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Chambers v. McDougald

Court of Appeals of Arkansas, Division II

May 31, 2017

F. DAVID CHAMBERS AND MICHELLE CHAMBERS APPELLANTS
v.
KENNETH MCDOUGALD APPELLEE

         APPEAL FROM THE BRADLEY COUNTY CIRCUIT COURT [NO. 06CV-12-59] HONORABLE DON GLOVER, JUDGE REVERSED AND REMANDED

          Brian G. Brooks, Attorney at Law, PLLC, by: Brian G. Brooks; Laurie A. Bridewell; and Robert G. Bridewell, for appellants.

          Gibson & Keith, PLLC, by: C. C. "Cliff" Gibson III and Lee D. Curry, for appellee.

          Vaught and Brown, JJ., agree.

          BRANDON J. HARRISON, Judge

         Dr. F. David Chambers and Michelle Chambers appeal from the circuit court's judgment in favor of Kenneth McDougald, wherein he was awarded the principal sum of $300, 000 on a promissory note, plus prejudgment interest of $159, 698.63. They argue that the circuit court erred in excluding their evidence that McDougald was the first to breach the parties' purchase agreement that included the note. They also challenge the award of attorney's fees to McDougald. We agree that the circuit court erred in excluding this evidence. The case is therefore reversed and remanded for a new trial.

         In the summer of 2005, the Chamberses and McDougald were members of a limited liability company known as Bradley Timberland Resources, LLC (BTR). The Chamberses were the majority owners of BTR. McDougald approached the Chamberses about selling his 15 percent interest in BTR to them. On July 22, 2005, the parties entered into a written purchase agreement for McDougald to sell his interest to the Chamberses. According to the terms of the agreement, the purchase price was $500, 000, payable in several different forms and at different times. First, the Chamberses were to pay $35, 418 in cash to McDougald upon execution of the agreement. Immediately upon this payment, McDougald was to have no further interest, whether ownership or management, in BTR. As another part of the payment scheme, the Chamberses were to convey a thirty-acre tract of land to McDougald, with McDougald responsible for securing the release of any encumbrances on this property. The parties further agreed that, as partial payment, the Chamberses were to assign to McDougald a note receivable from Roger George (the George note) payable to the Chamberses in the amount of $119, 763.13. As for the remaining sum due under the agreement, the Chamberses were to pay $300, 000 to McDougald in three equal payments of $100, 000 due July 1 of 2007, 2008, and 2009. Finally, paragraph 7 of the agreement provided that McDougald was to continue his employment (as vice president and general manager) with Bradley Lumber Company (BLC), which was wholly owned by the Chamberses, for the period of the contract and to defer all salary due him until he and the Chamberses mutually agreed to disburse those deferred sums (Paragraph 7).

         That same day, the Chamberses executed the promissory note at issue to secure their obligations under the purchase agreement. The note had an interest rate of 3 percent. It also contained a penalty-interest-rate provision in the event of a default as well as a provision for reasonable attorney's fees.

         McDougald had signed an employment contract with BLC in 2002. Although the term of the contract expired in January 2005, it contained a "roll over" provision stating that it would remain in effect until modified by the parties. McDougald continued his employment with BLC until July 2006.

         On 15 June 2012, McDougald filed suit against the Chamberses to collect on the note, asserting that none of the $300, 000 due had been paid. The Chamberses answered, admitting execution of the note but denying that they were in default or that they had failed to make any payments. They later amended their answer to include a counterclaim asserting that McDougald had breached the purchase agreement by continuing to pay himself while working for BLC.

         McDougald answered the counterclaim, denying its material allegations. He later filed an amended complaint seeking the deferred compensation the Chamberses owed him. In it, McDougald contended that the $300, 000 note was part of the consideration he received from the Chamberses for his interest in BTR. The Chamberses answered the amended complaint, again admitting execution of the promissory note but denying the other material allegations.

         The Chamberses amended their answer and counterclaim to assert that McDougald had breached the contract by failing to defer his salary and by failing to remain employed by BLC until completion of the term of the note. The Chamberses also claimed that McDougald had breached his fiduciary duties by wrongfully removing and converting timber belonging to BTR and by neglecting to cut timber on BLC's property, causing it to ruin and lose value. The Chamberses sought recoupment of the moneys McDougald received from payment of the George note, the moneys he paid himself as salary while employed at BLC, the cash payment specified in the purchase agreement, damages to the real property transferred to McDougald in the purchase agreement, and damages for the timber wrongfully removed or allowed to ruin.

         McDougald responded to the counterclaim, denying the material allegations. Pleading affirmatively, McDougald argued that David Chambers agreed to McDougald's early retirement in July 2006. He also contended that the claims asserted by the Chamberses could be pressed only by BLC.

         The Chamberses and McDougald each filed motions to nonsuit a portion of their claims. The Chamberses sought to dismiss all of their counterclaims against McDougald while McDougald requested dismissal of his claim for deferred compensation. ...


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