Richard Mays, Jr.; Mays, Byrd & Associates, P.A.; Derrick Stephens; D. Stephens Management & Consulting, LLC; And Olena "lola" Korneevets v. Viva La Vegan Grocery, Inc. ( 2024 )

Cite as 2024 Ark. App. 513ARKANSAS COURT OF APPEALS
DIVISION IV
No. CV-21-614
Opinion Delivered October 23, 2024
RICHARD MAYS, JR.; MAYS, BYRD &
ASSOCIATES, P.A.; DERRICK APPEAL FROM THE PULASKI
STEPHENS; D. STEPHENS COUNTY CIRCUIT COURT, SIXTH
MANAGEMENT & CONSULTING, DIVISION
LLC; AND OLENA “LOLA” [NO. 60CV-17-7189]
KORNEEVETS
APPELLANTS HONORABLE TIMOTHY DAVIS FOX,
JUDGE
V.
AFFIRMED IN PART; REVERSED AND
VIVA LA VEGAN GROCERY, INC. DISMISSED IN PART
APPELLEE
MIKE MURPHY, Judge
This appeal is about an investment deal gone bad. Viva La Vegan Grocery, Inc.
(“VLV”), agreed to invest $290,000, and D. Stephens Management & Consulting, LLC
(“DSMC”), promised to use VLV’s funds to obtain a standby letter of credit (“SBLC”), which
DSMC, in turn, would “monetize” by using the SBLC as leverage to obtain a larger amount
of money and return on VLV’s investment. To facilitate this arrangement, VLV and DSMC
entered into an escrow agreement for the law firm of Mays, Byrd & Associates, P.A. (“MBA”),
through attorney Richard L. Mays, Jr. (“Mays, Jr.”), to act as escrow holder of VLV’s funds.
VLV deposited its $290,000 investment into MBA’s IOLTA trust account and received back
neither its principal investment nor any return on that investment.
VLV subsequently filed a civil action in the Pulaski County Circuit Court to recover
its missing money. The circuit court entered a default judgment as to liability against
defendants DSMC, Derrick Stephens (“Stephens”), and Olena “Lola” Korneevets
(“Korneevets”). Over two years later, and after a two-day bench trial, the circuit court entered
judgment against defendants MBA and Mays, Jr. 1 and awarded compensatory damages of
$290,000 against all five defendants and punitive damages of $870,000 against defendants
DSMC, Stephens, and Mays, Jr. The five defendants bring this appeal from the circuit court’s
judgment. We affirm the judgment except with respect to the circuit court’s findings on the
claim against Mays, Jr. for constructive trust and equitable lien based on unjust enrichment,
which we reverse and dismiss.
I. Standard of Review
Following a bench trial, we determine whether the circuit court’s findings were clearly
erroneous or clearly against the preponderance of the evidence, and we review the circuit
court’s conclusions of law de novo. Gunn v. Wortman, 2024 Ark. App. 111, at 6, 684 S.W.3d
340, 343–44. A finding is clearly erroneous when, although there is evidence to support it,
the reviewing court, on the entire record, is left with a firm conviction that a mistake has
been made. Id. We view the evidence and all reasonable inferences arising therefrom in the
1
On March 17, 2023, VLV filed a suggestion of death upon the record pursuant to
Arkansas Rule of Appellate Procedure–Civil 12, noting the recently discovered death of
separate appellant Mays, Jr. on December 19, 2022. On April 5, 2023, we issued an order
noting the suggestion of death upon the record.
2
light most favorable to the appellee. AgriFund, LLC v. Regions Bank, 2020 Ark. 246, at 6, 602
S.W.3d 726, 730. When there are two permissible views of the evidence, the fact-finder’s
choice between them cannot be clearly erroneous. Rymor Builders, Inc. v. Tanglewood Plumbing
Co., Inc., 100 Ark. App. 141, 147, 265 S.W.3d 151, 155 (2007). We give recognition to the
circuit court’s superior opportunity to determine the credibility of witnesses and the weight
to be given to their testimony. Gunn, 2024 Ark. App. 111, at 6, 684 S.W.3d at 344.
