole shareholders of Northwest,
an Arkansas corporation. On December 31, 1998, Northwest’s corporate charter was revoked
for failure to pay franchise taxes. Later, on February 25, 1999, Northwest signed a promissory
Cite as 2011 Ark. 69
note made payable to Luther Evans in the amount of $74,000.00, which consolidated several
previous notes owed by Northwest to him.1 The consolidated note had an interest rate of 10%
per annum. According to Joe Evans and Doug Simmons, who was an accountant for
Northwest, the $74,000 loan was not carried as a loan on the corporate books but was,
instead, carried as a contribution to capital. In addition, there was no corporate authorization
from Northwest approving the loan.
Northwest eventually went out of business. After that occurred, Jerry Evans began
making payments on the consolidated note with personal checks. At some point, he stopped
making payments altogether. Luther Evans then filed suit against Northwest, Joe Evans, and
Jerry Evans for collection on the promissory note, and Jerry Evans hired Hamby and his firm
to represent him in that action. During the trial, Hamby failed to assert the defense of usury
on Jerry Evans’s behalf and failed to advise him to reinstate the corporate charter of Northwest
pursuant to Arkansas Code Annotated section 26-54-112, in order to limit his personal
liability for corporate debts.
After a bench trial, Jerry Evans was held liable on the note and for costs and attorney’s
fees in the amount of $108,117.44. This judgment was affirmed by the court of appeals. See
Evans v. Evans, No. CA06-517, 2007 WL 678556 (Ark. Ct. App. Mar. 7, 2007). In addition,
Jerry Evans was awarded a cross-judgment against his brother Joe in the amount of
1
Luther Evans was the uncle of Joe Evans and Jerry Evans and had made several loans
to Northwest in the past.
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Cite as 2011 Ark. 69
$58,088.72, exclusive of additional interest and fees awarded, because Joe was also held
personally liable on the debt to Luther Evans.2 Joe Evans is not a party to this appeal.
Evans next sued Hamby and his firm for legal malpractice for not raising the usury and
corporate-charter issues at trial. Cross motions for summary judgment were filed by both
sides. In the interim, a motion to intervene was granted for the “limited purpose of asserting
the claim of the Luther Evans Estate on any recovery obtained by [Jerry Evans].” 3 Appellees’
motion for summary judgment was granted by the circuit court, which disposed of Jerry
Evans’s claims against both Hamby and the Walters Law Firm.4
As a general rule, when reviewing a grant of summary judgment, the appellate court
determines if summary judgment was appropriate based on whether the evidence presented
supporting the summary judgment leaves a material question of fact unanswered.
DaimlerChrysler Services N. Am., LLC v. Weiss, 360 Ark. 188, 200 S.W.3d 405 (2004). The
appellate court views the evidence in the light most favorable to the party against whom the
2
A default judgment was entered against both Northwest and Joe Evans prior to the
November 7, 2005 trial. Northwest is not a party to this appeal.
3
Luther Evans died during the course of this litigation, and Larry Evans, the executor
of his estate, filed the motion to intervene.
4
The final order did not specifically reference the intervenor’s claim, but this court
retains jurisdiction over the case because the intervention was clearly contingent on Jerry
Evans’s recovering before the circuit court, which he did not. Accordingly, there is no issue
of finality.
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motion was filed, resolving all doubts and inferences against the moving party. Id. at 193, 20
S.W.3d at 407.
In the instant case, the grant of summary judgment was based, in part, upon the circuit
court’s interpretation of Arkansas Code Annotated section 26-54-112, which concerns
reinstatement of a corporate charter. The question of the correct application and interpretation
of an Arkansas statute is a question of law, which this court decides de novo. See id.
We first address Hamby’s failure to plead the defense of usury. An attorney is negligent
if he or she fails to exercise reasonable diligence and skill on behalf of a client. Nash v.
Hendricks, 369 Ark. 60, 250 S.W.3d 541 (2007). To prevail on a claim of attorney malpractice,
a plaintiff must prove that the attorney’s conduct fell below the generally accepted standard
of practice and that such conduct proximately caused the plaintiff damages. Id. To prove
damages and proximate cause, the plaintiff must show that, but for the alleged negligence of
the attorney, the result in the underlying action would have been different. Id. In this respect,
a plaintiff must prove a case within a case, as the plaintiff must prove the merits of the
underlying case as part of the proof of the malpractice case. Id. An attorney is not liable to a
client when, acting in good faith, that attorney makes mere errors of judgment. Id. Moreover,
an attorney is not, as a matter of law, liable for a mistaken opinion on a point of law that has
not been settled by the highest court of jurisdiction and on which reasonable attorneys may
differ. Id.
