Arkansas Business Litigation Lawyer & Attorney : Allen Law Firm : Serving Little Rock, Fort Smith, North Little Rock

The Arkansas Supreme Court affirmed the granting of Rule 11 sanctions in Reeve v. Carroll County, No. 07-1239 (5/29/08). During a hearing on a motion to dismiss, the parties reached settlement. They read the terms of the settlement into the record, and no one objected. The trial court entered an order based on the settlement. However, 17 days later, plaintiffs filed a motion to set aside the order. They argued the order contained erroneous findings that had not been agreed upon.

The trial court granted Rule 11 sanctions, and the supreme court affirmed. The opinion is not clear as to the amount of sanctions, but it is clear that plaintiffs' attorney was sanctioned.

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The Arkansas Supreme Court affirmed summary judgment in Gray v. Mitchell, No. 07-858 (5/29/08). This case involves the much-publicized termination of Dr. Roy Brooks, former superintendent of the Little Rock School District. As part of the termination, the school board payed Dr. Brooks $650,000 in severance pay. This lawsuit argued that payment to a school employee to "not work" violates the Arkansas Constitution, Article 14 § 3(b). The trial court granted summary judgment to the defendants.

The supreme court pointed out the flaw in the lawsuit's reasoning--paying severance to Dr. Brooks permitted the school board to replace him with what they would consider a better superintendent. This is immediately and directly connected with the maintenance of the school system, which satisfies the constitutional mandate.

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The Arkansas Court of Appeals affirmed an award of attorney's fees in Meyer v. CDI Contractors, LLC, No. 07- (5/21/08).

CDI hired Meyer as a subcontractor to perform earthwork a project for the Church at Rock Creek. After CDI canceled the contract, Meyer filed suit for fraudulent inducement to contract. CDI later learned that Meyer submitted false information when he applied for his contractor license. CDI moved for summary judgment under Ark. Code Ann. § 17-25-103(d), which prohibits any action to enforce a contract that violates the Arkansas Contractors Licensing Law. The trial court granted summary judgment and also awarded CDI attorney's fees of $40,000.

The court of appeals affirmed, although it did say a fraud claim could potentially survive this statute. However, Meyer's fraudulent inducement claim was linked entirely to the illegal contract, and he sought breach of contract damages. The court also found the attorney's fee award was reasonable.

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The Arkansas Supreme Court reversed a grant of attorney's fees in Hanners v. Giant Oil Co. of Arkansas, Inc., 07-1314 (5/15/08) (previously posted 3/21/07).

Giant Oil filed a declaratory action to decide the parties' rights under a contract. There were no claims for damages. The trial court entered judgment for Giant Oil and granted attorney's fees and costs pursuant to Ark. Code Ann. § 16-22-308.

The supreme court reversed, holding that Ark. Code Ann. § 16-22-308 only applies to a breach of contract. It does not apply to a declaratory action. However, the Arkansas Declaratory Judgment Act does provide for costs. The case was remanded for the trial court to enter an award of costs.

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The Western District of Arkansas dismissed a case based on the Arkansas Deceptive Trade Practices Act ("ADTPA") in Shimoda-Atlantic, Inc. v. Financial Industry Regulatory Authority, Inc., 2008 WL 2003160 (W.D. Ark. 5/8/08).

Shimoda-Atlantic brought this case against FINRA (formerly NASD) claiming violations of the ADTPA for fraudulent securities registrations. However, securities registrations are governed by the Securities Exchange Act of 1934 (15 U.S.C. § 78a). This act does not provide a private cause of action. In other words, FINRA cannot be sued for a violation of its own rules. The court refused to circumvent the Exchange Act through the ADTPA and dismissed the case.

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The Western District of Arkansas dismissed a trademark case for lack of jurisdiction in Flexible Staffing Services, Inc. v. Integro Employment Services, Inc., 2008 WL 1928827 (W.D. Ark. 4/29/08) (previously posted 1/23/08). Integro filed an Arkansas state trademark case against one of FSS's affiliates in Northwest Arkansas. The district court held the federal action was really a response to the state action raising a federal defense. The court held it had no jurisdiction over the dispute and dismissed the federal action.

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The Eighth Circuit affirmed dismissal of claims based on the Arkansas Securities Act and fraud in Benton v. Merrill Lynch & Co., Inc., No. 07-2224 (5/5/08).

In 2001 and 2002, David Howell fraudulently obtained money from various investors. He then set up an institutional account at Merrill Lynch. By summer 2002 he had lost all the money in the account, and he committed suicide shortly thereafter. Plaintiffs filed suit against Merrill Lynch under a theory that it aided and abetted Howell's fraud. The district court dismissed for failure to state a claim.

The Eighth Circuit affirmed because the fraud occurred only when Howell took money from investors. Merrill Lynch never took part in taking the money and had no communications with the investors. Merrill Lynch simply cannot be liable for events that occurred before its relationship with Howell.

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The Arkansas Supreme Court affirmed class action certification in ChartOne, Inc. v. Raglon, No. 07-940 (4/24/08).

ChartOne provides copying services of medical records for medical providers in Arkansas. Access to medical records for legal proceedings is controlled by Ark. Code Ann. § 16-46-106, which sets maximum charges for copying services. The class action complaint alleges ChartOne charged fees in excess of the statutory maximum and included a claim for deceptive trade practices pursuant to Ark. Code Ann. 4-88-101, et seq.  Because ChartOne applied the same practices to all its customers, the court easily affirmed class certification.

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The Arkansas Court of Appeals affirmed a preliminary injunction in Freeman v. Brown Hiller, Inc., No. 07-717 (4/2/08).

Freeman was an insurance agent for BHC. She signed a limited noncompete agreement that prohibited her from soliciting BHC customers for a period of 2 years after her employment ended. The contract also had a provision prohibiting disclosure of trade secrets. The agreement did not contain a geographic limitation. Freeman resigned and immediately went to work for a competitor. Before resigning she accessed, copied and deleted 300 of BHC's computer files.

The trial court granted the preliminary injunction for breach of the noncompete agreement but not for trade secret misappropriation. On appeal, Freeman argued the agreement was really an unenforceable covenant not to compete masquerading as a nondisclosure agreement. The court of appeals rejected this argument and affirmed the preliminary injunction.

Although Freeman copied an deleted 300 computer files, BHC did not bring a claim for Computer Trespass or Computer Fraud, which is the focus of this recent Arkansas Lawyer article-- Beyond Trade Secrets: Protecting Business Information in Arkansas.

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