II. Procedural and Factual Background
On December 12, 2017, VLV filed its complaint alleging ten causes of action against
each defendant: (1) negligence; (2) breach of contract; (3) breach of fiduciary duty; (4)
conversion; (5) civil conspiracy; (6) fraud and misrepresentation; (7) violation of the Arkansas
Deceptive Trade Practices Act; (8) violation of the Arkansas Securities Act; (9) civil action by
crime victim; and (10) constructive trust and equitable lien based on unjust enrichment. The
complaint sought compensatory damages in the amount of $290,000; punitive damages; pre-
and postjudgment interest, attorneys’ fees and costs; and the imposition of a constructive
trust and equitable lien. All defendants were properly served with the complaint and
summonses. On February 8, 2018, MBA and Mays, Jr. filed separate answers to the
complaint, and Mays, Jr. filed a cross-claim for breach of contract and contribution and
indemnity against DSMC, Stephens, and Korneevets. Neither DSMC, nor Stephens, nor
Korneevets filed an answer or other responsive pleading.
On March 27, 2019, VLV moved for a default judgment against DSMC, Stephens,
and Korneevets. On April 10, 2019, DSMC and Stephens entered an appearance and filed
3
a response affirmatively stating that they had no objection to entry of a default judgment
against them. On May 17, 2019, the circuit court entered judgment by default against
DSMC, Stephens, and Korneevets as to liability on all ten counts and reserved its
determination of appropriate damages for a later hearing.
On August 11 and 12, 2021, the circuit court conducted a bench trial where the
following relevant testimony and evidence was presented. VLV was a vegan grocery store
owned and operated by Isaak Iftikhar2 in California. In 2015, to expand its business, VLV
obtained a loan in the amount of $290,000 from A Well-Fed World, Inc. (“AWFW”), a
Washington, D.C., nonprofit corporation dedicated to hunger relief and environmental
advocacy using plant-based solutions.3 Iftikhar was acquainted with Korneevets through the
vegan community in California, and he understood that Korneevets’s spouse and business
partner, Stephens, could provide investments. Accordingly, in early 2015, Iftikhar met with
Korneevets and Stephens to discuss investing the $290,000 loan to VLV from AWFW.
After reviewing the AWFW/VLV loan agreement, Korneevets and Stephens
proposed an investment arrangement through which, they represented, they could obtain a
very large return on VLV’s $290,000 investment in a very short time and with very little risk.
2
At the time that the complaint was filed, Iftikhar, individually, was a party plaintiff,
but he later voluntarily dismissed his individual claims.
3
AWFW originally received the money that it loaned to VLV from the OM
Foundation Limited, an entity that invests in vegan businesses and disburses profits to other
charities.
4
The deal involved DSMC using VLV’s money “to obtain an SBLC for monetizing purposes.”
Korneevets and Stephens explained to Iftikhar that the SBLC, which they described as a
bank document that guarantees funds to a client, would be monetized by using it as leverage
to obtain a larger amount of money and return on investment. They told Iftikhar that, to
carry out the deal, VLV’s investment would be placed into an escrow account where it would
earn interest. If the SBLC could not be carried out, then VLV’s $290,000 would be returned,
along with the interest then accrued in the account.
This investment arrangement was memorialized in a “Funding Agreement” signed on
February 12, 2015, by Iftikhar on behalf of VLV and by Stephens on behalf of DSMC. The
terms of the agreement provided as follows:
This FUNDING AGREEMENT (“Agreement”) is made and effective as of
February 12, 2015 (“Effective Date”), by and between VIVA LA VEGAN
GROCERY CORP (“VLV”) and D STEPHENS MANAGEMENT &
CONSULTING (“DS”), VLV and DS may sometimes hereafter be referred to
as “Party” or “Parties”.
1. The Investment. VLV shall invest the sum of Two Hundred and Ninety
Thousand Dollars ($290,000.00) (“Funding”) with DS. DS shall use said
Funding to obtain a SBLC for monetizing purposes.
