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Miracle Kids Success Academy, Inc. v. Maurras

Court of Appeals of Arkansas, Divisions III, IV

January 24, 2018

MIRACLE KIDS SUCCESS ACADEMY, INC. APPELLANT
v.
MARVIN HENRY MAURRAS APPELLEE

         APPEAL FROM THE PULASKI COUNTY CIRCUIT COURT, TWELFTH DIVISION [NO. 60CV-14-2778] HONORABLE ALICE S. GRAY, JUDGE

          Parker Hurst & Burnett PLC, by: Donald L. Parker II and Ronald S. Burnett, Jr., for appellant.

          Fuqua Campbell, P.A., by: Phil Campbell and Chris Stevens, for appellee.

          KENNETH S. HIXSON, Judge

         Appellant Miracle Kids Success Academy, Inc. (Miracle Kids) appeals from an order granting summary judgment to appellee Marvin Maurras (M. Maurras) on M. Maurras's claim for repayment of a loan. This is the second time this case has been before this court. We dismissed the first appeal for lack of a final judgment because two additional claims by M. Maurras had been dismissed without prejudice, leaving him free to refile those unresolved claims. See Miracle Kids Success Academy, Inc. v. Maurras, 2016 Ark.App. 445, 503 S.W.3d 94. After our dismissal, the trial court entered an order granting summary judgment to M. Maurras on his claim for repayment of the loan, dismissing M. Maurras's remaining two claims with prejudice, and awarding M. Maurras $19, 200 in attorney's fees. Miracle Kids timely appealed from that order, and in this appeal, it contests both the summary judgment and the attorney's fees. Because the order being appealed is now a final order, we have jurisdiction to hear this appeal.

         When a term of a contract is open to different reasonable interpretations, there is a fact question to be resolved, and the case is not ripe for summary judgment. See Prochazka v. Bee-Three Dev., LLC, 2015 Ark.App. 384, 466 S.W.3d 448. Such is the case in the present litigation. We conclude that the trial court erred in granting summary judgment for M. Maurras in this case because the contract between the parties was ambiguous as to an essential disputed term. Therefore, we reverse the summary judgment, reverse the award of attorney's fees, and remand for trial.

         Our standard of review for summary-judgment cases is well established. Anderson v. CitiMortgage, Inc., 2014 Ark.App. 683, 450 S.W.3d 251. Summary judgment should be granted only when there are no genuine issues of material fact to be litigated, and the moving party is entitled to judgment as a matter of law. Thomas v. Clear Investigative Advantage, LLC, 2017 Ark.App. 547, 531 S.W.3d 458. The purpose of summary judgment is not to try the issues, but to determine whether there are any issues to be tried. Graham v. Underwood, 2017 Ark.App. 498, 532 S.W.3d 88. In reviewing a grant of a summary judgment, the appellate court determines if summary judgment was appropriate based on whether the evidentiary items presented by the moving party left a material question of fact unanswered. Thomas, supra. We view the evidence in the light most favorable to the party against whom the motion for summary judgment was filed and resolve all doubts and inferences against the moving party. Id.

         Mary Katherine Hardin (Hardin) and Shelly Decker Keller (Keller) created Miracle Kids, in 2008 and were seeking investors. They successfully solicited Marvin Maurras and his nephew, Chris Maurras (C. Maurras), to join them as the two remaining shareholders and directors of Miracle Kids. The shareholders ultimately agreed that each shareholder would contribute $175, 000 as start-up capital for the company for a total of $700, 000, and this agreement was reduced to writing in an Operations Agreement dated and executed on September 23, 2009.

         About three months later on December 11, 2009, a shareholders' meeting was held. Between September 23, 2009, the date the Operations Agreement was executed, and December 11, 2009, the date of the shareholders' meeting, some or all of the shareholders apparently met with an accountant who suggested a significant change in the manner in which the start-up contributions would or should be made. Instead of each shareholder's $175, 000 contribution being made in the form of a capital contribution, the accountant suggested that each shareholder contribute $25, 000 as start-up capital and the remaining $150, 000 contribution be made in the form of individual $150, 000 promissory notes. The minutes from that December 11, 2009 meeting reflected this revision of the initial funding provisions in the Operations Agreement, [1] as follows:

Based on suggestion of accountant all agree that funding of the company shall take place as loans to the company, excluding the initial $25, 000 by each partner which will be a capital contribution. The remaining $150, 000 of required funding by each partner as stated in the Operating Agreement will be held as a liability of the company which will be repaid to each partner. The loans will accrue interest at an annual interest of 5%. [Hardin] and [Keller] will be repaid their principal only at a rate of $5000 monthly and [M. Maurras] and [C. Maurras] agree to defer loan repayment for now. This will replace the descriptions as detailed in the Operating Agreement.

