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Terra Land Services, Inc. v. McIntyre

Court of Appeals of Arkansas, Division I

February 20, 2019



          Ogles Law Firm, P.A., by: John Ogles, for appellants.

          Leigh Law, PLLC, by: Victoria Leigh; and Walas Law Firm, PLLC, by: Breean Walas, for appellees.

          DAVID M. GLOVER, Judge

         The issue in this case is whether the parties reached a full and complete settlement agreement of their claims. The Faulkner County Circuit Court determined the parties did and entered an order compelling execution of the settlement agreement. On appeal, appellants argue that the court's determination is clearly erroneous, is a misapplication of Arkansas contract law relating to settlement agreements, and should be reversed and remanded. We agree.

         I. Litigation History

          In 2008, appellant Terra Land Services, Inc. ("Terra"), whose shareholders were Samantha Smith ("Smith") and Jim Tom Bell ("Bell"), [1] entered into a partnership with McVesting, LLC ("McVesting"), whose sole member was Jerry McIntyre ("McIntyre"), to purchase and lease mineral interests. The parties agreed McVesting would own legal title to the property the partnership purchased.

         In August 2012, McIntyre informed Terra he no longer recognized Terra's ownership interest in the partnership; Terra sued both McIntyre and McVesting for breach of the partnership agreement. In an amended complaint, Terra alleged McVesting's "Articles of Organization" were amended in September 2008 to add Terra as a member of McVesting (with Terra owning 70% and McIntyre owning 30%); asserted McIntyre had assumed possession of all McVesting's books, records, funds, and other property in contravention of Terra's rights as majority owner; and requested a full accounting and damages for any monetary losses due to McIntyre's actions. In July 2013, the circuit court enjoined McIntyre and McVesting from disposing of any assets in which any of the parties had a beneficial interest. In September 2014, McIntyre and McVesting filed a counterclaim against Terra and a third-party complaint against Smith and Bell individually alleging Terra, Smith, and Bell had breached the partnership agreement with McIntyre and McVesting, had conspired to defraud McIntyre and McVesting, had converted McIntyre and McVesting's property, and had committed fraud.

          In the summer of 2016, the circuit court ordered McVesting to execute authorizations to obtain its business records regarding receipt and payment of funds and payment of expenses and ordered McIntyre to provide Terra with any information needed to access McVesting's accounts. The circuit court appointed Tom Dailey as special master and entered a separate order (1) directing McIntyre and McVesting to provide Dailey with McVesting's tax returns and related information since its inception, as well as any written document relating to the organization and governance of McVesting; (2) instructing Terra to make its best effort to obtain all bank records relating to McVesting; and (3) ordering the parties to cooperate with Dailey in obtaining any other necessary information or in having any telephone conferences. The circuit court's order also dissolved McVesting as of August 12, 2016, subject to rescission or modification for good cause shown by either party or Dailey if the circuit court determined a different termination date was proved or agreed to by the parties.

         In March 2017, Dailey provided his determinations to the circuit court. In his report, Dailey found McVesting never had an operating agreement; he was unable to value the property (mineral) interests; there was approximately $337, 225.55 in cash and receivables to be divided; the income and tax-liability allocations between Terra and McIntyre had varied over the years and could not be reconciled in the absence of an operating agreement; and in Dailey's opinion, the only way Terra could establish entitlement to more than 50% of McVesting was to establish McVesting originally had three members and Terra succeeded two of those members.

          In October 2017, Terra filed a second amended complaint adding Martha Niece, McVesting's accountant, as a defendant.[2] The second amended complaint alleged that Smith, Bell, and McIntyre formed McVesting in September 2008; that in 2010, Smith and Bell assigned their respective interests in McVesting to Terra; that McVesting's "Articles of Organization" were amended to reflect Terra's interest in McVesting; and that the parties intended Terra's ownership interest in McVesting to reflect and remain the same as that assigned to Terra by Smith and Bell, with Terra owning 70% and McIntyre owning 30%. The second amended complaint also alleged that McIntyre and Niece willfully and fraudulently breached their duties to Terra by making material misrepresentations and omissions; had converted McVesting's funds; had made false representations and concealed material facts with the intent to deceive and mislead Terra; were unjustly enriched at Terra's expense; and knowingly and willfully conspired to deceive Terra and wrongfully take control of McVesting's assets at Terra's expense.

         On October 6, 2017, McIntyre and McVesting filed an offer of judgment. The offer of judgment provided Terra and McIntyre would each have a 50% interest in McVesting; the assets and liabilities would be dissolved, with each member receiving a 50% undivided interest in the mineral rights and oil wells and 50% of the cash held in the court registry and in McVesting's bank accounts; each party would have a preferential-purchase right if the other chose to sell its undivided mineral-interest share; Terra would assign its 70% interest back to McVesting; Terra would reimburse McVesting for payments made to Terra by SWN; and McVesting's tax returns would be amended to allocate profits equally between Terra and McVesting. The offer of judgment stated it was unconditional, made to fully and finally resolve all claims asserted by Terra against McVesting, and open and irrevocable for ten days after service on Terra, after which it would be deemed withdrawn. There was no acceptance of this offer of judgment by Terra.

         On October 26, 2017, a hearing was held before the circuit court. Terra requested copies of McVesting's income-tax returns from the IRS to compare with those returns McVesting had already produced and bank statements from another company owned by McIntyre to verify McIntyre's funds had not been commingled. McVesting stated all relevant information had been turned over to Terra's prior attorney, and McIntyre had provided Dailey with all authorizations needed. Terra's attorney, Scott Scholl, claimed authorizations had not been given for the tax information. McVesting's attorney, Victoria Leigh, asserted McIntyre had signed releases for the tax returns; she objected to the release of the tax returns for McIntyre's other company or McIntyre's personal tax returns. The circuit court ruled Terra was entitled to access these records but limited the scope of such information by a protective order.

         On October 18, 2017, McVesting filed a motion for partial summary judgment, requesting dismissal of all five counts alleged in the second amended complaint, arguing (1) there was no proof from which to conclude McIntyre was grossly negligent or engaged in willful misconduct; (2) Smith and Bell were not members of McVesting and had no standing to pursue claims against McIntyre; and (3) McVesting's ...

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