APPEAL FROM THE INDEPENDENCE COUNTY CIRCUIT COURT [NO. CV-2008-333-2] HONORABLE ADAM HARKEY, JUDGE AFFIRMED
The opinion of the court was delivered by: Robert J. Gladwin, Chief Judge
Appellant, Dr. Mahmood Ahmad (Ahmad), appeals from a July 26, 2012 order entered by the Independence County Circuit Court. Ahmad argues that the circuit court erred in denying his requests to remove the special master and to set aside the special master's report for failure to comply with Arkansas Rule of Civil Procedure 53. He also argues that appellee, Horizon Pain, Inc. (Horizon), and original plaintiff, Dr. Meraj Siddiqui (Siddiqui), had no standing and failed to state a factual and legal basis for the derivative action.*fn1
Horizon was formed in April 2006 for the purpose of providing medical services to White River Medical Center (WRMC) and other hospitals or medical centers. Its 360 shares were held in equal portions by Siddiqui and Ahmad. Siddiqui was employed by Horizon and was paid a salary and income generated by him less expenses. In 2006, Ahmad borrowed $178,519.19 from Horizon and Siddiqui.*fn2 Siddiqui subsequently left the employ of Horizon, established his own relationship with WRMC, asked that Horizon be dissolved, and sued Ahmad for the monies he still owed to Siddiqui and Horizon.
On December 15, 2008, Ahmad filed a motion to dismiss identifying certain deficiencies in the complaint, based upon Arkansas Rule of Civil Procedure 23.1. On December 23, 2008, Siddiqui and Horizon filed an amended complaint rectifying those deficiencies and giving Ahmad credit for $58,817.06 that he had previously repaid, leaving a balance of $132,090.41. Also on December 23, 2008, Siddiqui and Horizon filed a response and brief in support to Ahmad's motion to dismiss.
On January 12, 2009, Ahmad filed an answer and counterclaim, in which he asserted his right to set-off amounts and sought damages against Siddiqui for tortious interference with his business expectancy and breach of fiduciary duty. On March 29, 2011, Siddiqui and Horizon filed a motion for summary judgment regarding Ahmad's counterclaims. On May 17, 2011, Siddiqui and Horizon filed a motion in limine to exclude certain evidence that Ahmad had belatedly produced related to his claim for setoffs.*fn3
At an in camera hearing prior to the jury trial set for May 24, 2011, the circuit court granted Siddiqui's and Horizon's motion for summary judgment, thereby dismissing Ahmad's counterclaim, and granted their motion in limine to exclude Ahmad from presenting certain evidence regarding alleged setoffs. An order was presented to the circuit judge but was never entered because the parties reached a settlement and read the terms thereof into the record. The judgment was in favor of Horizon but conditioned upon a subsequent hearing to determine any applicable setoffs. Siddiqui dismissed his personal claims with prejudice, leaving only the dispute regarding what Ahmad owed Horizon. The second proceeding was to be held by a special master to consider all claims and setoffs. The judgment contained a prohibition against any execution until after the second proceeding. Over objection by Ahmad, the circuit court appointed Siddiqui's nominee, John C. Gregg, as special master.
At the beginning of the second hearing, an objection was again raised on the basis of Gregg's potential conflict of interest. Testimony indicated that Gregg (1) had been consulted by Siddiqui on this very issue,*fn4 and (2) was the person who drafted the bylaws and advised Siddiqui at the incorporation of Horizon. Ahmad requested recusal by the special master, but that request was denied. After the hearing, the special master denied all of Ahmad's claims of setoff. The circuit court adopted the special master's ruling and ordered that, after collection of the consent judgment against Ahmad, Horizon be dissolved. It is from this order that Ahmad appeals.
I. Denial of Ahmad's Requests to Remove the Special Master
Although the review of this case is de novo regarding legal issues on appeal, the circuit court's findings of fact will not be disturbed unless they are clearly erroneous. See Horton v. Ferrell, 335 Ark. 366, 981 S.W.2d 88 (1998); Arkansas Rule of Civil Procedure Rule 53(c) & (e)(1) and (2) (2014). A finding is clearly erroneous when, although there is evidence to support it, the court, on the entire evidence is left with the definite and firm conviction that a mistake has been made by the master. HRR Ark., Inc. v. River City Contractors., Inc., 350 Ark. 420, 87 S.W.3d 232 (2002). When parties stipulate that a master's findings of fact shall be final, only questions of law arising from the report shall thereafter be considered. Ark. R. Civ. P. 53(e)(3).
A special master is a judge subject to the Arkansas Code of Judicial Conduct (ACJC) and the application of that conduct code is mandatory. Horton, supra. The ACJC states: "A judge, within the meaning of this Code, is anyone who is authorized to perform judicial functions, including an officer such as a, magistrate, special master, referee, or member of the administrative law judiciary." Ark. Code Jud. Conduct, Application, § I(B) (2014). The canons and text of the ACJC establish mandatory standards, not mere guidelines. Farley v. Jester, 257 Ark. 686, 520 S.W.2d 200 (1975).
Rule 2.11 of the Arkansas Code of Judicial Conduct provides that a judge shall disqualify himself in any proceeding in which the judge's impartiality might be reasonably questioned, including when the judge has a personal bias or prejudice concerning a party or a party's lawyer. A trial judge is presumed to be impartial, and a party seeking disqualification bears a substantial burden to prove otherwise. Smith v. Hudgins, 2014 Ark. App. 150, 433 S.W.3d 265. A trial judge's decision to recuse is within his or her discretion, and we will not reverse absent a showing of an abuse of discretion. Id. An abuse of discretion can be proved by a showing of bias or prejudice on the part of the trial judge. Id. Absent some objective demonstration by the appellant of the trial judge's prejudice, it is the communication of bias by the trial judge that will cause us to reverse his refusal to recuse. Id. The mere existence of adverse rulings is not enough to demonstrate bias. Id.