(Emphasis added.) The December 11, 2009 minutes were signed by all four shareholders.[2]

         The record reflected that Hardin and Keller borrowed money from a bank to fund their respective $175, 000 contributions and that Hardin and Keller were allowed to pledge assets of the company to the bank to secure the loans. M. Maurras made his initial $25, 000 start-up capital contribution and then funded his $150, 000 loan by making six installments of $25, 000 each with the last installment made in May 2010.[3]

         The company apparently operated profitably through the summer of 2014. In June 2014, M. Maurras demanded repayment of his loan, and Miracle Kids refused to pay. On July 17, 2014, M. Maurras filed a complaint against Miracle Kids. In Count I, M. Maurras demanded repayment of the loan in the principle sum of $150, 000 plus 5% interest as reflected in the minutes of the December 11, 2009 shareholder meeting. M. Maurras also requested attorney's fees pursuant to Arkansas Code Annotated section 16-22-308 (Repl. 1999).[4] Miracle Kids filed a timely answer to the complaint.

         M. Maurras subsequently filed a motion for partial summary judgment on his claim for repayment of the loan.[5] In his summary-judgment motion, M. Maurras asserted that because there was no maturity date for the loan, it was payable in full on demand. As support for the proposition that the loan was "due on demand, " M. Maurras cited Arkansas Code Annotated section 4-3-108(a) (Repl. 2001), which provides in pertinent part: "(a) A promise or order is 'payable on demand' if it . . . (ii) does not state any time of payment."

         Miracle Kids filed a response to M. Maurras's motion for partial summary judgment. In its response, Miracle Kids asserted that the December 11, 2009 minutes were not intended to constitute a loan instrument or other type of instrument to be used for the purpose of demanding payment from Miracle Kids. Miracle Kids also asserted that it was financially unable to repay the shareholder loan and that any repayment of the loan would require shareholder approval as required by the parties' Operations Agreement. Further, Miracle Kids specifically contended that M. Maurras had incorrectly applied Arkansas Code Annotated § 4-3-108(a) in that the minutes of the shareholders' meeting did not constitute an "order, " a "promise, " or a "negotiable instrument" under Arkansas Code Annotated sections 4-3-103(a)(7) and (11) and section 4-3-104.

         Attached to Miracle Kids' response was the affidavit of shareholder C. Maurras, the nephew of M. Maurras, wherein C. Maurras stated:

6. As reflected in the December 11, 2009 minutes from the shareholder meeting (the "Minutes"), based on advice from Miracle Kids' accountant, $150, 000 of the $175, 000 capital contribution that Marvin Maurras and I each agreed to make to Miracle Kids would be treated as loans to Miracle Kids and we agreed to defer repayment of the loans to a future date. Our agreement was that the loans would be paid at a later date to be determined by a majority of the shareholders at such time (if ever) that Miracle Kids could afford to repay the loan (i.e. refund the capital contribution). At the time that the Minutes were signed, no agreement was reached among the shareholders of Miracle Kids as to when the shareholder loans would be repaid.
7. The Minutes are not and were never intended as a promissory note or negotiable instrument, which could be used for the purpose of making a demand for repayment of the shareholder loans from Miracle Kids. I never viewed the Minutes as a promissory note or other evidence of indebtedness that could be presented to Miracle Kids for payment of a debt. It was my understanding that the shareholder loans (which were in reality capital contributions) would be repaid when a majority of the shareholders determined that Miracle Kids could afford to repay the shareholder loans.
8. In the past 18 months, Miracle Kids has opened four (4) new locations, and cash flow is extremely tight. At this time, Miracle Kids does not have sufficient cash flow to repay the shareholder loans to Marvin Maurras or to me.
9. If a shareholder meeting were duly called for the purpose of deciding whether to immediately repay the shareholder loan to Marvin Maurras, I would vote against repaying the loan due to the current financial condition and cash needs for growth of Miracle Kids.

(Emphasis added.) In addition, Miracle Kids attached the affidavit of shareholder Shelly Keller, which was virtually identical in content to C. Maurras's affidavit.[6] Simultaneous with the filing of its response to the M. Maurras motion for partial summary judgment, Miracle Kids also filed a motion requesting that partial summary judgment be entered in its favor with respect to M. Maurras's claim for loan repayment.

         The trial court entered an order granting M. Maurras's summary-judgment motion and denying Miracle Kids' summary-judgment motion. After we dismissed the appeal from that order without prejudice due to lack of finality, the trial court entered a final order disposing of all the claims and again granting M. Maurras's motion and denying Miracle Kids' motion. That final order, which was entered by the trial court on December 16, 2016, provides in pertinent part:

The Plaintiff loaned the Defendant the principal sum of $150, 000 at Five-Percent (5%) annual interest, as set forth in the shareholders' meeting minutes. The loan did not have a maturity date and was, therefore, payable upon demand.

         Based on these conclusions, the trial court entered a judgment to M. Maurras in the amount of $206, 298.88 plus postjudgment interest. The order also awarded M. Maurras $19, 200 in attorney's ...


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