KBX, Inc. v. Zero Grade Farms

2022 Ark. 42

639 S.W.3d 352

KBX, INC.; Steven Michael Keith, Sr., Individually; Steven Michael Keith, Jr., Individually; Jeffrey Shay Sebree, Individually, Appellants

v.ZERO GRADE FARMS, a Partnership, also d/b/a Isbell Farms; Mark Isbell, Individually; Chris Isbell, Individually; Shane Isbell, Individually; Judy Isbell, Individually; Jeremy Jones, Individually; K&K Farm Service, Inc., also d/b/a K&K Farm Services; Edward Schafer & Sons, a Partnership; Ronald Schafer and Roger Schafer, as Trustees of the Edward Burnard Schafer Q-Tip Trust; Ronald Schafer, Individually; Dee Anne Schafer, Individually; Clifford Schafer, Individually; Rachel Schafer, Individually; Roger Schafer, Individually; Pamela Schafer, Individually; Donald Schafer, Individually; Donna Schafer, Individually; Gary Hardke Farms, a Partnership; Gary Hardke, Individually; Melodie Hardke, Individually, and Bigfoot Ag, Inc., Appellees

No. CV-20-728

Supreme Court of Arkansas.

Opinion Delivered: February 24, 2022

Hilburn & Harper, Ltd., North Little Rock, by: Ernest H. Harper, Jr. ; James M. McHaney, Jr. ; Randy L. Grice ; and Kate C. Davidson, for appellant K.B.X. Inc.

Reece Moore McNeill Pendergraft, by: Paul D. McNeill, Jonesboro, James Bo Renner, and Lisa M. Geary, for appellants Steven Michael Keith, Sr.; Steven Michael Keith, Jr.; and Jeffrey Shay Sebree.

Brett D. Watson, Attorney at Law, PLLC, by: Brett D. Watson ; Kelly Law Firm, by: Jerry Kelly, Little Rock; and Campbell & Grooms, PLLC, by: Kendel Grooms, Little Rock, Don Campbell, and Parker Spaulding, for appellees.

JOHN DAN KEMP, Chief Justice

Appellants KBX, Inc. ("KBX"); Steven Michael Keith, Sr., individually ("Steven"); Steven Michael Keith, Jr., individually ("Michael"); Jeffrey Shay Sebree, individually ("Shay") (collectively "appellants") (Steven, Michael, and Shay collectively as "the KBX Individuals") appeal a Lonoke County Circuit Court order reflecting a jury verdict awarding $5,954,198.57 in compensatory damages, jointly and severally, against KBX, the KBX Individuals, Turner Grain, Inc. ("TGI"), and the estate of Jason Coleman ("Coleman" and "Coleman's estate"), and $6,074,196.00 in punitive damages, jointly and severally, against Steven, TGI, and Coleman to appellees Zero Grade Farms, a partnership, also d/b/a Isbell Farms ("Zero Grade"); Mark Isbell, individually; Chris Isbell, individually; Shane Isbell, individually; Judy Isbell, individually; Jeremy Jones, individually; K&K Farm Service, Inc., also d/b/a K&K Farm Services ("K&K"); Edward Schafer & Sons, a partnership ("Schafer"); Ronald Schafer and Roger Schafer, as trustees of the Edward Burnard Schafer Q-Tip Trust; Ronald Schafer, individually; Dee Anne Schafer, individually; Clifford Schafer, individually; Rachel Schafer, individually; Roger Schafer, individually; Pamela Schafer, individually; Donald Schafer, individually; Donna Schafer, individually; Gary Hardke Farms, a partnership ("Hardke"); Gary Hardke, individually; Melodie Hardke, individually; and Bigfoot Ag, Inc. (collectively "the farmers").¹ For reversal, appellants raise four arguments, but only two are necessary to dispose of this case. We reverse and dismiss the judgment as to KBX and the KBX Individuals. We affirm the circuit court's dismissal of KBX's counterclaims. We also reverse the circuit court's award of attorney's fees and remand for recalculation of an award consistent with this opinion.

I. Background

A. Factual History

This case involves the farmers’ dispute with KBX, a grain exporter and merchandiser, and the KBX Individuals over a series of written contracts ("Farmers Grain Contracts") for the purchase of rice.

By 2014, TGI, a grain merchandiser,² had established a business practice of quoting rice prices that were well above the market value in order to procure business. TGI had engaged in the practice of offering its customers above-market prices and then would use the profits from its corn and freight contracts to cover the losses from its rice transactions. Certain individuals in the rice industry had alerted KBX of TGI's business practice. In 2014, TGI arranged to purchase the farmers’ rice.