2. Term. The term of this Agreement shall commence on the Effective Date
and shall continue until monetizing SBLC, approximately 14 calendar days.
3. Deal Structure. As full and complete consideration for Investor entering
into this Agreement and for making the Funding necessary to initiate SBLC
process:
a. Investor shall receive a return totaling to a sum of Two Million Two
Hundred and Twenty-Five Thousand Dollars ($2,225,000.00) in two tranches,
as follows:
5
I. Investor shall receive as “first money out” the investment
principal of $290,000.00 (Two Hundred Ninety Thousand) plus a 22%
equal to $63,800.00 (Sixty-Three Thousand Eight Hundred) preferred
return totaling the sum of $353,800.00 (Three Hundred Fifty-Three
Thousand Eight Hundred) as specified in Section 3 of the Escrow
Funds Release Agreement.
II. Investor shall receive $1,871,200.00 (One Million Eight
Hundred Seventy-One Thousand and Two Hundred) at the end of the
Term as specified in Paragraph 2 of this Funding Agreement (this
applies to the Investor and/or their assignees).
4. Indemnity. DS hereby defends, indemnifies and holds VLV harmless from
any and all claims, judgments, losses, expenses (including reasonable outside
attorneys’ fees), and liabilities of or against Investor arising out of any
impending lawsuits or judgments except where such claims, judgments, losses,
expenses, and liabilities result directly from Investor’s willful misconduct,
negligence, recklessness, knowing or reckless misrepresentations, fraud, or
proven criminal conduct.
5. No Equitable Relief. In the event of a breach of this Agreement, Investor’s
remedies shall be limited solely to an action at law for monetary damages
actually suffered, if any. In no event shall Investor be entitled to (a) seek or
obtain injunctive or other equitable relief in connection herewith or with the
SBLC or any rights therein, thereto, or in connection therewith, or any rights
granted or agreed to be granted herein, or (b) restrain or otherwise interfere
with the SBLC transaction, any rights therein, thereto, and/or in connection
therewith, or any rights granted or agreed to be granted herein.
6. No Authority. VLV acknowledges and agrees that VLV has no rights or
authority to negotiate on behalf of DS and that VLV will not enter into any
agreements whatsoever on behalf of DS outside of this Agreement.
7. Relationship of Parties. DS and VLV each acknowledge that they are
independent contractors and that no partnership, joint venture, agency or
employment relationship has or will be created by this Agreement. It is
expressly agreed and understood that VLV is not acting under the direct
supervision and control of DS. As such, VLV agrees that it shall be solely
responsible for any and all taxes and other payments due related to payments
received from DS hereunder.
6
8. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the laws of the State of California. The parties agree and
consent that the jurisdiction and venue of all matters relating to this
Agreement will be vested exclusively in the federal, state and local courts
within the State of California. This Agreement contains the entire
understanding of the Parties relating to its subject matter. No change or
modification of this Agreement will be binding upon either Party unless it is
made by written instrument. A waiver by either Party of any provision of this
Agreement in any instance shall not be deemed to waive such provision for
the future. All remedies, rights, undertakings, and obligations contained in
this Agreement shall be cumulative and none of them shall be in limitation of
any other remedy, right, undertaking, or obligation of either Party. Should any
provision of this Agreement be determined to be void, it shall not affect the
validity of any other provision of this Agreement.
The same day, VLV and DSMC executed a second agreement regarding escrow
services to carry out the Funding Agreement. This agreement provided as follows:
THIS AGREEMENT (hereinafter the “Agreement”) is made and entered into
as of February 12, 2015 by and between Viva La Vegan (“VLV”), and D
Stephens Management & Consulting, LLC (“DS”). VLV and DS are each a
“Party” and collectively the “Parties.”
WITNESSETH:
WHEREAS, the Funding Agreement was entered into on February 12,
2015 by VLV and DS.
