HOLLY WOOD, JOHN WOOD, AND TARA CAPITAL, LLC v. LADIMER ALKHASEH; GLORIA PETERSON, BENTON COUNTY COLLECTOR; TOMMY LAND, COMMISSIONER OF STATE LANDS; AND DAWN HILL TOWNHOUSE AND CONDOMINIUM PROPERTY OWNERS ASSOCIATION, INC.
No. CV-20-322
ARKANSAS COURT OF APPEALS DIVISIONS III & IV
Opinion Delivered March 29, 2023
2023 Ark. App. 179
MIKE MURPHY, Judge
APPEAL FROM THE BENTON COUNTY CIRCUIT COURT [NO. 04CV-16-77], HONORABLE DOUG SCHRANTZ, JUDGE, AFFIRMED IN PART; DISMISSED IN PART
This is a contract case in which the circuit court entered default judgments against the appellants, John Wood, Holly Wood (John‘s wife), and Tara Capital, LLC, on cross-claims filed by Luther Alkhaseh, appellee Ladimer Alkhaseh‘s father and predecessor in interest. After a hearing on damages, the circuit court awarded Ladimer a judgment in the amount of $747,424.35. The circuit court also awarded a judgment of foreclosure in favor of appellee Dawn Hill Townhouse and Condominium Property Owners Association, Inc. (“Dawn Hill POA“), which had intervened in the lawsuit to collect unpaid assessment fees from Tara Capital on a condominium unit that it acquired in the contract with Luther.
The appellants now appeal the orders striking the Woods’ answer to Ladimer‘s cross-claims, the judgment awarding damages to Ladimer, and the judgment of foreclosure. They claim that the circuit court erred when it granted Luther‘s motion to substitute Ladimer as the plaintiff on the cross-complaint. Additionally, the Woods appear to assert that the default judgment against them should be set aside because the allegations in the cross-complaint do not support Ladimer‘s claims of breach of contract and fraud. The appellants also challenge the sufficiency of the evidence supporting the judgment awarding money damages to Ladimer—which they concede is not a final judgment—and Tara Capital urges reversal of the judgment of foreclosure in favor of Dawn Hill POA. We affirm in part and dismiss in part.
I. Factual Background
John and Holly (collectively “the Woods“) became acquainted with Luther while they were neighbors in California. In January 2014, Luther asked the Woods to lend him $150,000 so that he could settle a tax lien on a property in Arizona. Because the Woods were unable to lend Luther the full amount that he requested, they introduced Luther to John‘s brother, David. According to John, the following transaction ensued:
[Luther] drew up a promissory note for $180,000 [payable to David Wood]. The money was to be used—he was going to use that money, the $150,000 principal, to pay a tax lien on property . . . that was going to sale in Arizona. Shortly [after the promissory note was drafted] my brother was not able to come up with the $150,000 principal. He notified me that he was not going to be able to
. . . follow through . . . on [the] promissory note.
. . . .
So, I put [in] a cashier‘s check made out to Mr. Alkhaseh for $50,000, and . . . David . . . wrote . . . a cashier‘s check for $100,000.1
In addition to the promissory note, Luther executed a mortgage that pledged his property in Benton County, Arkansas—Dawn Hill Country Club—as collateral for the debt. As further incentive for the transaction, John and Holly executed a note promising to pay David the principal amount of $100,000. The balance of that note would be reduced by Luther‘s payments made on his note to David.
A few months later, on May 20, 2014, the Woods and Luther entered into another written agreement that was intended to help Luther settle unpaid property taxes on Dawn Hill Country Club in Benton County, Arkansas. Through their limited liability company, Tara Capital, the Woods agreed to pay the $180,000 debt that Luther owed to David. In exchange, Luther transferred his ownership interest in Dawn Hill Country Club and associated condominiums the Woods.2 The Woods and Luther also agreed to share any profits earned by the country club, the condominium rentals, and any future sale of the property. Luther subsequently executed a quitclaim deed that transferred the property to Tara Capital.
On January 14, 2016, David filed a lawsuit against Luther and the Woods alleging that they had each defaulted on their respective promissory notes. On September 27, 2017, Luther followed with a cross-complaint against John and Holly (d/b/a Tara Capital) as well as a third-party complaint against Tara Capital, the Benton County collector, and the commissioner of state lands. The cross-complaint alleged that the appellants were liable for breach of contract and fraud as the result of their alleged failure to pay the debt, to pay the taxes on the property, and to fulfill their promise to share the profits. The complaint sought a constructive trust and an equitable accounting of the income and expenses of the country club, and it further claimed that the alleged fraud warranted piercing the corporate veil to disregard Tara Capital as a separate legal entity. The Benton County collector and commissioner of state lands were added as third-party defendants so that their respective interests in the unpaid taxes “may be properly reflected in [the] proceedings.”
