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Commercial Fitness Concepts, L.L.C. v. WGL, LLC

Court of Appeals of Arkansas, Division II

March 8, 2017



          Dover Dixon Horne PLLC, by: Carl F. "Trey" Cooper III, for appellant.

          Stephen Lee Wood, P.A., by: Stephen Lee Wood, for appellee.

          DAVID M. GLOVER, Judge.

         Commercial Fitness Concepts, LLC (Commercial Fitness), appeals from the April 18, 2016 judgment finding it liable for conversion of property belonging to WGL, LLC (WGL), and awarding WGL $9, 682 in damages, plus interest and costs. Commercial Fitness raises three points of appeal, contending: 1) the trial court's finding that WGL proved its conversion claim by a preponderance of the evidence is clearly erroneous; 2) the trial court's finding that WGL proved damages for conversion is clearly erroneous because there was no substantial evidence to establish the fair market value of the modules; and 3) the trial court's award of lost "profits" to WGL should be reversed because of lack of substantial evidence. We affirm the finding of conversion but reverse and remand the awards of damages regarding the module and "lost rents."

         This case arose out of Commercial Fitness's purchase of property that was being liquidated in a bankruptcy proceeding. WGL owns a building in Lowell, Arkansas, which it had leased to Rhett Garner, who operated a World Gym franchise there. Garner filed for bankruptcy, and all of the property owned by him in WGL's building was sold to Commercial Fitness by the bankruptcy trustee. Commercial Fitness entered the premises and removed the property it had purchased from the bankruptcy sale. WGL claimed that Commercial Fitness wrongfully took a computer and related equipment, as well as a module that controlled the HVAC. Consequently, WGL sued for conversion.

         At least seven people testified in the bench trial. Bill Clark, the bankruptcy trustee, testified about his duties as a trustee and the procedures he followed in finding a buyer, notifying creditors, and liquidating the equipment at the facility.

         Then, Jenelle Kennan, a commercial real-estate agent with Keller Williams Commercial Group, was called by WGL. Before her testimony began, Commercial Fitness objected, contending WGL's purpose in calling her was to offer evidence that there was a potential lessee of the property and her testimony should be excluded because it was hearsay. The trial court responded, "[L]et's wait and find out." In her testimony, Ms. Kennan identified as an exhibit a letter of intent for one of her clients, Rhea Lana, Incorporated. According to Kennan, her client had short-term events four times a year; it looked for large venues where it could resell children's clothing. The date of the letter of intent was June 30, 2015; it was addressed to Tim Salmonsen, who was also a broker at Keller Williams. (Kennan represented Rhea Lana, and Salmonsen represented WGL.) Rhea Lana's interest was in leasing the building for about three weeks, from August 1 through August 21, at a base rent of $3, 000 for one of its events. She described the letter of intent as a bona fide offer on behalf of her client, who was prepared to pay $3, 000 to rent the premises. Kennan explained there was an issue regarding the air conditioning of the building and that without the air conditioning, her client could not use the space.

         Commercial Fitness renewed its hearsay objection, but the trial court overruled it. Commercial Fitness also asserted a hearsay objection to the introduction of the letter of intent, but it was admitted over the objection. On cross-examination, Ms. Kennan acknowledged that the letter of intent was not a binding agreement but described it as a negotiation tool. She confirmed that the Rhea Lana event ended up being held in Springdale.

         Brandon Outlaw, who owned Commercial Fitness, testified as follows. He took possession of the items purchased from the bankruptcy estate during the period from the end of April through the first week in May. He had an average of ten people at a time to help with the removal; he instructed the persons helping him to take "all fitness equipment, all office equipment, phone systems, computers, TVs, all audiovisual equipment, . . . ." He received a phone call or a text message from Mike Charlton, the manager of the facility, after the job was completed. Charlton told him about the HVAC system and identified a desktop computer in the storage room in the tanning area as missing. Outlaw contacted his employees and asked them if a computer was taken out of that room, and they told him it had been. He returned the computer, and he explained a keyboard and monitor were never requested, just the PC. According to Outlaw, Jim Hodges was the person who removed that PC. He asked Hodges if he took anything else out of that room and was told he did not, that all he took was the PC, the monitor, and the keyboard. Outlaw testified he "did not know what the whole HVAC system was a part of until Charlton text[ed] [him] back and said, 'Well, what about the panel?'" He did not understand what Charlton meant by "the panel, " so Charlton sent him a picture. He showed the picture to everybody who worked for him and nobody had seen it. Outlaw's employees went through their entire warehouse to look for the panel, and it was not there. He then told Charlton that he did not have the panel. It was his testimony he wouldn't even know how to remarket an HVAC panel; he sells fitness equipment, not HVAC panels; many people had keys to the facilities; he went through all the equipment several times to make sure he didn't have the panel; and he told the insurance company his people did not remove the panel.

         Mike Charlton testified his mother had sole ownership of WGL, and he had been the manager since it was formed. According to him, the building's HVAC system had approximately ten rooftop units and about six units that sat on the north side of the building. A computer operates all of the functions, alarms, warning systems, maintenance, timing, and air restrictions of all sixteen units. The system included a desktop CPU, flat-screen monitor, keyboard, and a device referred to as a "panel" or a "module, " which is a control unit. The panel/module was the interface between the computer and the units. It was not possible for the HVAC system to operate without the panel/module or without installing some other type system. The panel/module was located on the north wall above the monitor. The computer, panel/module, keyboard, and monitor all belonged to WGL and were purchased with the original HVAC system. He acknowledged receiving the CPU back from Outlaw, but nothing else. Charlton testified about a text in which Outlaw admitted that his personnel mistakenly took the panel/module.

         Charlton presented an August 20, 2015 invoice for $6, 597.38 from Northwest Control Systems to pay for the installation of the control panel/module and the software license. Commercial Fitness objected to the exhibit based on hearsay, but the objection was overruled and the invoice was admitted. Commercial Fitness later argued that Arkansas law was clear that replacement cost was not evidence of market value and that an opinion of fair-market value based on replacement cost was improper and insufficient. WGL later introduced the check it wrote to pay the invoice.

         Charlton confirmed he listed the building with the Keller Williams Commercial Group to lease or sell it. He explained that he received one offer to lease the building on a temporary basis for $3, 000 for a few weeks, and the offer came from Rhea Lana. He stated that prior to receiving the actual letter of intent, which Ms. Kennan testified about, Tim Salmonsen contacted him by phone and read it to him, asking if he was interested. Charlton said he was very interested but told Salmonsen the HVAC was not operational at that time. Commercial Fitness's hearsay objection to this testimony was sustained.

         On cross-examination, Charlton stated he would have accepted $3, 000 as rent for the building. He also acknowledged he did not know if there was any difference between the modules that were newly installed in 2015 and the ones that were originally installed in 2007, and he did not have any personal knowledge as to how any of the HVAC systems worked, just what Northwest Controls told him. Finally, he ...

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