Thomason v. Randall et al

Filing 111

ORDER granting in part and denying in part 43 Motion for Summary Judgment; granting in part and denying in part 89 Second Motion for Summary Judgment. (See Order for specifics.) Signed by Honorable Susan O. Hickey on January 20, 2015. (mll)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
TEXARKANA DIVISION
SCOTT THOMASON
V.

PLAINTIFF
NO. 4:12-CV-4155

STEVE RANDALL,
WARREN HANSON,
STEVE FALER,
SWS ENGRAVING, L.L.C, and
AMERICAN LEGACY FIREARMS, INC.

DEFENDANTS

MEMORANDUM OPINION
Before the Court are Defendants’ Motions for Summary Judgment. (ECF Nos. 43 & 89).
Defendants move to dismiss all claims against them contending that Scott Thomason lacks
standing to bring these claims in his individual capacity, there was no contract between the
parties, and if there was a contract, the Defendants did not breach the agreement. Plaintiff has
responded. (ECF Nos. 52 & 95). Defendants have replied. (ECF No. 72). Plaintiff has filed a
Sur-Reply. (ECF No. 73). The Court finds this matter ripe for consideration.

BACKGROUND
This case arises out of a business dispute involving the custom engraving of over 5,000
commemorative guns called the “1911 Anniversary Pistols.” Defendant American Legacy
Firearms (“ALF”) was to produce the guns under a license agreement with the National Rifle
Association (“NRA”). Defendants Steve Faler and Warren Hanson operate ALF, which is
headquartered in Colorado. When ALF receives an order from a customer for a commemorative
gun, ALF purchases generic guns and ships them to a gun engraver for the etching. SBR

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Etchings, Inc. (“SBR”), located in Hope, Arkansas and founded by Defendant Steve Randall,
was one of ALF’s preferred engraving companies.
Plaintiff Scott Thomason was SBR’s insurance agent in the late 1990s and through part of
the 2000s. He and Randall remained in contact after Thomason moved and began working for
another insurance company. Randall and SBR started to encounter financial difficulties in 2008,
and Thomason and Randall discussed ways to increase sales. In an effort to help the company,
Thomason began to take engraved samples from SBR to local events, such as the Wild Turkey
Federation dinner in Hampton, Arkansas. On May 22, 2009, Thomason gave $10,000 to SBR in
exchange for one share of stock in the company. From thereon, he became more directly
involved in SBR. Thomason was named Secretary of SBR on August 27, 2009. On September
4, 2009, acting in his capacity as Secretary, Thomason co-signed a promissory note for a $35,284
loan to SBR. Although Thomason was never involved in SBR’s day-to-day work of engraving
guns, Thomason attended trade shows in 2009 and 2010 in an attempt to generate sales.
In the fall of 2010, the Internal Revenue Service (“IRS”) notified SBR that it had a tax
levy of over $675,000 on SBR’s property. Thomason paid $21,000 to the IRS on behalf of SBR,
and SBR also reached out to ALF in hopes of drumming up business in order to pay the taxes.
ALF had an interest in keeping SBR in business because SBR used a better “bluing” method than
other engraving companies. Around the same time, ALF was in negotiations with the NRA to
obtain a license to use the NRA name for its 1911 Anniversary Pistol. The parties discussed
entering into a partnership agreement in which ALF would provide the salesmanship, SBR and
Randall would provide the skilled labor and expertise to engrave guns, and Scott Thomason
would provide the capital. This arrangement is detailed in an email dated October 13, 2010,
which Thomason refers to as the “Omnibus Agreement.” (ECF No. 75, Ex. No. 3).

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As an alternative plan to keeping SBR afloat, the parties discussed forming a new entity
that would essentially perform the role of SBR. The new company would have access to the
building and equipment owned by SBR and would hire SBR’s five skilled employees. In
October 2010, Defendants Faler and Hanson accompanied Thomason to a meeting with Ted
Kelton at Peoples State Bank about obtaining an operating loan for the new company.
Subsequently, Kelton authorized a loan for $25,000 to Thomason.
On November 3, 2010, ALF’s Faler sent two emails outlining a prospective agreement
between ALF and a new entity called 3:16 Engraving, LLC (“3:16”) to produce the 1911
Anniversary Pistols. On November 9, 2010, Thomason filed papers with the Arkansas Secretary
of State creating 3:16. Subsequently, 3:16 hired former SBR employees, including Defendant
Randall, and paid them three weeks’ worth of back pay that SBR owed them.