John and Holly filed a joint pro se answer denying the allegations in the cross-complaint on October 26, 2017. Through out-of-state counsel, Tara Capital filed an answer—also denying the facts alleged in the cross-complaint—on February 1, 2018.
On February 28, 2018, the circuit court entered an order striking Tara Capital‘s answer to the cross- and third-party complaints. The court found that Steven Rein, who appeared as counsel therein, was licensed out of state and had failed to take steps to be qualified to practice law in Arkansas. The circuit court also found Tara Capital “wholly in default” as a consequence of the stricken answer and, therefore, granted Luther‘s motion for a default judgment in the same order. Tara Capital did not file a notice of appeal from the court‘s February 28 order.
On November 16, 2018, Luther filed a motion in which he requested leave to substitute Ladimer as the cross-plaintiff and on the cross- and third-party complaints.
Shortly thereafter, on December 21, Ladimer moved for sanctions against the Woods and Tara Capital. He alleged that a severe sanction—in the form of striking the Woods’ answer to the cross-complaint—was warranted because the Woods had failed to comply with a previous court order compelling discovery.
On January 25, 2019, John Wood filed a petition for Chapter 13 bankruptcy. The circuit court removed the case from the pending docket in an order entered on January 28. By order entered August 27, 2019, the bankruptcy court lifted the automatic stay “to allow the parties to resume the litigation pending before [the circuit court] for the purpose of obtaining a determination of the amount of debt that [John Wood] owes to Alkhaseh.” In particular, the bankruptcy court determined that the Woods’ objection to Ladimer‘s claim against the bankruptcy estate should be held in abeyance pending the circuit court‘s determination of the amount of the judgment that Ladimer was due in state court. Consequently, the circuit court entered an order reopening the case on August 27.
The circuit court held a hearing on Ladimer‘s motion for discovery sanctions on October 15, 2019. His attorney requested a default judgment against the Woods because a default judgment had already been entered against Tara Capital. Ladimer‘s attorney also filed an affidavit setting forth the time spent on the motion for sanctions and sought an attorney‘s fee of $450. The circuit court‘s order granting the motion and awarding the requested fee was entered October 29.
On November 4, 2019, the court also entered an order granting Ladimer‘s motion for discovery sanctions. The court found that the Woods had failed to show that they were acting in good faith in defending against Ladimer‘s claims. The court further found that the Woods had more than ample time to comply with the order compelling discovery but had failed to do so. As a sanction, the court struck the Woods’ answer and entered a default judgment against them, jointly and severally. The court also scheduled a hearing on damages to coincide with a damages hearing on the default judgment against Tara Capital. The appellants filed a notice of appeal from the October 29 and November 4 orders on November 20, 2019.
In the meantime, Dawn Hill POA joined the lawsuit by filing a complaint in intervention against Tara Capital, the Benton County collector, the commissioner of state lands, and David Wood on September 30, 2019. In its complaint, the POA alleged that it “is charged with the duty to fix, levy, collect, and enforce the payments of charges and assessments authorized to be collected for services provided within a certain real estate subdivision known as Dawn Hill Country Club Resort ‘Cynthiana’ Townhouses Phase II.” The complaint also alleged that Lot 148 in the subdivision was subject to a recorded bill of assurances and protective covenants that provides for an assessment “to be collected and creates a lien on [Lot 148] to enforce and secure payment of the assessments.” In addition, the complaint claimed that Tara Capital, the recorded owner of the property, “ha[d] failed to pay assessments according to the terms of the Bill of Assurances and Protective Covenants,” and as of September 1, 2019, Tara Capital owed
A bench trial was held on January 9, 2020, on the POA‘s complaint to foreclose its lien and to determine Ladimer Alkhaseh‘s damages resulting from the default judgments.4 The court found that the POA had established that it had a lien in the amount of $6,050, the POA‘s lien was superior to David Wood‘s unrecorded mortgage, and it granted foreclosure on the unit. The judgment was in rem against the property. Also, the court awarded Ladimer a judgment against the Woods in the amount of $251,324.35. The court further awarded judgment to Ladimer in the amount of $496,000 for the Woods’ failure to account for one-half the profits of the operation of Dawn Hill as well as attorney‘s fees. The court indicated that the case was not concluded because there were to be further proceedings in bankruptcy.
A judgment memorializing the circuit court‘s ruling was entered on January 23, 2020. A judgment was entered on March 4, nunc pro tunc to January 23, to correct the rate of interest on the judgment. The appellants amended their notice of appeal to include the October 29 and November 4, 2019, orders awarding attorney‘s fees and striking their answer; the January 23, 2020, judgment; and the March 4, 2020, nunc pro tunc judgment.
