Pankey et al v. Western Arkansas Rock, Inc. et al

Filing 100

ORDER ADOPTING REPORT AND RECOMMENDATIONS re 95 Report and Recommendations; granting in part and denying in part 81 Motion for Summary Judgment. Defendant David Potter is dismissed from this case. Signed by Honorable Susan O. Hickey on March 5, 2015. (mll)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
TEXARKANA DIVISION
TERRELL PANKEY and
SMITH COUNTY STONE, LLC
v.

PLAINTIFFS
Case No. 4:13-cv-04046

WESTERN ARKANSAS ROCK, INC.;
and DAVID J. POTTER

DEFENDANTS
ORDER

Before the Court is the Report and Recommendation filed January 28, 2015 by the Honorable
Barry A. Bryant, United States Magistrate Judge for the Western District of Arkansas. (ECF No.
95). Judge Bryant recommends that the Motion for Summary Judgment by Defendants Western
Arkansas Rock (“WAR”) and David J. Potter be granted in part and denied in part. Both parties
have filed objections to the Report and Recommendation. (ECF Nos. 96 & 97). The Court finds this
matter ripe for its consideration.
Judge Bryant recommends Defendants’ motion be granted with respect to all claims against
Potter. As to WAR, he recommends the motion be granted on Plaintiffs’ claims for interference with
business relations and conspiracy. He also recommends Defendants’ motion for summary judgment
on the issue of punitive damages be granted. He recommends that the Plaintiffs’ claim for breach
of contract against WAR and WAR’s counter-claim against Plaintiffs proceed to trial.
I. Defendant Western Arkansas Rock’s Objections
On March 6, 2008, Smith County Stone, through its sole managing member Terrell Pankey,
entered into a Mining Lease with WAR, through its President David Potter. The Mining Lease had
a five (5) year term beginning on March 4, 2008 and ending on February 28, 2013. On August 27,
2010, Defendants sent a document entitled “Termination Notice of Mining Lease” to Plaintiffs.

Paragraph 29 of the Mining Lease is entitled “Default: Termination.” It contained a ten day
“cure period” provision for termination. The provision provided, in relevant part, as follows:
. . . if SMITH COUNTY STONE shall fail to comply with any of the covenants and
agreements contained in this lease, and such default or noncompliance shall continue
for a period of ten (10) days after written notice thereof shall be given Western
Arkansas Rock, Inc. to SMITH COUNTY STONE, then Western Arkansas Rock,
Inc. shall have the right at any time after said (10) day period to terminate this lease
by written notice to that effect . . .
(ECF No. 83, Ex. 1, ¶ 29(a)). It is uncontested that WAR sent one “Termination Notice of Mining
Lease” to Plaintiffs dated August 27, 2010, and it listed six reasons for termination of the lease.
Judge Bryant recommends the Court find there is a fact issue as to whether WAR’s action in
terminating the contract without following the two-step written notice requirement in paragraph 29
was a breach of the contract. See Spann v. Lovett & Co., Ltd., 389 S.W3d 77, 93 (Ark. App. 2012)
(“Usually, whether a breach of contract occurred is a question of fact.”).
In their objections, Defendants first assert that the record is full of evidence that WAR
demanded that Plaintiffs comply with the lease. They cite to language in the Notice of Termination
that suggests Defendants had numerous times demanded that Plaintiffs comply. While this may be
evidence that Plaintiffs were in violation of the lease, it is not evidence that WAR complied with the
termination provision in paragraph 29. Because Plaintiffs claim Defendants’ actions were a breach
of the contract, there is a factual dispute remaining and Summary Judgment is not appropriate.
Next, Defendants argue for the first time that the written notice provision was either waived
by Plaintiffs or that the Notice of Termination served as written notice under the termination
provision. In Defendants’ Motion for Summary Judgment, they argue that Plaintiffs breached the
contract for the six reasons stated in the Notice of Termination. They assert that WAR had “every
right, and indeed the obligation to terminate the Mining Lease.” ECF No 81, p.8. Plaintiffs
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responded that the lease was improperly terminated under its contractual terms, specifically
paragraph 29(a). In their Reply to the Response to the Motion for Summary Judgment, Defendants
did not address the Plaintiffs’ argument of unlawful termination of the lease. Therefore, these waiver
issues are being raised for the first time in the objections. Generally, a party cannot raise arguments
in its objections which were not previously raised before the magistrate judge. See Ridenour v.
Boehringer Ingelheim Pharmaceuticals, Inc., 679 F.3d 1062 (8th Cir. 2012); Toledano v. Shelter
Mut. Ins. Co., 2014 WL 2557225, *1 (W.D. Ark. June 6, 2014). This is a legitimate concern, as the
parties’ objections to a Report and Recommendation cannot serve as an avenue to raise additional
arguments to which the opposing party is not given the opportunity to respond. Such is the case
here, where Plaintiffs have not been afforded the opportunity to respond to Defendants’ arguments
that they waived the written notice provision in the lease or that the Notice of Termination actually
served as the written notice, and the lease was terminated ten days later.1
Therefore, the Court rejects Defendants’ objections. There remain disputed issues of fact
regarding whether there was a breach of contract. Accordingly, Defendants’ Motion for Summary
Judgment on the breach of contract claim should be denied.
II. Plaintiffs’ Objections
Plaintiffs’ objection is limited to Judge Bryant’s recommendation that their alter ego claim
against David Potter be dismissed. They argue that, in Anderson v. Stewart, 366 Ark. 203, 234
(2006), the Arkansas Supreme Court instructs that the separate corporate identity can be avoided in
situations when the corporation attempts to “evade a contract or tort obligation.” Because Plaintiffs

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The Court notes that waiver is generally a question of fact, Conway Commercial Warehousing, LLC v. FedEx Freight
East, Inc., 381 S.W.3d 94 (Ark. App. 2011), and that the Defendants’ objections likely create additional factual issues.

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allege WAR is evading its contractual obligation, they assert that the alter-ego question is one better
reserved for the trier of fact.
Plaintiffs assert the corporate identity should be avoided because they allege WAR attempted
to “evade a contract or tort obligation.” See Anderson, 366 Ark. at 234 (citing H. Murray Claycomb,
Arkansas Corporations §3-15 (1991)). However, an alleged breach of contract is not sufficient to
disregard the corporate form. Instead, Arkansas law instructs that there generally must be some
fraud or deception involving abuse of the corporate form which led to injury. See EnviroClean, Inc.
v. Arkansas Pollution Control & Ecol. Comm’n, 314 Ark. 98, 104 (1993). Beyond the alleged
breach of contract, Plaintiffs have demonstrated no instances in which David Potter abused the
corporate form of WAR. It is a nearly universal rule that a corporation and its stockholders are
separate and distinct entities, even though a stockholder may own the majority of the stock. First
Commercial Bank v. Walker, 333 Ark. 100 (1998). The Plaintiffs’ objections are overruled.
Accordingly, the Court adopts the Report and Recommendation in toto.

Separate

Defendants’ Motion for Summary Judgment (ECF No. 81) is GRANTED IN PART and DENIED
IN PART. The only claims remaining are Plaintiffs’ breach of contract claim against WAR and
WAR’s counter-claim against Plaintiffs. David Potter is hereby dismissed from this case.
IT IS SO ORDERED, this 5th day of March, 2015.
/s/ Susan O. Hickey
Susan O. Hickey
United States District Judge

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