Between

November 2010 and February 2011, 3:16 sent invoices to customers, including ALF, for orders
received during that time period. ALF executed the license agreement with the NRA for the
1911 Anniversary Pistols on December 30, 2010, but only sent one proof to 3:16. ALF never
sent any of the commemorative pistols to 3:16 for engraving.
In early 2011, ALF decided that it did not want to use 3:16 as its engraver for the 1911
Anniversary Pistols. 3:16’s employees were unhappy with Thomason, whom they allege was not
withholding their income taxes. Randall, Hanson, and Faler were not satisfied with the way
Thomason had organized 3:16. Thomason was the sole member and they wanted membership
interests in the new company. On February 11, 2011, 3:16’s employees resigned and notified
Thomason by text message. They also informed him of their intentions to start a new gun
engraving company, SWS Engraving, L.L.C (“SWS Engraving”). SWS Engraving hired all of
the former employees of 3:16 and began using the building, equipment, and supplies that had

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previously belonged to SBR and 3:16. SWS Engraving took over the 3:16’s existing orders, and
ALF hired them to engrave the 1911 Anniversary Pistols.
The Arkansas Department of Workforce Services (“DWS”) received a form on February
11, 2011 notifying them that 3:16 was no longer in business. On January 14, 2012, the Arkansas
Secretary of State revoked 3:16’s charter for failing to pay franchise taxes. 3:16 has never filed
articles of dissolution with the Secretary of State or attempted to reinstate its corporate charter.
STANDARD OF REVIEW
The standard of review for summary judgment is well established. When a party moves
for summary judgment, “[t]he court shall grant summary judgment if the movant shows that
there is no genuine dispute as to any material fact, and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); Krenik v. County of LeSueur, 47 F.3d 953 (8th Cir. 1995).
This is a “threshold inquiry of…whether there is a need for trial—whether, in other words, there
are genuine factual issues that properly can be resolved only by a finder of fact because they may
reasonably be resolved in favor of either party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
250 (1986); see also Agristor Leasing v. Farrow, 826 F.2d 732 (8th Cir. 1987). A fact is
material only when its resolution affects the outcome of the case. Anderson, 477 U.S. at 248. A
dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict
for either party. Id. at 252.
DISCUSSION
This suit was filed by Thomason on December 21, 2012 against Randall, Hanson, Faler,
SWS Engraving, and ALF (collectively “Defendants”). Thomason alleges multiple theories for
recovery: (1) breach of contract; (2) unjust enrichment or implied contract; (3) promissory
estoppel; (4) piercing the corporate veil; (5) interference with contractual relationship or business

4

expectancy; (6) civil conspiracy; (7) and fraud.

Defendants move for summary judgment,

contending that Thomason lacks standing to assert claims that belong to 3:16, no contract ever
existed between Defendants and 3:16 or Defendants and Thomason, and that even if a contract
did exist, 3:16 breached the agreement and was unable to perform. Thomason argues that he has
standing to assert the claims of 3:16, there was a contract, and that ALF repudiated the contract.
The Court will first examine whether Thomason has standing to assert 3:16’s claims as “standing
is a threshold inquiry and jurisdictional perquisite that must be resolved before reaching the
merits of the suit.” Curtis Lumber Co. v. Louisiana Pac. Corp., 618 F.3d 762, 770 (8th Cir.
2010).
A. Standing to assert the claims of 3:16
Arkansas has recognized the nearly universal rule that a corporation and its stockholders
are separate and distinct, even though a stockholder may own the majority or all of the stock.
See Farm Bureau Ins. Co. of Arkansas, Inc. v. Running M Farms, Inc., 336 Ark. 480, 487, 237
S.W.3d 32, 37 (2006). 1 In order for a shareholder to bring an individual cause of action against a
third party, the shareholder must have been injured directly or independently of the corporation.
See Farm Bureau Ins. Co. of Arkansas, Inc, 336 Ark at 487, 237 S.W.3d at 37. Individual
shareholders have no standing to sue in their individual capacities for injuries allegedly suffered
primarily by the corporation. Bomar v. Moser, 369 Ark. 123, 128, 251 S.W.3d 234, 239 (2007).
Direct suits brought by a shareholder are only appropriate where the shareholder asserts an injury
that is distinct and separate from the injury caused to the corporation. Id. at 129, 251 S.W.3d at
240.