The appellants now raise five issues on appeal. As we view their arguments, they assert that (1) the default judgment against the Woods and the judgment awarding damages to Ladimer should be reversed because Luther and Ladimer failed to comply with the notice requirements in
We affirm the default judgment because the Woods’ challenges to the sufficiency of the allegations in the complaint are not preserved for our review. We also affirm the foreclosure decree because the circuit court did not clearly err when it determined that the POA was entitled to foreclose on its lien. We dismiss the appellants’ remaining arguments, which challenge
II. Discussion
A. Default Judgment
The Woods first assert that the default judgment entered against them should be set aside because the allegations in the complaint were insufficient to establish their liability for breach of contract or fraud.6 According to the Woods, the allegations in the cross-complaint failed to establish any breach of their promise to share the profits. They argue that their May 2014 agreement with Luther provided that they would share the profits “at a later time, not yet specified,” and there was no factual allegation or evidence regarding any further agreement about the time or amount that they would pay a share of the profits to Luther. Because there was insufficient evidence of agreement on those terms, the Woods say, “there was insufficient evidence of breach.”
The Woods also suggest that the circuit court erroneously entered the default judgment because the factual allegations in the complaint failed to establish that they breached their promise to “take on the indebtedness and ownership of the [note with David].” They claim that David‘s lawsuit against them, in which he claims they defaulted on the $100,000 loan, is evidence that they fulfilled their promise to take on that debt.
Finally, the Woods argue that the circuit court erred to the extent it granted a default judgment on the basis of fraud. They say that the factual allegations in the cross-complaint fail to establish their alleged misrepresentation that they would “take on the indebtedness and ownership of the note with David” or, even so, that Luther or Ladimer justifiably relied on that statement. We have jurisdiction to hear these arguments under
Having said that, we must decline to reach the merits of the Woods’ challenges to the sufficiency of the allegations in the complaint for another reason: because they failed to raise them in a motion to set aside the default judgment under
B. The Judgment Awarding Damages and Attorney‘s Fees to Ladimer
The Woods and Tara Capital next argue that the circuit court did not have sufficient evidence to support the damages and attorneys’ fees that it awarded. Regarding lost profits, they contend that the evidence did not support the circuit court‘s finding that John earned a net income of $14,600 a month or the circuit court‘s alleged assumption that the Dawn Hill property was profitable when the appellants took it over. They also contend that the circuit court‘s calculation of damages was erroneous in other respects, including the circuit court‘s failure to consider factors reducing the rental income they earned from the condominiums as well as their expenses. Regarding the damages awarded on the Woods’ breach of their agreement to pay David Wood‘s note, the Woods claim that the circuit court erred by relying on a calculation of outstanding principal and interest that was not supported by the evidence. Finally, the appellants argue that all of these errors, which they say demonstrate that Ladimer was not a prevailing party under
We must dismiss these claims because the judgment awarding damages to Ladimer is not a final order. The question of whether an order is final and appealable is jurisdictional, and this court is obligated to consider the issue on its own even if the parties do not raise it. Price v. Carver, 2017 Ark. App. 75, at 2, 513 S.W.3d 877, 879. The requirement that an order must be final and appealable is observed to avoid piecemeal litigation. Id. An order is final if it dismisses the parties, discharges them from the action, or concludes their rights to the subject matter in controversy. Id. at 3, 513 S.W.3d at 879. An order is not final, therefore, when it adjudicates fewer than all the claims or rights and liabilities of fewer than all the parties. Id.
Entry of a final judgment on fewer than all claims is allowed, however, under the following circumstances:
(1) Certification of Final Judgment. When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third party claim, or when multiple parties are involved, the court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination, supported by specific factual findings,
that there is no just reason for delay and upon an express direction for the entry of judgment. . . . (2) Lack of Certification. Absent the executed certificate required by paragraph (1) of this subdivision, any judgment, order, or other form of decision, however designated, which adjudicates fewer than all the claims or the rights shall not terminate the action as to any of the claims or parties, and the judgment, order, or other form of decision is subject to revision at any time before the entry of the judgment adjudicating all the claims and the rights and liabilities of the parties.
