Underwood v. Underwood

684 S.W.3d 896

2024 Ark. App. 51

Jody UNDERWOOD, Individually and as a Shareholder and Member of Conway Precision Products, Inc., Appellant/Cross-Appellee

v.Jeffrey S. UNDERWOOD and Conway Precision Products, Inc., Appellees/Cross-Appellants

No. CV-20-606

Court of Appeals of Arkansas, DIVISION III.

Opinion Delivered January 24, 2024

APPEAL FROM THE FAULKNER COUNTY CIRCUIT COURT [NO. 23CV-18-157], HONORABLE SUSAN WEAVER, JUDGE

Newland & Associates, PLLC, by: Joel Hoover and Ashley D. Peoples, Little Rock, for appellant/cross-appellee.

The Jiles Firm, P.A., Little Rock, by: Gary D. Jiles and Matthew K. Brown, for appellees/cross-appellants.

MIKE MURPHY, Judge

₁I. Introduction

This case is a business dispute between an ex-husband and his ex-wife. Conway Precision Products, Inc. ("CPPI"), was purchased by Jeff Underwood while he and Jody Underwood were married, at which point Jeff was the sole shareholder, director, and officer of the company. When the couple divorced, each was granted 50 percent of CPPI. Approximately three years later, Jody brought an individual and derivative action against Jeff and CPPI. At the conclusion of the trial, the jury found in Jody’s favor in derivative actions for breach of fiduciary duty and conversion. The jury also entered a verdict in Jody’s favor, ₂individually, for breach of fiduciary duty. She now appeals the jury’s denial of a derivative claim regarding a shareholder loan that Jeff took from CPPI and the jury’s denial of her declaratory-judgment action. On direct appeal, we reverse and remand.

Jeff cross-appeals the jury’s verdict on Jody’s breach-of-fiduciary-duty claim and her other derivative claims. On cross-appeal, we affirm.

Further, both parties have also moved to dismiss portions of the other’s appeal. We grant Jeff’s motion to dismiss and deny Jody’s motion to dismiss.

II. Factual and Procedural Background

Jody and Jeff Underwood married in 1985. During the marriage, Jeff purchased CPPI from his father in 2001, and he was the sole shareholder, director, and officer until the couple divorced on May 8, 2015. As part of the divorce, Jeff and Jody were each awarded 50 percent of CPPI. After the divorce, Jeff was elected chairman of the board of directors and president of CPPI, and Jody was elected vice chairman of the board and the corporate vice president and secretary.

Because CPPI was an S Corporation, Jeff and Jody incurred tax obligations as the shareholders. Jody received distributions to pay the taxes she incurred as an owner for the tax years 2015 and 2016. Also in 2015 and 2016, Jody requested and was provided access to CPPI’s QuickBooks and other financial documents.

Prior to the divorce, Jeff’s annual salary from CPPI was $65,000. Each year, he also received a payment from CPPI that was listed on the company’s tax return as a "loan to shareholder," which Jeff considered to be a portion of his total compensation and which he ₃and the family used for their expenses. Jeff testified several times during the trial that the loan-to-shareholder designation was a tax strategy advised by his accountant and that he anticipated CPPI would deal with the alleged loans at some point in the future. Starting after the divorce, Jeff no longer received a loan to shareholder as a portion of his compensation and was instead paid an annual salary of $148,337 for 2015. In 2016, his annual salary and benefits totaled $211,148. In 2017, his annual salary was $195,211. Jody testified that she asked him several times to lower his salary, and he ignored that request.

On November 7, 2017, Jody requested financial information from CPPI via email to Jeff. On December 8, Jody drove to CPPI’s office and asked for bank statements, credit-card statements, and financial information. During that visit, Jeff called the police to keep Jody from the premises. On November 10, Jeff responded to Jody’s November 7 email that she would have to follow the provisions of the Arkansas Business Act of 1987 to obtain corporate information. On December 20, Jody’s counsel sent a letter requesting to inspect financial documents on December 29. CPPI’s counsel responded on December 27, alleging that Jody’s request was not made in good faith or for a proper purpose to CPPI and declined the request.

On January 31, 2018, Jody filed a verified complaint on behalf of herself individually and as a shareholder and member of CPPI against Jeff and CPPI.

The first count was a request for the inspection of records. The circuit court ordered Jeff to allow Jody complete access to the CPPI QuickBooks and other corporate records on April 9, 2018. Jody’s remaining claims were tried before a jury. Jody prevailed on some of her claims and lost on others. The jury found in Jeff’s favor on the derivative collection-of-loan₄ claim and on the request for declaratory judgment. The jury awarded $40,456.36 to Jody, individually, on her breach-of-fiduciary-duty claim. The breach-of-fiduciary-duty claim and the conversion claim were listed on separate verdict forms, and the jury awarded CPPI $152,614.00 on each. The jury did not award any punitive damages.