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Arkansas courts have applied the same rule to limited liability companies and their members. See Anderson v.
Stewart, 366 Ark. 203, 206, 234 S.W.3d 295, 298 (2006); K.C. Properties of N.W. Arkansas, Inc. v. Lowell Inv.
Partners, LLC, 373 Ark. 14, 32, 280 S.W.3d 1, 15 (2008).

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In this action, a large portion of Thomason’s purported damages stem from the breach of
an alleged contract between 3:16 and ALF. The injuries allegedly suffered from this breach of
contract were primarily suffered by 3:16, not by Thomason directly or independently of 3:16.
His tortious interference and civil conspiracy claims rely on this breach of contract claim, and the
injuries stemming from these claims were also suffered primarily by 3:16 and not Thomason
individually. As part of Thomason’s unjust enrichment claim, he alleges that 3:16 conferred
benefits to ALF and expected to be compensated. Likewise, 3:16 suffered the primary damages,
not Thomason as its sole member. Thomason suffered no separate and distinct injury from
Defendants’ actions that form the basis of these claims.
Additionally, Thomason asserts that ALF’s and SWS Engraving’s corporate veils should
be pierced, holding defendants Randall, Faler, and Hanson individually liable for the profits they
made to the detriment of 3:16.

While Thomason acknowledges that these counts of his

complaint belong to 3:16, he contends that he has standing to bring them individually because
Defendants waived the standing issue by failing to raise their objection until filing a motion for
summary judgment. Additionally, he argues that 3:16 has been dissolved and the claims inured
to Thomason as 3:16’s sole member. Alternatively, Thomason maintains that 3:16 ratified and
assigned this action to Thomason.
Thomason’s first contention fails because standing relates to the justiciability of the case
and cannot be waived by the parties. Friends of Boundary Waters Wildnerness v. Thomas, 53
F.3d 881, 886 (8th Cir. 1995). The Court believes Thomason is confusing standing with real
party in interest, which requires that every “action must be prosecuted in the name of the real
party in interest.” Fed. R. Civ. P. 17(a). The real party in interest rule demands that the plaintiff
must “actually possess, under substantive law, the right sought to be enforced.” Walker Mfg.,

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Inc. v. Hoffmann, Inc., 220 F. Supp. 2d 1024, 1030 (N.D. Iowa 2002). Unlike standing, real
party in interest is not jurisdictional and can be cured under Federal Rule of Civil Procedure
17(a). Id. at 1030, n. 6. A real party in interest objection is deemed waived if it is not raised in
“a timely or seasonable fashion.” Id. at 1029. Defendants have not raised the real the party in
interest objection, but even if they had, it would not be untimely at the summary judgment stage.
See Walker Mfg., Inc., 220 F.Supp at 1030; Consul Gen. of Republic of Indonesia v. Bill's
Rentals, Inc., 330 F.3d 1041, 1047 (8th Cir. 2003).
Thomason’s second contention is that this action inured to him upon the dissolution of
3:16, providing him with the standing to sue. He argues that a cause of action is an asset of an
entity, and that the assets were distributed to him when 3:16 dissolved. Thomason cites to
bankruptcy cases to establish that a cause of action is an asset.