In July 2014, the farmers entered into the Farmers Grain Contracts with TGI to sell their rice at a specified price per bushel. Pursuant to the Farmers Grain Contracts, the farmers were designated as the "Seller," TGI was designated as the "Broker," and an undisclosed third party was designated as the "Purchaser." The Farmers Grain Contracts stated that "[t]his agreement is entered into between Turner Grain, Inc. (Broker) and Seller of rice (Seller)." The farmers executed their contracts "F.O.B. farm," "F.O.B. Delivered West Memphis," or "F.O.B. Bins Carlisle." The farmers agreed to deliver specified quantities of rice, and in exchange, TGI agreed to pay the farmers a collective amount totaling $5,954,198.57. The majority of the farmers’ rice was delivered to Consolidated Grain and Barge Company ("CBG") in West Memphis where the rice was placed on barges. KBX was not a party to the Farmers Grain Contracts.

While TGI was listed as a broker in the Farmers Grain Contracts, TGI was also known in the industry as a "simultaneous" or "back-to-back" dealer or merchandiser. Once TGI took possession of the rice, it then sold the farmers’ rice to KBX. The record reveals, in a spreadsheet trial exhibit, that at least 39 separate contracts existed between KBX and TGI concerning the farmers’ rice. During the summer of 2014, KBX paid TGI in excess of $28 million in the form of wire transfers and checks, and $5,954,198.57 of that $28 million was allocated as payment in full for the farmers’ rice. Ultimately, TGI collapsed on August 12, 2014. While KBX had paid TGI for the rice, TGI in turn had failed to pay the farmers in full.

On August 18, 2014, after TGI's collapse and prior to filing the lawsuit, the farmers served preservation letters on KBX and Steven and instructed appellants to preserve all written and electronic documentation about the rice-sales transactions for purposes of discovery. The preservation letters covered all documentation and communications from May 15, 2014, through August 18, 2014.

B. Procedural History

On August 22, 2014, the farmers filed suit in Lonoke County Circuit Court seeking payment for the delivery of their respective rice in July and August 2014. In their sixth amended complaint ("operative complaint"), dated November 26, 2019, the farmers named the following parties as defendants: Agri-Petroleum Sales, LLC; Agribusiness Properties, LLC; Brinkley Truck Brokerage, LLC; Christopher Taylor, individually; Coleman Duck Club, LLC; Coleman Transportation, LLC; Dale Bartlett, individually, Gerald W. Loyd; Ivory Rice, LLC; Anna Hurst, special administrator of the estate of Jason Coleman, deceased; Jeffrey Shay Sebree, individually; KBX, Inc.; LJTC, LLC; NEA Truck Brokers, LLC; Neauman Coleman, individually; Neauman Coleman & Co. LLC; Rice America, Inc.; Rice Arkansas, Inc.; Steven Michael Keith, Jr., individually; Steven Michael Keith, Sr., individually; Turner Commodities, Inc.; Turner North, LLC; and Turner Grain, Inc., d/b/a Turner Grain.³

In their operative complaint, the farmers alleged that TGI had acted as a broker between the farmers and KBX. According to the farmers, TGI and KBX created a business practice wherein KBX used TGI to act as its broker and its payment agent in negotiated contracts. Specifically, the farmers asserted eleven causes of action: (1) breach of contract by KBX in failing to fulfill its obligations under the contracts with the farmers for rice it agreed to purchase through its broker, TGI; (2) alternatively, breach of contract by all other defendants under the alter-ego theory for failure to fulfill their obligations under the contracts with the farmers; (3) conversion by KBX in that KBX had refused and failed to pay what was owed to the farmers, and that KBX exercised dominion and control over the farmers’ property inconsistent with their rights; (4) conversion of rejected rice by KBX; (5) in the alternative, conversion by all other defendants; (6) fraud (deceit) through false representation made to induce the farmers to enter the contracts; (7) in the alternative, constructive fraud; (8) theft by deception in their dealing with the farmers; (9) violation of the Arkansas Deceptive Trade Practices Act; (10) civil conspiracy; and (11) unjust enrichment. In their prayer for relief, the farmers sought, inter alia, monetary damages, including punitive damages, against all defendants. The farmers also demanded a trial by jury. KBX counterclaimed against the farmers for abuse of process, interference with a contractual relationship or business expectancy, defamation, perjury under the civil-action-by-crime-victim statute, and conspiracy.

The parties filed numerous motions throughout the litigation. During discovery, the farmers sent interrogatories to appellants to confirm that appellants had preserved the documents set forth in the preservation letters. According to Alvey Matlock, an employee of Guardian Forensics and Data Recovery, the KBX Individuals, between August 1, 2013, and January 1, 2015, sent and received a total of 46,219 text messages. Out of those 46,219 messages, 32,316 were attributed to Shay, 11,927 to Michael, and 1,976 to Steven. But Shay produced only 333 of the messages while Michael produced 56, and Steven produced zero. As a result, the farmers filed a motion for contempt and sanctions against KBX. During a subsequent hearing, the circuit court orally granted the farmers’ motion for a finding of spoliation against KBX for the intentional deletion of cell-phone data that was within the scope of permissible discovery. On June 2, 2017, the circuit court entered an order granting the farmers’ motion for a finding of spoliation against KBX. Two years later, on May 30, 2019, the circuit court entered an order granting the farmers’ motion for a finding of spoliation against the KBX Individuals.

The case...