The circuit court entered judgment consistent with the jury’s verdicts on March 25, 2020. The circuit court awarded judgment in favor CPPI in the amount of $152,614.00 on the derivative conversion claim and for $152,614.00 on the derivative breach-of-fiduciary-duty claim but stated in its order that CPPI "may collect the $152,614.00 judgment described in Paragraphs A and B herein only once in order to avoid any potential for double recovery from Defendant, Jeffrey Underwood." Additionally, the circuit court ordered that judgment be entered in favor of Jody against Jeff for $40,456.36 on her individual claim for breach of fiduciary duty.

Jody timely appealed, and Jeff timely cross-appealed. Both parties have also filed partial motions to dismiss. On May 6, 2021, Jeff moved to dismiss Jody’s appeal as to the declaratory judgment, arguing that her notice of appeal was deficient. On May 13, 2021, Jody moved to dismiss a portion of Jeff’s cross-appeal, arguing that he had voluntarily paid a portion of the judgment with the property sale described above. These two motions were passed until the case was submitted.

III. Motions to Dismiss

A. Jeff’s Motion to Dismiss Jody’s Appeal of the Declaratory-Judgment Verdict

In her notice of appeal, Jody stated:

₅Notice is hereby given that Jody Underwood (Jody Lynn Doran), Individually, and as a shareholder and member of Conway Precision Products, Inc. ("Plaintiff") appeals to the Arkansas Court of Appeals the March 25, 2020 Judgment of the Faulkner County Circuit Court entering judgment in favor of Jeffrey Underwood on Plaintiff’s claim for collection of loan and each and every issue or intermediate order decided in the abovecaptioned case necessarily affecting the Judgment in favor of Jeffrey Underwood on Plaintiff’s claim for collection of loan.

(Emphasis added.)

[1] Jeff moved to dismiss the portion of Jody’s appeal wherein she asks this court to reverse the circuit court’s judgment regarding her declaratory-judgment action. He argues that Jody’s notice of appeal is deficient because it does not identify the declaratory judgment as an issue on appeal. We agree.

Arkansas Rule of Appellate Procedure–Civil 3(e)(ii) mandates that an appellant "designate the judgment, decree, order or part thereof appealed from" in his or her notice of appeal. The supreme court has held that when an appellant identifies only one point in the notice of appeal, it will consider only that one point. Miles v. Deisch, 228 Ark. 803, 808, 310 S.W.2d 505, 508 (1958). It is true that the courts require substantial compliance with Rule 3 in certain circumstances if no prejudice results. See, e.g., Rogers v. Tudor Ins. Co., 325 Ark. 226, 231, 925 S.W.2d 395, 397 (1996). However, the cases where the appellate courts have excused technical deficiencies are cases in which the deficiency is incredibly minor and where the appellee is still given notice of what the issues on appeal will be. See id.

[2, 3] Further, "[t]he absence of prejudice, of course, does not automatically determine the substantial-compliance question." Rogers, 325 Ark. at 232, 925 S.W.2d at 398. The purpose of a notice of appeal is to provide the opposing party and the appellate court notice of the ₆issues on appeal. See Williams v. St. Vincent Infirmary Med. Ctr., 2021 Ark. 14, 615 S.W.3d 721 (holding that a notice of appeal was fatally deficient as to one appellee when it did not provide notice to said appellee).

Jody identified only one portion of the judgment in her notice of appeal and did not provide notice that she intended to appeal remaining portions of the judgment. For these reasons, we grant Jeff’s motion to dismiss the declaratory judgment portion of Jody’s appeal.

B. Jody’s Partial Motion to Dismiss Jeff’s Cross-Appeal

The circuit court entered judgment in Jody’s favor for $40,456.36 on her individual breach-of-fiduciary-duty claim. Jeff did not move to stay and for supersedeas bond in the circuit court. Jody proceeded with collection efforts on her individual judgment by filing writs of garnishment on July 23, 2020.

On July 29, 2020, a piece of marital property that was jointly owned by Jeff and Jody was sold. The title company disbursed one-half of the proceeds to Jody. Jeff’s half was split among various entities, and $6,280.26 was paid to Jody and was labeled on the closing statement as "Proceeds to apply to Court Case #23CV-18-157 to Jody L. Underwood."

On April 16, 2021, Jeff moved to stay the individual judgment and asked for a supersedeas bond in the amount of $36,000, which was the approximate amount of Jody’s individual judgment remaining after the property sale. This court granted the motion but increased the amount of the bond to $37,500 on May 5, 2021.

[4] Jody now asks this court to dismiss the portion of Jeff’s cross-appeal where he asks for a reversal of the individual...