WHEREAS, the Funding Agreement requires a good faith deposit of
$290,000.00 (Two Hundred and Ninety Thousand Dollars) (the
“Deposit”) to be provided to Mays Bryd and Associates, as the Escrow
Holder.
WHEREAS, VLV shall be furnishing the Deposit required under the
Funding Agreement, on behalf of DS, to Mays Byrd and Associates, as
the Escrow Holder.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and for other good and valuable
consideration, the adequacy and sufficiency of which are hereby
7
acknowledged, the Parties hereto, intending to be legally bound, hereby
agree as follows:
The Parties agree that VLV is the owner of the Deposit (said amount,
inclusive of interest earned thereon) and shall retain ownership until
the disbursement of the Deposit per the Funding Agreement.
The Escrow Holder shall hold and disburse the Deposit (said amount,
inclusive of interest earned thereon) in accordance with the terms of
the Funding Agreement. In the event that the Funding Agreement
requires that the Deposit be returned to VLV, then the Escrow Holder
shall return and disburse the Deposit (said amount, inclusive of interest
earned thereon) to VLV rather than to DS.
If a dispute arises as to the payment of the Deposit arising out of this
Agreement or the Funding Agreement, the Escrow Holder shall be
entitled to interplead the Deposit into the Court in Arkansas, and to
pay attorneys’ fees, filing fees and court costs incurred by Escrow
Holder in such interpleader action, whereupon Escrow Holder shall be
released from any further liability or obligations hereunder.
DS shall have the right to enforce DS’s rights with respect to the
Deposit in the event a dispute arises in connection with the Funding
Agreement. VLV acknowledges that it has reviewed the Funding
Agreement and is familiar with and understands all of the terms of the
Funding Agreement. Further, VLV acknowledges and agrees that once
the Deposit becomes nonrefundable to DS under the terms of the
Funding Agreement, the Deposit (and any interest thereon) are to be
applied to the funding agreement if the Closing occurs.
This escrow agreement was signed by Stephens on behalf of DSMC, by Iftikhar on behalf of
VLV, and by “Richard Mays, Jr., Esq.” as accepted by “Escrow Holder: Mays, Byrd and
Associates.” The agreement included an attachment providing the “Paymaster Banking
Coordinates” for a Bank of America account named “Mays, Byrd and Associates IOLTA IV”
with an account number ending in 1860 (“MBA IOLTA IV 1860”).
8
On February 17, 2015, VLV wired the $290,000 deposit directly into MBA IOLTA
IV 1860. According to Iftikhar, after the expiration of the fourteen-day period specified in
the Funding Agreement, nothing happened. Korneevets and Stephens told Iftikhar that, due
to various processing delays, they were not able to monetize the SBLC, but they assured him
that VLV’s deposit would continue to sit in the escrow account earning interest.
In early fall of 2015, Iftikhar started to worry because VLV still had not received any
of the return as promised in the Funding Agreement. He explained that he had to use his
own funds, as well as a personal loan of $10,000 from Stephens, just to keep the business
running over the summer of 2015. Accordingly, in September 2015, he requested a return
of VLV’s $290,000 deposit. At that point, Stephens disclosed for the first time that VLV’s
money was no longer in the escrow account but instead had been deposited in Soliel
Chartered Bank. Still, he assured Iftikhar that VLV’s money would be returned to MBA
IOLTA IV 1860 by October 2, 2015, and then promptly wired directly to VLV’s Chase Bank
account. VLV’s money, however, was not returned to MBA IOLTA IV 1860 or to VLV’s
Chase Bank account. Iftikhar learned instead that, on October 1, 2015, Stephens had
deposited a $300,000 check (for “legal fees,” according to its memo line) into MBA IOLTA
IV 1860, but the check never cleared. And in the weeks that followed, Stephens gave
numerous inconsistent and conflicting explanations regarding the missing money. In mid-
October 2015, Iftikhar contacted Mays, Jr. directly about the missing $290,000 that he, on
behalf of MBA as the escrow holder, was obligated to hold in MBA IOLTA IV 1860 for
VLV. But Mays, Jr. claimed to know nothing about VLV’s money.
9
AWFW and the OM Foundation Limited ultimately got involved in the search for
the $290,000 that had been loaned to VLV. In the spring of 2016, they hired Shawn
Kowalewski, a Wells Fargo Advisors investment officer, and Mike Smith, an attorney at
Baker Donelson Law Firm, to investigate and attempt to recover the missing money.