These cases look to the

Bankruptcy Code, which is not relevant here. There is no authority in Arkansas holding that a
cause of action is a property interest that can devolve to a member of a limited liability company
upon dissolution. Other courts that have considered this argument have found that an unasserted
contract claim is “not a ripened claim on which action was begun by the corporation, nor is it a
tangible representation of a fixed ascertainable debt.” Davis v. St. Paul Fire & Marine Ins. Co.,
727 F. Supp. 549, 552 (D.S.D. 1989). Therefore, courts have held that an unasserted breach of
contract claim is not property that devolves to shareholders upon dissolution. Id. at 552-553;
Hutson v. Fulgham Indus., Inc., 869 F.2d 1457, 1462 (11th Cir. 1989). Thus, the Court finds that
Thomason’s second contention is without merit.
Lastly, in an effort to ensure that he has standing, Thomason provides two documents
titled, “Consent and Ratification of Dissolution of 3:16 Engraving, LLC” and “Ratification and
Assignment of All Assets of 3:16 Engraving, LLC,” both signed on September 15, 2014 by

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Thomason in his capacity as sole member of 3:16. Thomason executed these documents after
the Defendants raised the issue of standing in their first Motion for Summary Judgment. While
the “Consent and Ratification of Dissolution of 3:16 Engraving, LLC” may be sufficient to
trigger dissolution, the Court finds these documents insufficient to provide Thomason with
standing to assert the claims belonging to 3:16. As for an assignment, Thomason has not offered
any legal support for the proposition that a limited liability company can assign its interest in an
unasserted breach of contract claim to one of its members. Similarly, the support Thomason
cites for a limited liability company ratifying an action prosecuted by one of its members does
not relate to standing, but to real party in interest issues. Under Federal Rule of Civil Procedure
17, “[t]he court may not dismiss an action for failure to prosecute in the name of the real party in
interest until . . . a reasonable time has been allowed for the real party in interest to ratify, join, or
be substituted into the action.” Fed. R. Civ. P. 17(a). As previously addressed by the Court, real
party in interest differs from standing, and a limited liability company cannot confer standing
upon one of its members through ratification.
Furthermore, the revocation of 3:16’s charter thwarts Thomason’s attempts to pursue
3:16’s claims in this lawsuit. In Arkansas, a corporation whose charter has been revoked does
not have the capacity to sue. Schmidt v. McIlroy Bank & Trust, 306 Ark. 28, 33, 811 S.W.2d
281, 284 (1991). 2

If a limited liability company with a revoked charter could simply ratify a

lawsuit prosecuted by one of its members or alternatively assign a cause of action to the member,
the rule disallowing lawsuits by corporate entities with revoked charters would be meaningless.

2

There is no authority in Arkansas regarding whether a limited liability company with a revoked charter lacks the
capacity to sue; however, the policy behind the rule for corporations would apply to limited liability companies. If
the corporate charter is revoked when the suit is filed, then the corporation does not legally exist. HRR Arkansas,
Inc. v. River City Contractors, Inc., 350 Ark. 420, 428, 87 S.W.3d 232, 237 (2002). A lawsuit must be initiated by a
person, natural or artificial. Comm. for Util. Trimming, Inc. v. Hamilton, 290 Ark. 283, 285, 718 S.W.2d 933, 934
(1986).

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An argument similar to Thomason’s was offered by the appellants in Schmidt, who were
attempting to bring suit in their individual capacity as partners after their family farming
corporation’s charter was revoked and they became individually liable for the obligations of the
de facto corporation. Schmidt, 306 Ark. at 33, 811 S.W.2d at 283. The Arkansas Supreme Court
maintained that the reasoning behind the cases holding corporate officers and shareholders
individually liable is that they ought not avoid personal liability because of their nonfeasance.
“On the other hand, it does not follow that they should be allowed to benefit by their nonfeasance
by allowing them to bring suit as partners.” Id. at 33, 811 S.W.2d 283. Similarly, Thomason
should not be allowed to benefit from neglecting to pay 3:16’s franchise taxes by prosecuting
3:16’s claims in his individual capacity.
Because Thomason cites no direct or independent injury stemming from ALF’s alleged
breach of the agreement with 3:16 to produce the 1911 Anniversary Pistols, he lacks standing to
assert this claim. Thomason also fails to cite any independent injury relating to 3:16’s unjust
enrichment claim, or from a civil conspiracy or tortious interference with the alleged contract
between ALF and 3:16. There is no allegation of direct injury that would necessitate piercing the
corporate veil of ALF or SWS Engraving. These purported injuries were suffered primarily by
3:16. His contentions that the Defendants waived standing or that 3:16’s claims inured to him
upon its dissolution are without merit. Therefore, the Court finds that Thomason lacks standing
to assert these claims.
B. Individual claims
Thomason maintains that he was individually injured by Defendants’ breach of the
“Omnibus Agreement,” which was in the form of an email. Additionally, Thomason seeks
recovery on theories of unjust enrichment, implied contract, and promissory estoppel.

