LARRY WILLIAMS; GREGORY PECK; AND KAREN NETZEL, TRUSTEE OF THE NETZEL JOINT TRUST APPELLANTS
BANK OF THE OZARKS AS TRUSTEE FOR THE REGISTERED OWNERS OF THE $4, 400, 000 BENTON COUNTY PROPERTY OWNERS' IMPROVEMENT DISTRICT NO. 7 SPECIAL ASSESSMENT BONDS APPELLEE
FROM THE BENTON COUNTY CIRCUIT COURT [NO. 04CV-15-476]
HONORABLE XOLLIE DUNCAN, JUDGE
Moore Pendergraft LLP, by: Timothy C. Hutchinson, for
separate appellants Larry Williams and Gregory Peck.
Miller, Butler, Schneider & Pawlik, PLLC, by: Mason L.
Boling, for separate appellant Netzel Joint Trust.
Jiles, LLP, by: Mike Millar and Nikki L. Cox, for appellee.
F. VIRDEN, JUDGE
December 2000, the Benton County Property Owners'
Improvement District No. 7 (the "District") issued
$4.4 million in special-assessment bonds to fund the
construction of infrastructure improvements for the proposed
Sugar Creek subdivision in Benton County. Appellants Larry
Williams, Gregory Peck, and Pete Netzel, who were investors
in the development company that made the improvements to the
land, each executed guaranty agreements in which they
guaranteed payment of the principal and interest due on the
bonds at maturity. The bonds matured ten years later with an
unpaid principal balance of $3.48 million. Special-assessment
taxes, which the District pledged as security for repayment
of the bonds, were also delinquent. Appellee Bank of the
Ozarks (the "Bank"), as trustee for the
bondholders, sued the appellants for breach of contract when
they failed to pay the unpaid balance according to the terms
of their guaranty agreements. The circuit court granted
summary judgment in favor of the Bank. The appellants now
appeal the circuit court's order. We affirm.
2000, several property owners in Benton County petitioned the
county court to form an improvement district for the purpose
of creating a residential subdivision. The court granted the
petition and formed the District for the purpose of making
the infrastructure improvements typical of a subdivision,
including the construction of waterworks and the paving of
streets and sidewalks. The court also appointed three persons
named in the petition to the District's board of
thereafter, the District hired an engineer to prepare plans
for the subdivision, including the specifications for the
infrastructure and improvements. The District also hired an
assessor to calculate the "assessed benefit," or
the difference between the current value of the property and
its increased value with the proposed improvements, for each
parcel in the district.
District used the assessed benefit to calculate a special
tax, which constituted a lien on the property and was due
annually to the county tax collector. The District issued an
order on November 3, 2000, that levied the tax, and on
December 1, 2000, it entered into a pledge-and-mortgage
agreement in favor of the Bank.
pledge and mortgage provided, in pertinent part, that the
maturity date of the bonds was December 1, 2010, and the
District pledged the proceeds of the special tax to the Bank
"for the purpose of securing the payment of the [b]onds
and the interest thereon as they severally mature[.]"
The pledge and mortgage further provided that the special tax
"shall be levied and collected annually until the
principal of and interest on all outstanding [b]onds are paid
in full[, ]" and it defined the term "bonds
outstanding" as "[b]onds of the District which have
not matured." It declared, moreover, that a default
occurred when, inter alia, there was a "default
in the payment of the principal of or interest on any [b]ond
pledge and mortgage also addressed how the Bank was to apply
the tax proceeds once it received them from the District.
First, the Bank was required to deposit money into a
"Bond Fund" to "pay all principal of, interest
on, and [t]rustee's fees in connection with the [b]onds
which will mature or become due" in the following year.
Second, the Bank was to make deposits into a "Debt
Service Reserve Fund" whose assets "shall be
applied to pay [t]rustee's fees, interest on the [b]onds,
and principal of the [b]onds to the extent moneys in Bond
Fund are insufficient for that purpose."
appellants, who were investors in Sugar Creek, LLC, the
developer and principal owner of the property in the proposed
subdivision, thereafter executed identical guaranty
agreements "as [an] inducement to the purchase of the
bonds." The agreements provided that in the event of a
default, each appellant agreed "to pay the principal and
accumulated interest on the [b]onds at maturity or earlier
redemption," and the appellants' obligations as
guarantors arose "absolutely and
unconditionally when the [b]onds [were] issued, sold,
and delivered by the District." (Emphasis added.)
appellants apparently expected that the bonds would be
redeemed well before the maturity date, as each lot sold to
buyers who could pre-pay the special tax associated with each
lot at the time of purchase. Sales apparently did not go as
expected, however, and according to the appellants, "in
2010, there was a realization that the bonds would not be
paid off when [they] matured on December 1, 2010." As a
result, the appellants-who had been paying the special taxes
on the unsold lots-did not pay the 2010 special-assessment
tax when it became due on October 10, 2010, because, as the
appellants admitted below, "default on the bonds was
the bonds matured on December 1, 2010, with an outstanding
balance of $3.48 million. On January 4, 2011, the Bank
brought an action to foreclose on the pledge and mortgage
securing the bonds. The appellants and other guarantors were
originally named as defendants to the lawsuit, but they were
later dismissed without prejudice. On February 7, May 2, and
July 14, 2012, the Bank was awarded partial judgments
granting foreclosure on the real property in the subdivision.
The property was later sold to the Bank for credit bids
totaling $1, 492, 000, leaving an outstanding principal
balance of $1, 988, 000 due on the bonds.
February 29, 2012, shortly before the first foreclosure sale,
James McCord, the attorney for the District, wrote a letter
to the Benton County Collector that the appellants would
later assert was evidence of a coordinated effort-with the
Bank-to have the special tax removed before the Bank
purchased the property in foreclosure (whereupon, the
appellants say, the Bank would have been liable to pay the
special tax). In the letter, Mr. McCord erroneously told the
collector that "the [b]onds sold by the District matured
on February 1, 2010," and he requested that she
"have the records in the Benton County Collector's
Office reflect that the tax levied by the District is not
delinquent on any lot or parcel in the District for years
2010 or 2011." Mr. McCord also told the collector that
"[n]o taxes are due the District for 2012 or ...