Kowalewski and Smith said that bank documents provided by Mays, Jr. showed money was
“coming and going in and out of” MBA IOLTA IV 1860, and neither the amounts of the
transactions nor Mays, Jr.’s explanations added up.4 At one point during their investigation,
Mays, Jr. stated that there was a second escrow agreement executed in December 2014
between him (Mays, Jr.) and DSMC/Stephens—one to which VLV was not a party.5 He told
Kowalewski and Smith that every transaction he did with Stephens was under this separate
escrow agreement and that the disbursements “were all confidential and involved other
transactions that were going on,” explaining that he had been doing several other
transactions with Stephens “for some period of time.” He later backstepped this story,
claiming instead to have made disbursements of VLV’s money only under the February 2015
escrow agreement between VLV and DSMC but at the direction of Stephens. According to
Kowalewski and Smith, during a July 2016 telephone conference, Richard Mays, Sr., a
4
Numerous bank records and emails relating to the transactions were admitted at
trial.
5
In this agreement, Mays, Jr. agreed, as escrow agent, to hold funds for DSMC in his
IOLTA trust account, and DSMC agreed to pay Mays, Jr. $5,000 for providing escrow
services. The agreement was executed on December 13, 2014, and VLV was not a party to
it.
10
managing partner of MBA, acknowledged that money was missing from MBA’s IOLTA trust
account but refused to provide any additional information or any solution regarding what
he was willing to do on behalf of his law firm.
Mays, Jr.’s deposition testimony was used at trial due to his unavailability for health
reasons. In his deposition, Mays, Jr. confirmed that VLV had deposited $290,000 into his
MBA IOLTA trust account in February 2015. As to what he did with that money after it was
deposited, he said that he followed Stephens’s instructions to transfer $210,000 to Zeba,
LLC; $30,000 to Stephens through AMS Energy, LLC; $39,960 to Irene and Juan Gonzalez;
and $10,000 to Iftikhar. Mays, Jr. testified that he made these disbursements, at the sole
direction of Stephens, and he did not notify Iftikhar/VLV either before or after he made the
transactions. He stated that all these disbursements, except for the $10,000 to Iftikhar, were
made within fourteen days of VLV’s $290,000 deposit.6 He further admitted that he
previously claimed to have transferred a total of $300,000 from his MBA IOLTA trust
account, including $50,000 to Madean Law Firm; $100,000 to Peter Shahi; and another
$150,000 to Peter Shahi. He testified that he provided Kowalewski documentation of these
transfers at Stephens’s instruction regarding an explanation as to how VLV’s $290,000 had
been disbursed.
6
Online banking records admitted at trial show that $10,000 was withdrawn from
Mays, Jr.’s trust account and wired into Iftikhar’s Gold One Credit Union account on July
13, 2015.
11
Mays, Jr. also testified about a separate escrow agreement that he and Stephens
executed in December 2014 and to which VLV was not a party. Under the December 2014
escrow agreement, Mays, Jr. received a fee of $5,000 as compensation for providing escrow
services relating to Stephens’s transactions. As to the February 2015 escrow agreement
relating to VLV’s investment, Mays, Jr. testified that he and Stephens had a verbal agreement
that he would receive a percentage of the profit on VLV’s investment as compensation for
providing escrow services. He admitted that neither the Funding Agreement nor the
February 2015 escrow agreement provided for this compensation arrangement and that
VLV/Iftikhar was not informed about the verbal agreement.7
Mays, Jr. also admitted that he had incorporated AMS Energy, LLC—an entity to
which he had transferred $30,000 of VLV’s money.8 He further acknowledged that, as late
as 2016, AMS Energy’s website listed him as both general counsel and senior management
for the corporation. A printout from AMS Energy’s website, which was introduced through
Stephens’s trial testimony, also included statements that “Richard L. Mays, Jr. is an associate
7
Stephens testified at trial that he and Mays, Jr. had “a side agreement” for Mays, Jr.
to receive “a quarter percent” of the profits on VLV’s investment as compensation for
providing escrow services.