We are not persuaded by the appellants’ argument that we have jurisdiction because their appeal from the order striking their answer is appealable under
Rather, the supreme court has stated that “[a]s a general rule, an appeal from an interlocutory decision brings up for review only the decision from which the appeal was taken.” Villines v. Harris, 340 Ark. 319, 323, 11 S.W.3d 516, 518–19 (2000). That means “the issues raised in the appeal must be reasonably related to the order appealed from,” and an interlocutory appeal “may not be used as a ‘vehicle to bring up for review matters which are still pending before the trial court.‘” Id. (quoting Coleman‘s Serv. Ctr., Inc. v. S. Inns Mgmt., Inc., 44 Ark. App. 45, 49, 866 S.W.2d 427, 429 (1993)). A default judgment is unquestionably linked
We also cannot agree with our dissenting colleagues’ view that the bankruptcy court‘s order lifting the automatic stay in John Wood‘s Chapter 13 bankruptcy proceedings makes the judgment awarding damages final and appealable as it relates to him. While our supreme court has held that a bankruptcy court‘s order allowing the continuation of state court proceedings restores full jurisdiction to proceed to a final determination on appeal, see Union Nat‘l Bank of Ark. v. Nichols, 305 Ark. 274, 277, 807 S.W.2d 36, 37–38 (1991), the court made it plain that it did so because the Arkansas Constitution provided for “a right to appeal from all final orders of the circuit court.” Id. (citing
We are also influenced by our more recent decision in Yarborough v. Powell, 2015 Ark. App. 218, 459 S.W.3d 329, in which we dismissed an appeal on very similar facts. In Yarborough, appellant Terry Yarborough had been appointed as one of the trustees of his late mother‘s trust. His sister, appellee Jane Powell, sued Yarborough for an accounting of the trust‘s assets, distributions, and expenses. Powell also filed amended complaints that additionally sought an order setting aside Yarborough‘s release of a mortgage that secured a loan he received from the family business (a cosmetology school); an accounting of the family business; Yarborough‘s removal as an officer; the appointment of a receiver; and damages. The circuit court entered a judgment for Powell, but only on her claims concerning the cosmetology school. The court also reserved consideration of Powell‘s request for attorney‘s fees and costs for a later date.
Yarborough requested a new trial. He filed for bankruptcy before the circuit court could hear the motion, but the bankruptcy court partially lifted the automatic stay that accompanied the filing of his petition to allow the circuit court to consider (1) Powell‘s entitlement to attorney‘s fees and costs; and (2) Yarborough‘s request to set aside the judgment. The circuit court ultimately denied Yarborough‘s motion to set aside as well as several other postjudgment motions that he later filed. The circuit court also denied Powell‘s request for attorney‘s fees. Yarborough appealed the orders denying his postjudgment motions, and Powell cross-appealed the circuit court‘s rulings.
We dismissed both the appeal and the cross-appeal for lack of a final order because the record did not reflect that Powell‘s claims involving her mother‘s trust, which originated the lawsuit, had been adjudicated. Id. at 4–5, 459 S.W.3d at 331–32. There was also no indication that an accounting of the family business or a settling of the family business by a receiver had taken place as the circuit court ordered. Id. at 4, 459 S.W.3d at 332. In dismissing the appeal, we noted that Yarborough‘s bankruptcy “[did] not affect the lack of finality” because “a bankruptcy filing does not completely divest the circuit court of jurisdiction over all matters in a lawsuit.” Id. Rather, “it simply suspends the court‘s jurisdiction, subject to that jurisdiction being restored.” Id. Accordingly, “while various claims in [the] lawsuit were
C. Rule 54(b) Certification
The appellants next argue that the circuit court erred by denying their motion to certify the judgment awarding damages to Ladimer under Rule 54(b). They allege that there was no just reason for delaying their appeal of the judgment; and considering the interest that will accrue until the entire case is resolved, any further delay would cause undue hardship to them. The appellants further contend that the circuit court‘s failure to certify the judgment also contravenes the rule‘s intent to prevent piecemeal appeals. We do not agree.
We have already observed that the “denial of certification [under Rule 54(b)] is not within itself appealable[.]” Cureton v. Stout, 2020 Ark. App. 414, at 5 n..6, 609 S.W.3d 435, 438 n.6. Accordingly, we decline to review the circuit court‘s denial of a Rule 54(b) certificate.
D. Substitution of Parties
Appellants additionally argue that the circuit court erred when it granted Luther‘s motion to substitute Ladimer as the cross- and third-party plaintiff in the case. In particular, they say that
A notice of appeal must designate the judgment or order appealed from, see
Moreover, while we recognize that
E. Sufficiency of the Evidence Supporting the Foreclosure Decree
Finally, Tara Capital argues that the judgment in favor of the POA is not supported by sufficient evidence that it was obligated to pay the assessments. As we say above, Tara Capital asserts that the evidence introduced at the hearing established that it owned only a condominium “lot” and not condominium “unit” that was subject to the fee assessment. We affirm.10
In civil bench trials, the standard of review on appeal is whether the circuit court‘s findings were clearly erroneous or clearly against the preponderance of the evidence. Friday v. Friday, 2019 Ark. App. 129, at 3–4, 572 S.W.3d 884, 886. A finding is clearly erroneous when, although there is evidence to support it, the reviewing court, on the entire evidence, is left with a firm conviction that a mistake has been made. Id. at 4, 572 S.W.3d at 886. Facts in dispute and the determinations of credibility, however, are solely within the province of the fact-finder. Id.