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It is undisputed that the interest rate on the promissory note at issue in the underlying
case involving Luther Evans and Jerry Evans was 10% per annum. Furthermore, appellees
conceded that the maximum interest rate allowable under Arkansas law on February 25, 1999,
was 9.5%. Hamby claims, however, that this court will not presume usury if an opposite
conclusion can fairly and reasonably be reached. Davidson v. Commerical Credit Equipment, 255
Ark. 127, 499 S.W.2d 68 (1973). He argues, in addition, that the promissory note had specific
language that precluded the note from being usurious. He points specifically to the following
provision in the note:
Maker/s are aware that the constitution of the State of Arkansas establishes the
maximum rate of interest which may be charged from time to time and are satisfied
that the interest rate/s herein are not usurious. In the event it is later determined that
the rate/s are, in fact, usurious, maker/s and sureties acknowledge that it is the result
of mutual mistake of all parties and maker/s agree to pay interest hereon at the
maximum rate determined to be legal at the date of making hereof.
Hamby further maintains that Jerry Evans would be estopped from claiming usury as
a defense because he and his brother, Joe Evans, actually decided the interest rate on the note,
and not Luther Evans, who was the payee. Jerry Evans counters that the contract-clause
argument fails under current Arkansas law because the proper test for usury is not whether the
lender intended to violate the usury law, but whether the lender knowingly entered into a
usurious contract intending to profit by the methods used. Smith v. Eisen, 97 Ark. App. 130,
144, 245 S.W.3d 160, 172 (2006).
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Arkansas’s usury law is prescribed in our Constitution: “The maximum lawful rate of
interest on any contract ... shall not exceed five percent (5%) per annum above the Federal
Reserve Discount Rate at the time of the contract.” Ark. Const. art. 19, § 13(a)(i) (Repl.
2004).5 Usurious contracts are void as to the amount of unpaid interest in excess of the
maximum lawful rate, and a borrower may recover twice the amount of usurious interest
already paid on the loan. Ark. Const. Art. 19, § 13(a)(ii). For a contract to be usurious, it must
be so at the time it is entered into. Hickman v. Courtney, 361 Ark. 5, 10, 203 S.W.3d 632, 636
(2005) (citing Smith v. MRCC Partnership, 302 Ark. 547, 792 S.W.2d 301 (1990)). As already
noted in this opinion, the Federal Discount Rate at the time this contract was entered into
was 4.5%, so the maximum lawful rate of interest for the promissory note was 9.5%.
Because the “penalty for a usurious transaction is indeed heavy,” the plaintiff has the
burden of proving by clear and convincing evidence that the lender possessed the intent to
commit usury. Hickman, 361 Ark. at 10, 203 S.W.3d at 636 (citing Haley v. Greenhaw, 235
Ark. 481, 360 S.W.2d 753 (1962)). When the intent to commit usury is not apparent on the
face of the challenged document, the question of whether a lender possessed the requisite
5
In Pakay v. Davis, 367 Ark. 421, 241 S.W.3d 257 (2006), we recognized that the
Federal Reserve Board abolished the Federal Reserve Discount Rate and substituted a
different, but similar, measurement in its place. Id. at 426-27, 241 S.W.3d at 261 (“Thus,
while the Federal Reserve Discount Rate has been abolished by the Federal Reserve Board,
the Board adopted a gauge that can apply in its place.”). The Federal Reserve Discount Rate
was abolished effective January 9, 2003. See 12 CFR § 201.4 (2003). Thus, the Federal
Reserve Discount Rate was in effect at the time the promissory note at issue in this case was
signed and must be used to determine whether the interest rate is usurious.
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intent is for the finder of fact to decide. Hickman, 361 Ark. at 9, 203 S.W.3d at 635. Usury
will not be presumed, imputed, or inferred where an opposite result can be fairly and
reasonably reached. Hickman, 361 Ark. at 9, 203 S.W.3d at 635 (citing McElroy v. Grisham,
306 Ark. 4, 810 S.W.2d 933 (1991)). The intent that is required, however, is not an intent
to violate the law, but merely the intent to charge a rate of interest that proves to be usurious.
