666 S.W.3d 87
Ark. Ct. App.2023Background
- In 2014 Luther Alkhaseh borrowed funds secured by property in Benton County (Dawn Hill); John and Holly Wood (through Tara Capital, LLC) agreed to pay David Wood’s debt in exchange for transfer of Dawn Hill and an agreement to share profits. Luther originally executed a promissory note to David and a mortgage (unrecorded in Benton County); the Woods executed related promissory obligations.
- David Wood sued for alleged default; Luther filed a cross-complaint against the Woods/Tara for breach of contract, fraud, constructive trust, accounting, and veil-piercing; Benton County tax officials were joined as third-party defendants. Tara’s out-of-state counsel’s answer was struck and a default entered against Tara in 2018.
- Luther assigned his litigation interest to Ladimer Alkhaseh; the circuit court allowed substitution. The Woods’ answers were later struck as a discovery sanction and default judgments were entered against John and Holly Wood jointly and severally.
- Dawn Hill POA intervened claiming unpaid condominium/townhouse assessments against Lot 148; at a bench trial the court awarded Ladimer $747,424.35 (damages and fees) and entered an in rem foreclosure in favor of the POA for assessments.
- On appeal the Woods/Tara challenged: (1) the substitution of Ladimer (Rule 25) and notice requirements; (2) validity of striking answers/default judgments and sufficiency of complaint allegations; (3) sufficiency of evidence supporting damages and attorney’s fees; (4) denial of Rule 54(b) certification; and (5) sufficiency of evidence for the POA’s foreclosure.
Issues
| Issue | Plaintiff's Argument (Ladimer) | Defendant's Argument (Woods/Tara) | Held |
|---|---|---|---|
| Substitution under Rule 25 (assignment to Ladimer) | Assignment authorized substitution under Ark. R. Civ. P. 25(c) and the court properly allowed substitution. | Luther/Ladimer failed to serve the Rule 25(a)/(c) notice; substitution was jurisdictionally defective. | Dismissed for lack of appellate jurisdiction — substitution order was not included in appellants’ notice of appeal, so court did not reach merits. |
| Sanctions: striking answers and default judgments | Sanctions/default appropriate because Woods failed to comply with discovery; Tara’s answer was properly stricken for unauthorized out-of-state counsel. | Complaint allegations insufficient to state breach/fraud; default should be set aside (no Rule 55(c) motion made). | Affirmed: Woods’ challenges to complaint sufficiency not preserved (no motion to set aside under Rule 55(c)); default stands. |
| Sufficiency of evidence for damages and attorneys’ fees | Trial evidence supported calculation of lost profits, unpaid note balance, and fee award. | Evidence was insufficient and calculations erroneous; Woods not liable to stated extent. | Dismissed for lack of jurisdiction: the damages judgment was not final (no Rule 54(b) certification and other claims/parties remained), so appellate review of evidentiary sufficiency is premature. |
| Denial of Rule 54(b) certification | Court should certify the damages judgment for immediate appeal because delay causes prejudice and accrual of interest. | Denial proper; decision not appealable immediately. | Not reviewed: denial of Rule 54(b) certification is not itself appealable. |
| Foreclosure by Dawn Hill POA for assessments | POA proved covenants and a lien on units; Lot 148 was subject to assessments and foreclosure was authorized. | Tara argued Lot 148 was only a ‘‘lot’’ and not a unit subject to unit-assessments, so POA lacked enforcement basis. | Affirmed: bench findings were not clearly erroneous; evidence supported that Lot 148 housed a townhouse/unit covered by the bill of assurances and POA lien; foreclosure stands. |
Key Cases Cited
- Arnold & Arnold v. Williams, 315 Ark. 632 (1994) (appeal from an order striking an answer permits review of issues dependent on the stricken pleading)
- Nucor Corp. v. Kilman, 358 Ark. 107 (2004) (a default judgment cannot rest on a complaint that fails to state a cause of action)
- Jean-Pierre v. Plantation Homes of Crittenden Cnty., Inc., 350 Ark. 569 (2002) (default judgment establishes liability but not necessarily findings on the merits)
- Harold M. v. Clark, 316 Ark. 439 (1994) (court must make factual findings to transform default into judgment on the merits)
- Dodge v. Lee, 350 Ark. 480 (2002) (appealability of interlocutory orders and limits where final judgment lacking)
- Yarborough v. Powell, 459 S.W.3d 329 (Ark. Ct. App. 2015) (dismissal of appeal for lack of finality where related claims remained pending after bankruptcy-related stay issues)
- In re Hamilton Living Trust, 471 S.W.3d 203 (Ark. 2015) (ordering an accounting can be a final, appealable determination where it resolves a separable claim)
- Omni Farms, Inc. v. Ark. Power & Light Co., 271 Ark. 61 (1980) (recognized narrow exception permitting immediate appeal when inability to restore party’s position would cause irreparable prejudice)
- Alberty v. Wideman, 312 Ark. 434 (1993) (an executed foreclosure decree is appealable without a Rule 54(b) certificate)