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Furthermore, he alleges that Defendants Faler and Hanson made false representations of material
fact, inducing him to enter into the Omnibus Agreement and spend personal funds in furtherance
of the agreement between 3:16 and ALF.
i.

Breach of the Omnibus Agreement

Thomason refers to an email from Faler to Randall, Hanson, and Thomason as the
“Omnibus Agreement.” In the email, Faler suggests an arrangement that would keep SBR afloat.
He proposes a breakdown of the ownership interest in SBR’s future profits among Thomason,
Randall, Hanson, and himself. The subject line of the email reads, “partnership agreement.”
Thomason contends that this email created an express contract between the parties, and that
ALF, Faler, and Hanson materially breached the agreement when they repudiated the contract
prior to the time Thomason’s performance was due. Defendants argue that no contract ever
existed between the parties and that the email only reveals that the parties were contemplating
entering into an agreement.
Under Arkansas law, the essential elements of a contract are (1) competent parties, (2)
subject matter, (3) legal consideration, (4) mutual agreement, and (5) mutual obligations. City of
Dardanelle v. City of Russellville, 372 Ark. 486, 490, 277 S.W.3d 562, 566 (2008). The
Supreme Court of Arkansas has articulated two legal principles that govern the determination of
whether parties entered a valid contract: (1) a court cannot make a contract for the parties but can
only construe and enforce the contract they have made; and if there is no meeting of the minds,
there is no contract; (2) in order to make a contract there must be a meeting of the minds as to all
terms, using objective indicators. Williamson v. Sanofi Winthrop Pharm., Inc., 347 Ark. 89, 98,
60 S.W.3d 428, 434 (2001).

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The express language of Faler’s email indicates that he contemplated further discussion:
“As fast as I can get this done, there will be changes. Warren [Hanson] and I want to meet down
there next week with you and formally agree on everything.” (ECF No. 75, Ex. No. 3). The
language of this email does not manifest a mutual agreement of the parties, but rather a mere
proposal to keep a company in business. The subsequent conduct and later emails of the parties
confirms that the parties had no “meeting of the minds” and never intended for this email to be a
binding contract. In the weeks following this email, the parties decided to create an entirely new
engraving company. Thomason formed 3:16 and made himself its sole member. There was no
profit-sharing arrangement.

Based on this undisputed evidence, the Court finds that no

reasonable jury could conclude that Faler’s email constituted a binding, enforceable contract.
ii.

Unjust Enrichment or Implied Contract

Thomason asserts that if he and the Defendants did not have an express contract, they had
an implied contract to replace SBR with a new company that would contract with ALF to
engrave the 1911 Anniversary Pistols. He also alleges that he personally purchased supplies,
paid the payroll, and paid $21,000 worth of back taxes for SBR, and is therefore entitled to
recovery under the theory of unjust enrichment. 3
Arkansas law has recognized two types of implied contracts: those properly called
“implied contracts,” where the contract is inferred from the acts of the parties, and those which
are more properly referred to as quasi-contracts or constructive contracts, where the law implies
an obligation. Steed v. Busby, 268 Ark. 1, 7, 593 S.W.2d 34, 38 (1980). “[A]n action based on
unjust enrichment is maintainable where a person has received money or its equivalent under

3

Additionally, Thomason alleges an unjust enrichment claim on behalf of 3:16, but the Court has determined that
Thomason does not have standing to assert 3:16’s claims.