There was no dispute at the hearing that a bill of assurances allowed the POA to charge reasonable maintenance fees, and that covenant (as well as others) ran with the land. Particularly, the POA offered proof establishing that the POA agreed to a bill of assurances that applied to “Dawn Hill Country Club Resort ‘Cynthiana’ Townhouses Phase II.” The pertinent paragraph in the Bill of Assurances provided that
[t]he Dawn Hill Townhouse and Condominium Property Association, Incorporated, Board of Directors shall have the right and ability to charge reasonable maintenance fees to be assessed against each unit on a monthly basis. Said maintenance fee shall be used for trash services, septic system maintenance, lawn care, outdoor lighting of common areas, and for other expenses as determined by the exclusive decision of the
Dawn Hill Townhouse and Condominium Property Owners Association, Incorporated, Board of Directors. Any past due or unpaid maintenance fees shall be a lien against the unit owned by the person or entity whose fees are delinquent and shall be enforceable by foreclosure of said lien.
Johnathan Barnett, the president of the POA, also testified that the association
shall run with the land and shall be binding on all parties and all persons claiming under them for a period of 20 years from the date of these covenants are recorded unless changed or amended by a majority of the unit owners, after which time said covenants shall be automatically extended for successive periods of five years unless an instrument signed by a majority of then owners of the lots has been recorded agreeing to change the covenants in whole or in part.
In addition, Mr. Barnett testified that the legal description of the property subject to the bill of assurances matched the legal description of the property in the recorded plat of the Cynthiana Subdivision Townhouses Phase II. The POA also offered a quitclaim deed demonstrating that Tara Capital was the current owner of “Lot 148 of Cynthiana Townhouses Subdivision Phase 2.”
Nevertheless, as stated above, Tara Capital asserts that the proof at the hearing was insufficient to establish that it was obligated to pay the maintenance fees charged to each unit owner, as provided in the bill of assurances. There was no evidence, it says, that “a unit was on Lot 148.”
We disagree. In the following colloquy, John Wood testified, in pertinent part, that a townhouse was on Lot 148:
Q. Can you tell me a little bit about that lot so the court can be familiar?
A. It‘s - as described in the legal description-it‘s a townhouse that‘s in Cynthiana Phase II or whatever.
(Emphasis added.) Black‘s Law Dictionary, moreover, defines a townhouse as “a dwelling unit having usually two or three stories and often connected to a similar structure by a common wall and (particularly in a planned-unit development) sharing and owning in common the surrounding grounds. Townhouse, Black‘s Law Dictionary (9th ed. 2009) (emphasis added). With John Wood‘s testimony in mind as well as other evidence demonstrating that the development was for condominium townhouses, we cannot say that the circuit court‘s judgment of foreclosure was clearly against the preponderance of the evidence. We therefore affirm the judgment of foreclosure.
IV. Conclusion
We decline to reach the Woods’ challenges to the default judgment entered against them because those issues are not preserved for appellate review. The judgment awarding damages to Ladimer is not a final and appealable order; therefore, we dismiss the appellants’ arguments challenging the sufficiency of the evidence supporting that judgment as well as the associated award of attorney‘s fees. We also hold that the appellants’ failure to include the order substituting Ladimer in their notice of appeal deprives us of jurisdiction to reach that issue. Finally, we hold that sufficient evidence supports the decree of foreclosure in favor of the POA.
Affirmed in part; dismissed in part.
KLAPPENBACH, GRUBER, and WOOD, JJ., agree.
BARRETT and HIXSON, JJ., dissent.
STEPHANIE POTTER BARRETT, Judge, dissenting. The majority dismissed appellant John Wood‘s challenges to the sufficiency of the evidence supporting the damages awarded against him to appellee Ladimer Alkhaseh on the basis of its conclusion that the judgment awarding these damages was
There are multiple parties to this litigation with complaints, cross-claims, counterclaims and third-party claims. On January 25, 2019, appellant John Wood filed for Chapter 13 bankruptcy protection, and on the same day, the bankruptcy court entered an automatic stay of “certain collection and other actions against the debtor and the debtor‘s property.” (Emphasis added.) The case at bar is clearly a collection action against John Wood and John Wood‘s property and was, therefore, subject to the stay.1 Accordingly, three days later, on January 28, 2019, the circuit court entered an order removing the case from the pending docket and ordered that “this matter is closed until the bankruptcy matter of [John Wood] is resolved and a Motion to Reopen is filed by any party.” (Emphasis added.)