Hickman, 361 Ark. at 9, 203 S.W.3d at 635 (citing Carter v. Four Seasons Funding Corp., 351
Ark. 637, 97 S.W.3d 387 (2003)). In ascertaining intent, the fact-finder must look beyond the
four corners of the challenged agreement “to determine, considering all of the attendant facts
and circumstances, if the contract is usurious in effect.” Id. Summary judgment is appropriate
in usury cases. See, e.g., Evans v. Harry Robinson Pontiac-Buick, Inc., 336 Ark. 155, 983 S.W.2d
946 (1999) (affirming summary judgment based on a contract expressly charging interest rate
of 18% per annum).
On its face, the promissory note in the instant case is usurious. The note calls for an
interest rate of 10% per annum, when the usury rate under the Arkansas Constitution at the
time the note was entered into prohibited interest over 9.5% per annum. If those were the
only facts, then the circuit court would have clearly erred in granting summary judgment
because a genuine issue of material fact existed surrounding Luther Evans’s intent to commit
usury. Hamby, however, points to estoppel as a second reason why summary judgment was
appropriate. We agree.
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This court has recognized that the doctrine of estoppel can apply to claims of usury.
Bedford v. Fox, 333 Ark. 509, 970 S.W.2d 251 (1998). In order to prove estoppel, the party
asserting the defense must prove these elements: (1) the party to be estopped knew the facts;
(2) the party to be estopped intended that the conduct be acted on; (3) the party asserting the
estoppel was ignorant of the facts; and (4) the party asserting the estoppel relied on the other’s
conduct and was injured by that reliance. Bedford, 333 Ark. at 513, 970 S.W.2d at 254.
A debtor may be estopped from asserting the defense of usury when the debtor created
the infirmity in the contract in order to take advantage of the creditor. Id. Joe Evans provided
an affidavit stating that the interest rate was selected by Jerry Evans and himself, and not by
Luther Evans. He further averred in his affidavit that there was no intention to select a
usurious interest rate. Through this affidavit, along with other supporting documents and
testimony, Hamby made a prima facie case for estoppel by presenting evidence that, (1) Jerry
Evans knew the facts surrounding the formation of the promissory note and the interest rate
contained therein, (2) Jerry Evans intended for Luther Evans to rely on the promissory note
as consolidating all of the debts owed to him, (3) Luther Evans did not select the interest rate
and had no knowledge that the rate was usurious, and (4) Luther Evans relied on Jerry Evans
and Joe Evans to pick the interest rate for the promissory note and would clearly be harmed
if the note was deemed usurious because usurious contracts are void as to the amount of
unpaid interest in excess of the maximum lawful rate, and a borrower may recover twice the
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amount of usurious interest already paid on the loan. Ark. Const. art. 19, § 13(a)(ii); Hickman
v. Courtney, 361 Ark. 5, 10, 203 S.W.3d 632, 635 (2005).
We further note that in response to Hamby’s motion for summary judgment, Jerry
Evans offered no proof that he and his brother did not select the interest rate or that the
elements of estoppel were not met. It is well established that once the moving party has
established a prima facie case showing entitlement to summary judgment, the opposing party,
in this case Jerry Evans, must meet proof with proof and demonstrate the existence of a
material issue of fact. Mitchell v. Lincoln, 366 Ark. 592, 597, 237 S.W.3d 455, 458 (2006). Jerry
Evans failed to meet proof with proof because he simply failed to counter the affidavit of Joe
Evans and the other evidence before the court. Because of this failure, there is no material
issue of fact remaining, and summary judgment was appropriate.
For his second point, Jerry Evans argues that summary judgment was inappropriate in
this case because there was a material issue of fact remaining as to whether he could have
reinstated Northwest’s corporate charter so as to limit his personal liability. He asserts that
Hamby never advised him to reinstate the corporate charter and that failure to do so resulted
in his being held personally liable on Northwest’s debts. In this regard, he relies on Arkansas
Code Annotated section 26-54-112, which provides:
(a)(1)(A)(i) Any corporation whose charter or permit authority to do business in the
state has been declared forfeited by proclamation of the Governor or the Secretary of
State may be reinstated to all its rights, powers, and property.
(ii) Reinstatement shall be retroactive to the time that the corporation's
authority to do business in the state was declared forfeited.
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Ark. Code Ann. § 26-54-112 (Repl. 2008).