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such circumstances that, in equity and good conscience, he or she ought not to retain.” Deutsche
Bank Nat. Trust Co. v. Austin, 2011 Ark. App. 531, at 7, 385 S.W.3d 381, 387.
Thomason claims SBR was unjustly enriched by his actions; however, SBR is not a
defendant in this action. Therefore, Thomason’s unjust enrichment claim fails.
As for his implied contract claim, there is a genuine dispute of material fact as to whether
Thomason and ALF had an implied contract to create a new company that would work with ALF
to engrave the Anniversary Pistols. Thomason has presented email exchanges where the parties
discuss forming a new entity. Thomason, Hanson, and Faler each testified in their depositions
that in October 2010 they met with Ted Kelton from Peoples State Bank, who was Thomason’s
banker, about getting an operating loan for the new business. Hanson revealed that the potential
project with the NRA was discussed at the meeting. (ECF No. 49, Ex. No. 2, p. 17, lines 16-18).
According to Thomason, Kelton said they had to have an agreement before Kelton would
authorize the loan. (ECF No. 48, Ex. No. 1, p. 50, lines 18-19). In an email dated November 3,
2010, Defendant Faler indicated that he had “sent a long email to Ted answering some of his
questions.” (ECF No. 75, Ex. No. 4). This evidence suggests Hanson and Faler were trying to
help Thomason get a loan to start 3:16, and could support the inference that there was an implied
contract between the parties to start a new business that would produce the 1911 Anniversary
Pistols.
Defendants deny that Kelton gave Thomason the loan based on the money the 1911
Anniversary Pistols would generate, but they have not produced any evidence or emails with
Kelton to corroborate their position. A question of material fact remains as to whether the
parties had an implied contract to start a new gun engraving company that would produce the

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1911 Anniversary Pistols. Accordingly, summary judgment on Thomason’s implied contract
claim is inappropriate.
iii.

Promissory Estoppel

Thomason contends that Faler and Hanson promised that if he created a new gun
engraving company, then ALF would use the new company to engrave the 1911 Anniversary
Pistols. In reliance on that promise, Thomason got a $25,000 loan from Peoples State Bank and
created 3:16.
Under Arkansas law, promissory estoppel requires (1) the making of a promise, (2) intent
by the promisor that the promise be relied upon, (3) reliance upon the promise by the promise,
and (4) injustice resulting from a refusal to enforce the promise. Curtis Lumber Co., 618 F.3d at
780. The Supreme Court of Arkansas has held that “the party asserting estoppel must prove it
strictly, there must be a certainty to every intent, the facts constituting it must not be taken by
argument or inference, and nothing can be supplied by intendment.” K.C. Properties of N.W.
Arkansas, Inc. v. Lowell Inv. Partners, LLC, 373 Ark. 14, 30, 280 S.W.3d 1, 14 (2008). Whether
there was actual reliance and whether reliance was reasonable is a question for the trier of fact.
Id. at 31, 280 S.W.3d at 14. A “promise” is “a manifestation of intention to act or refrain from
acting in a specified way, so made as to justify a promisee in understanding that a commitment
has been made.” Restatement (Second) of Contracts § 2 (1981).
The Court finds that reasonable minds could differ as to whether Faler and Hanson
promised Thomason that if he created a new company, ALF would hire the company to engrave
the 1911 Anniversary Pistols. In emails to Thomason, Faler stated that the pistols “would be
engraved by 3:16” and that “ALF prefers to use 3:16 as to any other engraver.” These emails
were sent after Faler, Hanson, and Thomason met with Kelton at Peoples State Bank about an

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operating loan for a new company. A few days after Thomason received the emails, he filed
Articles of Organization with the Arkansas Secretary of State, forming 3:16. Thomason alleges
that he created 3:16 and got the operating loan in reliance on Faler and Hanson’s promise. Faler
and Hanson maintain that they were to be members of 3:16, and it is undisputed that Thomason
made himself the sole member. However, Thomason claims that the plan was to make Faler and
Hanson members later. ALF sent one proof for the 1911 Anniversary Pistol to 3:16, suggesting
that Faler and Hanson may have conceded to Thomason’s plan to make them members later.
Because there are material facts in dispute, summary judgment on Thomason’s promissory
estoppel claim is inappropriate.
iv.

Fraud

In his Second Amended Complaint, filed on October 27, 2014, Thomason included a new
count for fraud. He contends that Faler and Hanson told him that if he invested money in
creating a new company, ALF would use the new company to engrave the 1911 Anniversary
Pistols. However, Faler and Hanson maintain that they always reserved the right to use whatever
engraver they wished. Thomason claims that this was never communicated to him and that Faler
and Hanson’s representations were made with the intention of inducing him to spend his personal
money to obtain a loan, form a new company, and employ the SBR employees. Defendants
argue that there was no false representation of material fact, and that the new fraud claim fails as
a matter of law because of the statute of limitations.
Under Arkansas law, the statute of limitations on a fraud claim is three years.