The circuit court approved the parties' settlement contained in the "Consent Judgment Conditioned Upon Stipulated Settlement" (consent judgment), which gave the parties thirty days to agree on a suitable person to serve as special master in this case. The consent judgment provided that if no agreement was reached, then the circuit court would appoint someone to serve. Ahmad's counsel had advised Siddiqui's counsel that Ahmad objected to Siddiqui's counsel's suggestion for Gregg's appointment as special master. On August 4, 2011, Siddiqui's counsel filed a petition to appoint Gregg despite Ahmad's objections.
On August 12, 2011, Ahmad filed a responsive pleading formally objecting to Siddiqui's request for Gregg's appointment as special master. There was also an August 22, 2011 letter from Ahmad's attorney objecting to Siddiqui's proposed order appointing Siddiqui's nomination for special master.
On August 29, 2011, the circuit court entered the proposed order appointing Gregg as special master over Ahmad's objections and despite the lack of mutual agreement by counsel for both parties that he was suitable to serve as special master. Approximately eight months later, the hearing before Gregg was scheduled for April 17, 2012. At the beginning of the hearing, Gregg acknowledged that Ahmad's counsel advised him that it had been recently discovered that Siddiqui had sworn in his prior answers to interrogatories that Gregg had served as his attorney in matters related to issues in this case, including preparation of corporate documents for Horizon. Siddiqui had explained the private consultations he had with Gregg about Horizon incorporation matters.
Gregg reviewed Siddiqui's answer to the interrogatory listing him as the attorney who provided legal services to Siddiqui but declined to withdraw as special master. He responded that he had no knowledge of Ahmad's prior objection to his appointment, and that he did not remember any such prior representation of Siddiqui and/or Horizon. Gregg reviewed the documents in question, and he stated that he did not recall preparing any of the corporate documents presented for Siddiqui and/or Horizon. Ahmad then orally renewed his objection to Gregg's serving as special master because of his apparent conflict of interest, or appearance of impropriety, and his past representation of Siddiqui and/or Horizon. Gregg then commented on his concern about any conflict resulting in an appeal or complaint, and whether he was suitable to serve because he was not an accountant, but he refused to recuse and proceeded with the hearing.
During the hearing, Siddiqui testified that Ahmad and he were each fifty-percent shareholders in Horizon. During Siddiqui's testimony about corporate-accounting records, Siddiqui was asked by appellant's counsel about an August 22, 2006 check that he wrote for $1,850 for "legal fees" paid from Horizon Pain, Inc., which was entered in a Quick Books report corporate sub-account assigned to Siddiqui. He answered that it was paid by him to "the Master" (Gregg). He further testified that he had randomly selected Gregg as an attorney from the telephone book and paid him to draft bylaws for Horizon, which had been previously incorporated by Ahmad. Siddiqui also testified that he met privately with Gregg in his law office for legal advice regarding Horizon and Siddiqui's personal-employment contract with Horizon, which Gregg possibly had drafted as his private attorney.
Gregg did not respond or comment after Siddiqui's admission to the payment for legal services to Gregg. Instead, he simply adjourned the hearing, leaving the record open for two additional witnesses to be produced by deposition over the following sixty days.
The ACJC includes the following relevant provisions: An independent and honorable judiciary is indispensable in our society. . . . Canon 1 ACJC;*fn5 and A judge shall avoid impropriety and the appearance of impropriety in all of the judge's activities. A judge shall respect and comply with the law and act at all times in a manner that promotes public confidence in the integrity and impartiality of the judiciary. Canon 2 ACJC; Rule 2.9(A)(1)(a) concerning ex parte communications with the judge; and Rule 2.11.*fn6 and Disqualification. (1) A judge shall disqualify himself in a proceeding in which the judge's impartiality might reasonably be questioned, including but not limited to instances where: (a) the judge has personal bias or prejudice concerning a party or party's lawyer, or personal knowledge of disputed evidentiary facts concerning the proceeding; (b) the judge served as a lawyer in the matter in controversy, or a lawyer with whom the judge previously practiced law served during such association as a lawyer concerning the matter, or the judge has been a material witness concerning it . . . . " Canon 3, E(1)(a) & (b); Rule 2.11(A)(1) ACJC, concerning a judge who has personal knowledge of facts in dispute; and Rule 3.10 regarding the judge's practice of law.*fn7 and A judge should disclose on the record information that a judge believes the parties or their lawyers might consider relevant to the question of disqualification, even if the judge believes there is no real basis for disqualification." Canon 3 E(1) ACJC; Commentary*fn8 (Emphasis added.)
Ahmad initially objected to Siddiqui's suggestion that Gregg serve as special master because he believed that this special master had a conflict of interest that disqualified him. With his appointment, Gregg's rulings on all fact and law issues became the sole basis for the circuit court's decision in this matter. Ahmad claims that this is an issue because there was no transcript of the proceeding filed in the record for the circuit court to review before entering its order, and the order was, in fact, entered without any review of the proceedings, in large part because no transcript was submitted by Gregg.
Ahmad argues that the refusal by Gregg and the circuit court to implement a recusal upon the confirmation of a conflict of interest during the hearing before Gregg violates the judicial principles previously set forth. Despite those refusals, Ahmad continued to object to Gregg and the circuit court about the influence and perception that these past ex parte, privileged communications ...