8
AMS Energy’s corporate records with the Arkansas Secretary of State, which were
admitted through Stephens’s trial testimony, show that Mays, Jr. formed the corporation in
2010, designating MBA as the registered agent and himself and Stephens as corporate
managers. The records also show that less than three months before the first trial setting in
June 2019, Stephens changed AMS Energy’s designated registered agent from MBA to
himself.
12
with the law firm of Mays, Byrd & Associates, P.A.,” and “Mr. Mays provides legal support
on all deal documentation and transactions.”9
At trial, Stephens admitted that he never obtained an SBLC as outlined in the
Funding Agreement. He claimed instead that, on February 19, 2015, $210,000 of VLV’s
money was transferred to Zeba, LLC, for a fuel deal, and not for an SBLC. For the first time,
he presented documents showing that, in his role as managing partner of AMS Energy, he
had signed a fuel contract with Zeba for which VLV’s money purportedly was to be used. He
insisted that Iftikhar/VLV was both aware of, and on board with, this fuel deal. The fuel
contract between AMS Energy and Zeba, however, was executed before the Funding
Agreement relating to VLV’s investment, and the Funding Agreement included no mention
of any fuel deal. Stephens further testified that the fuel deal ultimately was unsuccessful and
that $209,000 of the $210,000 was returned to him personally. He admitted, however, that
he previously testified in his deposition that this money was returned to MBA IOLTA IV
1860, “so [VLV] didn’t lose those funds at all. Just like I stated to him he wouldn’t.” At the
end of the day, the circuit court concluded that Stephens had “zero credibility. Zero. Drafts
of agreements, conversations, hearsay conversations with people. I don’t know how many
times he should be charged with securities fraud, or whether it’s too late for that. But zero.”
9
At trial, Stephens, too, admitted that Mays, Jr. had transferred $30,000 of VLV’s
money from MBA IOLTA IV 1860 to AMS Energy on February 19, 2015.
13
On August 16, 2021, the circuit court entered judgment in VLV’s favor against Mays,
Jr. as to count I (negligence), count II (breach of contract), count III (breach of fiduciary
duty), count IV (conversion), count VI (fraud and misrepresentation), and count X
(constructive trust and equitable lien); and against MBA as to count I (negligence), count II
(breach of contract), and count III (breach of fiduciary duty). The court awarded
compensatory damages in the amount of $290,000 against all five defendants, jointly and
severally, and punitive damages in the amount of $870,000 against Mays, Jr., Stephens, and
DSMC, jointly and severally. The court also granted Mays, Jr.’s cross-claim against DSMC
and Stephens for contribution in the amount of the $290,000 in compensatory damages,
together with any attorneys’ fees and costs assessed against Mays, Jr.
III. Mays, Jr.’s Cross-Claim
Joint appellants DSMC, Stephens, and Korneevets argue that the circuit court lacked
jurisdiction to enter judgment on Mays, Jr.’s cross-claim because the cross-claim was never
served on them. On February 8, 2018, Mays, Jr. filed his answer and cross-claim against
DSMC, Stephens, and Korneevets, alleging two counts: (1) breach of contract and (2)
contribution and indemnity. As to the second count, Mays, Jr. asserted that “in the event it
is adjudged that he has any liability to the Plaintiffs, he is entitled to contribution and
indemnity from Cross Defendants Stephens, DSMC and Korneevets from all sums adjudged
against [him].” As noted, the circuit court entered a default judgment against DSMC,
Stephens, and Korneevets on May 17, 2019; and in its August 16, 2021 judgment, it awarded
damages against all five defendants; granted, in part, the cross-claim against DSMC and
14
Stephens for contribution in the amount of $290,000, plus any attorneys’ fees costs assessed
against Mays, Jr.; and dismissed the cross-claim against Korneevets.