Hamby answers this point by emphasizing that the retroactive-reinstatement language
was added to the statute by Act 522 of 1999, which became effective on July 30, 1999. The
promissory note in this case was executed on February 25, 1999, which was several months
before the language from Act 522 was added. Thus, Hamby asserts that the new act could not
be applied retroactively to the promissory note in the instant case, and, therefore, his failure
to advise Jerry Evans to reinstate the corporate charter was not the proximate cause of Jerry
Evans’s loss.
We initially underscore the point that this court does not have to decide the issue of
whether section 26-54-112(a)(1)(A)(ii) may be applied retroactively to affect corporations
whose charters were revoked prior to July 30, 1999. This is a legal malpractice case. An
attorney is not, as a matter of law, liable for a mistaken opinion on a point of law that has not
been settled by a court of the highest jurisdiction and on which reasonable attorneys may have
different opinions. Nash, 369 Ark. at 68, 250 S.W.3d at 547. This court has never settled the
issue of the retroactive application of Act 522 before its effective date. For that reason alone,
it is clear to this court that Jerry Evans cannot prove that Hamby’s conduct fell below the
generally accepted standard of practice and proximately caused his damages. While Hamby
could have advised Jerry Evans that the option to reinstate the charter may be available to
him, this fact alone is too tenuous to support proximate cause for legal malpractice.
Further, this court has said the following regarding retroactivity:
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Retroactivity is a matter of legislative intent. Unless it expressly states
otherwise, we presume the legislature intends for its laws to apply only prospectively.
Any interpretation of an act must be aimed at determining whether retroactive effect
is stated or implied so clearly and unequivocally as to eliminate any doubt. In
determining legislative intent, we have observed a strict rule of construction against
retroactive operation and indulge in the presumption that the legislature intended
statutes, or amendments thereof, enacted by it, to operate prospectively only and not
retroactively.
However, this rule does not ordinarily apply to procedural or remedial
legislation. The strict rule of construction does not apply to remedial statutes which
do not disturb vested rights, or create new obligations, but only supply a new or more
appropriate remedy to enforce an existing right or obligation. Procedural legislation
is more often given retroactive application. The cardinal principle for construing
remedial legislation is for the courts to give appropriate regard to the spirit which
promoted its enactment, the mischief sought to be abolished, and the remedy
proposed.
Bean v. Office of Child Support Enforcement, 340 Ark. 286, 296-97, 9 S.W.3d 520, 526 (2000)
(internal citations omitted). In short, there is a presumption against retroactivity unless
otherwise clearly expressed by the legislature. We observe, in addition, that the standard of
care for an attorney in Arkansas is to exercise reasonable diligence and skill on behalf of the
client. Nash, 369 Ark. at 68, 250 S.W.3d at 547. Reasonable diligence and skill do not require
an interpretation of a statute contrary to the general rules of retroactivity announced by this
court. Moreover, the mere possibility of a decision by this court endorsing retroactive
application earlier than the effective date of Act 522 cannot be the basis for determining that
an attorney failed to meet the standard of care, when neither the legislature nor this court has
clearly expressed that the statute at issue applies in such a retroactive fashion.
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Both parties argue about the application of this court’s decision in Omni Holding and
Development Corp. v. CAG, 370 Ark. 220, 258 S.W.3d 374 (2007), to the instant case. In
Omni, this court held that under the plain language of Arkansas Code Annotated section 2654-112, reinstatement of the corporate charter was deemed to be retroactive to the date of
its revocation. Id. at 227, 258 S.W.3d at 380. In addition, this court said, “[p]ursuant to
section 26-54-112, the restoration of C.A.G.’s corporate status vested it with continuous
existence as though the revocation of its charter had never occurred.” Id. Finally, we said,
“[t]he amended version of section 26-54-112 . . . became effective as of July 30, 1999.” Id.
This statement refers to Act 522 of 1999, the Act which, as already noted, amended the
statute to include the retroactive reinstatement of the corporate charter.
Omni is easily distinguishable from the facts of the case at hand because all of the
pertinent events in Omni occurred after the effective date of Act 522. The corporate charter
at issue in Omni was revoked in 2000 and the payment of taxes to reinstate the corporate
charter occurred in 2004. In the instant case, the corporate charter was revoked several
months before the effective date of Act 522. For this reason, Omni’s discussion of section 2654-112 does not control the case at hand.
We hold that summary judgment is appropriate in the instant case because no genuine
issue of material fact remains to be resolved.
Affirmed.
D ANIELSON and B AKER, JJ., not participating.
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