John Wood‘s petition for bankruptcy proceeded through the bankruptcy court, and the bankruptcy judge was faced with the responsibility of creating and enforcing a Chapter 13 repayment plan. Two of John‘s largest liabilities were the contingent unliquidated claims set forth in the present circuit court litigation. The first unliquidated claim was John‘s potential liability on David Wood‘s complaint alleging that John had breached a $150,000 promissory note. The second unliquidated claim was John‘s potential liability on Alkhaseh‘s cross-claim based on John‘s alleged nonpayment on the promissory note and the allegation that John had breached a transfer agreement regarding the transfer of the ownership of Dawn Hill Country Club in exchange for certain promises. This amount of the potential liability on this cross-claim was so unascertainable and undefinable that Alkhaseh simply prayed for a judgment “in excess of federal court jurisdiction.” To fashion the repayment plan, it was imperative that these two claims were liquidated to a sum certain for use in fashioning the Chapter 13 repayment plan.
In order to do so, the bankruptcy court maintained jurisdiction over David‘s promissory-note complaint, but it transferred Alkhaseh‘s claims against John to circuit court for disposition through a partial lift of the automatic stay it had imposed on the circuit court litigation. To that end, on August 27, 2019, the United States Bankruptcy Court lifted the automatic stay in the Chapter 13 bankruptcy filed by John by consent of John and Alkhaseh “to allow the parties to resume the litigation pending before the Honorable Doug Schrantz in the Circuit Court of Benton County, Arkansas for the purpose of obtaining a determination of the amount of the debt that the debtor owes Alkhaseh.” (Emphasis added.)
Due to the fact that “certain collection and other actions against the debtor and the debtor‘s property” were stayed and due to the restrictive language of the bankruptcy order lifting the stay, I believe that the jurisdiction of the circuit court was conclusively and categorically limited to the issue of determining the amount of debt that John owes to Alkhaseh and that
The majority opinion answers several ancillary questions arising from the bankruptcy estate except the one question specifically authorized by the bankruptcy court: “What is the amount of the debt that John Wood owes Alkhaseh.” To that narrow essential question, the majority failed to answer, depriving the bankruptcy court of the one decision it needed and for which it asked.
In fairness to the majority, we acknowledge that there may be additional litigation in the future in circuit court. The bankruptcy court stayed the prosecution of David‘s complaint for breach of the $150,000 promissory note and did not lift that cause of action from the stay. The bankruptcy court may subsequently entertain that complaint, it may lift the stay in the future and transfer it to circuit court, or it may release it from the bankruptcy estate altogether. However, none of those options are of any consequence to the limited question asked of our court: What is the amount of debt that John owes Alkhaseh? I believe the circuit court‘s award of damages against John to Alkhaseh is final for three reasons. First, because the order concludes the parties’ rights to the subject matter in controversy; second, because the order of judgment that arises from an order striking an answer is immediately appealable under
In order for a judgment to be final, it must dismiss the parties from court, discharge them from action, or conclude their rights to subject matter in controversy. Taylor v. Taylor, 26 Ark. App. 31, 759 S.W.2d 222 (1988). To be final and appealable, an order must not only decide the rights of parties but also put court‘s directive into execution, ending the litigation or a separable part of it. Tucker v. Lake View Sch. Dist. No. 25 of Phillips Cnty., 323 Ark. 693, 917 S.W.2d 530 (1996); Ark. Dep‘t Hum. Servs. v. Farris, 309 Ark. 575, 832 S.W.2d 482 (1992); Foreman v. Ark. Dep‘t of Hum. Servs., 78 Ark. App. 48, 82 S.W.3d 176 (2002); Lee v. Konkel-Swaim, 73 Ark. App. 429, 43 S.W.3d 767 (2001); Capitol Life & Accident Ins. Co. v. Phelps, 72 Ark. App. 464, 37 S.W.3d 692 (2001).
Furthermore, an order striking an answer, as in the case presented, is immediately appealable under
At the point that this court finally reviews the judgment of damages and finds them unsupported by a preponderance of the evidence, the court could reverse and remand the damages award; but should the bankruptcy have concluded or should the repayment schedule have progressed significantly, John will be divested of his rights, and no court will be able to place him in his former condition. Therefore, under Smith, supra, the award of damages is final and should be reviewed by this court. The bankruptcy court asked the state court to give it a sum certain to use in the Chapter 13 bankruptcy proceeding, and the defendant in that action has the right to have that sum—now determined by the circuit court—reviewed by an appellate court. To do otherwise is a grave injustice to the parties.