Ark.

Code. Ann. § 16-56-105. However, the statute of limitations can be tolled until the party having
the cause of action discovers the fraud or should have discovered it. See Martin v. Arthur, 339
Ark. 149, 154, 3 S.W.3d 684, 687 (1999).

Thomason should have discovered any fraud

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perpetuated by the Defendants on February 11, 2011, when Randall and 3:16’s other employees
resigned and notified him of their plan to start a new engraving business that would take over the
engraving of the 1911 Anniversary Pistols. The Second Amended Complaint was filed more
than three years after this date. Nevertheless, Federal Rule of Civil Procedure 15(c)(1)(B)
provides that an amendment to a pleading relates back to the date of the original pleading when
“the amendment asserts a claim or defense that arose out of the conduct, transaction, or
occurrence set out—or attempted to be set out—in the original pleading.” “The basic inquiry is
whether the amended complaint is related to the general fact situation alleged in the original
pleading.” Alpern v. UtiliCorp United, Inc., 84 F.3d 1525, 1543 (8th Cir. 1996). This rule has
been liberally construed and permits amendments that change the legal theory of the action. Id.
Here, Thomason’s allegations of fraud arise out of the same conduct, transaction, and
occurrences set out in the original pleading, which Thomason filed on December 21, 2012.
Thus, the Court finds that the fraud claim relates back to the original complaint and is not barred
by the statute of limitations.
The tort of fraud requires that the plaintiff show: (1) a false representation of a material
fact; (2) knowledge that the representation is false or that there is insufficient evidence upon
which to make the representation; (3) intent to induce action or inaction in reliance upon the
representation; (4) justifiable reliance on the representation; and (5) damage suffered as a result
of the reliance. Fleming v. Cox Law Firm, 363 Ark. 17, 21, 210 S.W.3d 866, 868 (2005).
“[R]epresentations that are promissory in nature, or of facts that will exist in the future, though
false, will not support an action for fraud.” Hobson v. Entergy Arkansas, Inc., 2014 Ark. App.
101, at 9, 432 S.W.3d 117, 124. However, this rule will not apply if the party making the false

15

promise knew it would not be kept at the time it was made. Stine v. Sanders, 66 Ark. App. 49,
58, 987 S.W.2d 289, 295 (1999). The intent of the promisor is a question of fact. Id.
Faler and Hanson’s alleged representation is promissory in nature: they told Thomason
that if he invested money in a new company, then ALF would use the new company to do the
engraving for the 1911 Anniverary Pistols. ALF did not even have the license from the NRA for
the pistols until after 3:16 was formed.

Nevertheless, if Faler and Hanson made the

representation intending to reserve the right to use any engraver they desired, the representation
would have been false when it was made. The only written evidence of any representation made
by Faler or Hanson comes from two emails outlining the prospective agreement between ALF
and 3:16.

In one email, Faler provides that the NRA pistols “will be engraved by 3:16

Engraving,” which Thomason had not yet formed. (ECF No. 75, Ex. No. 4). In another email
sent hours later, Faler writes, “ALF prefers to use 3:16 Engraving as to any other engraver.”
(ECF No. 75, Ex. No. 4). This language does not clarify Faler and Hanson’s intention. The
Court finds that there is a genuine issue of material fact as to whether Defendants made a false
representation regarding their intention to use a new company created by Thomason as their
engraver for the 1911 Anniversary Pistols. Thus, summary judgment on this claim is not
appropriate.
CONCLUSION
For the reasons explained above, Defendants’ Motions for Summary Judgment (ECF
Nos. 43 & 89) are GRANTED IN PART and DENIED IN PART. Thomason’s implied
contract, promissory estoppel, and fraud claims remain. His breach of contract, piercing the
corporate veil, interference with contractual relationship or business expectancy, civil
conspiracy, and unjust enrichment claims are DISMISSED WITH PREJUDICE.

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IT IS SO ORDERED, this 20th day of January, 2015.
/s/ Susan O. Hickey
Susan O. Hickey
United States District Judge

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