Furthermore, the bankruptcy court, in the August 27, 2019 order lifting the stay for a limited purpose, stated, “This Court shall hold the debtor‘s objection to Claim 4 in abeyance until the state court has made such a determination.” When is this judgment for damages against John reviewable if not now? The majority relies on Yarborough v. Powell, 2015 Ark. App. 218, 459 S.W.3d 329, claiming the case has similar facts. However, the majority‘s conclusion fails to consider the distinct difference between a Chapter 7 bankruptcy in Yarborough that was filed after a sum-certain judgment was obtained against the debtor staying the proceedings and preventing the collection of the judgment; and the Chapter 13 bankruptcy that was filed before judgment in the instant case and the stay lifted by the bankruptcy court for the sole purpose of ascertaining a judgment amount. The difference is that the debtor in Yarborough is protected by the stay, and
Furthermore, Yarborough relies on cases such as Bank of the Ozarks v. Cossey, 2014 Ark. App. 581, 446 S.W.3d 214 (Cossey I), in which the court of appeals dismissed the case for lack of a final order and was overturned on review by the Arkansas Supreme Court. In Cossey I, a claim was filed alleging certain deficiencies by a trustee and requesting an accounting. The circuit court entered an order that declared the bank to be trustee of the Hamilton Living Trust and ordered the Bank to provide an accounting. Before the accounting was performed, the case was appealed. The Arkansas Court of Appeals held that the order was not final and appealable because there was more activity anticipated below in the form of an accounting and dismissed the appeal. See Cossey I, 2014 Ark. App. 581, 446 S.W.3d 214. The appellant filed a petition for review with the supreme court, arguing, inter alia, that the order was final and appealable. The supreme court agreed and issued In re Hamilton Living Trust, 2015 Ark. 367, 471 S.W.3d 203, which vacated and set aside the court of appeals opinion in Cossey I. The supreme court affirmed the circuit court‘s order after determining that the order was final and held:
The circuit court‘s order was appealable as a final judgment or decree. See
Ark. R. App. P.-Civ. 2(a)(1) (2014) . For a judgment to be final, it must dismiss the parties from the court, discharge them from the action, or conclude their rights to the subject matter in controversy; thus, the order must put the trial court‘s directive into execution, ending the litigation, or a separable branch of it. Smith v. Smith, 337 Ark. 583, 990 S.W.2d 550 (1999). Such is the case here. A single petitioner (Cossey) brought a single claim (accounting) against a single respondent (the Bank). After a hearing, the circuit court granted the petition and ordered the Bank to perform an accounting. Thus, the parties were dismissed from the court, the action was discharged, and the rights to the subject matter were concluded.
Id. at 3 n.1, 471 S.W.3d at 206 n.1.
That is the very instance that we have in this case before us involving John Wood and Ladimer Alkhaseh and the subject matter of damages. The majority is making the same mistake in this case as it did in Cossey I by claiming that the judgment is not a final, appealable order.
I would be remiss if I did not point out one additional problem. There is a judgment jointly and severally against John Wood and Holly Wood for $750,000. If John‘s stay does not extend to his co-debtor, Holly, then property co-owned by Holly and John is subject to execution. An execution against Holly will diminish John‘s bankruptcy estate. This is exactly the scenario that a stay was designed to protect. Now, we have creditors (Alkhaseh and Dawn Hill Townhouse and Condominium POA) that have climbed over other creditors and enhanced their creditor status to the detriment of other creditors. This is why a stay can be extended against a co-debtor in certain circumstances.
Analogy to Federal Court/State Court Question
The purpose behind the bankruptcy court‘s lifting of the stay to determine the amount of the debt that John owes Alkhaseh is obviously to allow the circuit court
Section (a) of
Arkansas Supreme Court Rule 6-8 permits only the Arkansas Supreme Court to receive and respond to certified questions. The Arkansas General Assembly‘s rejection of an alternative rule, which would have allowed the Arkansas Court of Appeals to respond to certified questions as well, sheds light on the reason why Section (a) may have been so structured. In 1966, the American Law Institute suggested this same limitation of allowing questions to be certified only to a state‘s highest court, a limitation that the UCQLA Commissioners later accepted. According to one commentator, the reason for this decision was the thought by the UCQLA Commissioners that delay “would be increased by certification to an intermediate state court whose decisions would always be subject to appeal and reversal.” Therefore, certification to the Arkansas Court of Appeals would defeat major purposes of the certification process of obtaining a final, definitive answer on Arkansas state law and saving federal courts and litigants time and money. By adopting the more limited approach, and thereby avoiding the risks of appeal and reversal, the Arkansas General Assembly helped to ensure that the certification process in Arkansas would achieve these goals.
Coby W. Logan, Certifying Questions to the Arkansas Supreme Court: A Practical Means for Federal Courts in Clarifying Arkansas State Law, 30 U. Ark. Little Rock L. Rev. 85, 89 (2007) (footnotes omitted) (emphasis added).
The analogy here is that just like a federal district court requires a definitive answer to the state question to proceed in the federal litigation, the federal bankruptcy court similarly requires a definitive answer to the question of how much debt the debtor, John Wood, owes Alkhaseh before it can proceed and fashion a Chapter 13 repayment plan. Without a definitive answer, and especially with an intermediate answer that is rife with potential error, the bankruptcy cannot proceed with any expectation of accuracy or reliability. If the bankruptcy court fashions a Chapter 13 repayment plan based on indefinite and inaccurate information from the circuit court, the plan is doomed to subsequently fail. For hypothetical purposes, assume the
... or a Separable Part of it.
It is elementary that in order for judgment to be final, it must dismiss parties from court, discharge them from action, or conclude their rights to subject matter in controversy. Taylor v. Taylor, 26 Ark. App. 31, 759 S.W.2d 222 (1988). To be final and appealable, an order must not only decide the rights of the parties, but also put the court‘s directive into execution, ending the litigation or a separable part of it. Tucker, 323 Ark. 693, 917 S.W.2d 530; Farris, 309 Ark. 575, 832 S.W.2d 482; Foreman, 78 Ark. App. 48, 82 S.W.3d 176; Lee, 73 Ark. App. 429, 43 S.W.3d 767; Phelps, 72 Ark. App. 464, 37 S.W.3d 692.
The standard--to be final and appealable, an order must not only decide the rights of parties, but also put court‘s directive into execution, ending the litigation or a separable part of it--has been quoted more than one hundred times in Arkansas appellate jurisprudence since apparently first used in 1978 in Festingor v. Kantor, 264 Ark. 275, 571 S.W.2d 82 (1978). While we are familiar with the premise that the order must decide the rights of the parties, the remainder of the standard,--but also put the court‘s directive into execution, ending the litigation or a separable part of it—is not as familiar. In fact, the final phrase “. . . or a separable part of it” has not received any judicial interpretation. But it has been quoted with approval more than one hundred times, so it must mean something. By using ordinary definitions, “or a separable part of it” must mean what it says. In some circumstances where part of the litigation can be “separated,” then that separated part may be deemed final and appealable. That is exactly what we have here.
When the bankruptcy court entered its stay and the circuit court ordered “this matter is closed,” all proceedings in circuit court lurched to a stop. The circuit court, perhaps, could have entered a less expansive order, but it ordered “this matter is closed.” What was closed?
- David Wood‘s complaint against John Wood and Holly Wood on the promissory note
- Alkhaseh‘s cross-claim for nonpayment on the promissory note and breach of the transfer agreement against John Wood and Holly Wood
- Alkhaseh‘s third-party complaint against Tara Capital, LLC
- Alkhaseh‘s third-party complaint against the Benton County collector
- Alkhaseh‘s third-party complaint against commissioner of state lands
- Dawn Hill POA‘s complaint in intervention
When John Wood filed his petition for bankruptcy, an automatic stay was entered. The purpose of the automatic stay is to maintain the status quo of the debtor‘s estate vis-à-vis various creditors and to prevent a race to the courthouse where one creditor could favorably position itself ahead of another creditor.
The bankruptcy court was faced with the six causes of action described above.
The supreme court has stated that the “test of finality and appealability of an order is whether the order puts the court‘s directive into execution, ending the litigation or a separable part of it.” Villines v. Harris, 362 Ark. 393, 397, 208 S.W.3d 763, 766 (2005). However, when the order appealed from reflects that further proceedings are pending, which do not involve merely collateral matters, the order is not final. Id. Under the particular circumstances of this case, where the circuit court was reinvested with limited jurisdiction for the sole purpose of assessing the debt owed from John to Alkhaseh, I would conclude that no further proceedings are presently pending in circuit court for purposes of finality and John Wood‘s right to appeal from the amount of damages set by the circuit court. Furthermore, the often repeated “separable part of it” language must mean something, and under these circumstances and for the reasons explained herein, a separable part of this litigation has concluded for purposes of John‘s appeal from the damages award. Therefore, I would hold that we have jurisdiction of the judgment for damages against John and that we should reach the merits and issue a ruling.
HIXSON, J., joins.
Eric Soller, for separate appellants John Wood and Tara Capital, LLC.
Brett D. Watson, Attorney at Law, PLLC, by: Brett D. Watson, for separate appellant Holly Wood.
William R. Mayo, for separate appellee Ladimer Alkhaseh.
Carla Wasson, for separate appellee Dawn Hill Townhouse and Condominium Property Owners Association, Inc.