While valid process is necessary to give a court jurisdiction over a defendant, the
defense of personal jurisdiction may be waived by the appearance of the defendant without
raising an objection. Wilmington Sav. Fund Soc’y, Tr. for BCAT 2015-4-BTT v. Smith, 2023 Ark.
App. 326, at 13, 669 S.W.3d 840, 848. We have long recognized that any action on the part
of a defendant, except to object to jurisdiction, which recognizes the case in court, will
amount to an appearance. Id., 669 S.W.3d at 848–49. A determining factor in deciding
whether a defendant has waived his rights and entered an appearance is whether the
defendant seeks affirmative relief. Cogburn v. Marsh, 2023 Ark. App. 114, at 4, 663 S.W.3d
404, 407. The pleading that is filed must be more than a defensive action that is inconsistent
with a defendant’s assertion that the circuit court lacked personal jurisdiction over him. Id.
at 5, 663 S.W.3d at 407–08. The most obvious examples are counterclaims, cross-claims, and
third-party claims in which a defendant invokes the jurisdiction of the court and thereby
submits to it. Id. at 5, 663 S.W.3d at 408.
On April 10, 2019, DSMC and Stephens, through attorney Don Lloyd Cook, entered
an appearance for the limited purpose of responding to VLV’s motion for default judgment.
In their response, they stated that they had no objection to a default judgment and, in their
prayer for relief, asked the circuit court to “grant the Entry of Default Judgment as requested
in Plaintiff’s Motion[.]” The circuit court granted the default judgment and later denied
attorney Cook’s request for permission to withdraw as counsel. Stephens thereafter appeared
15
(without counsel, nevertheless) and testified at the August 11–12, 2021 bench trial. DSMC
and Stephens contend that the cross-claim first came to light at trial when, during a
conversation regarding the use of Mays, Jr.’s deposition testimony, Mays, Jr.’s attorney
reminded the circuit court that a cross-claim against defendants Stephens, DSMC, and
Korneevets was filed on February 8, 2018. Stephens, however, made no objection, argument,
or statement with respect to service or notice of the cross-claim.
It is well settled that a party generally must object at the first opportunity to preserve
an issue for appeal. Wilmington Sav. Fund Soc’y, 2023 Ark. App. 326, at 14, 669 S.W.3d at
849. DSMC and Stephens recognized the case as being in court and entered their appearance
by agreeing to the entry of a default judgment. See Trelfa v. Simmons First Bank of Jonesboro, 98
Ark. App. 287, 292, 254 S.W.3d 775, 779 (2007) (holding that agreeing to the entry of an
order appointing a receiver amounted to entry of appearance). They also raised no argument
and, thus, obtained no ruling on their personal-jurisdiction challenge based on lack of
service. See, e.g., Taffner v. Ark. Dep’t of Hum. Servs., 2016 Ark. 231, at 11, 493 S.W.3d 319,
327 (holding that absent a specific ruling by the circuit court, there was nothing for this court
to review); see also Ark. R. Civ. P. 12(h)(1) (stating that a defense of lack of jurisdiction over
the person, insufficiency of process, or insufficiency of service of process is waived if neither
made by motion under this rule nor included in the original responsive pleading). For these
reasons, we do not consider appellants’ newly asserted personal-jurisdiction defense.
16
IV. Forum-Selection Clause
Appellant Mays, Jr. and joint appellants DSMC, Stephens, and Korneevets argue that
the circuit court lacked jurisdiction because of a forum-selection clause in the Funding
Agreement, which, in pertinent part, states as follows:
This Agreement shall be governed by and construed in accordance with the
laws of the State of California. The parties agree and consent that the
jurisdiction and venue of all matters relating to this Agreement will be vested
exclusively in the federal, state and local courts within the State of California.
This issue was raised for the first at the start of the bench trial on August 11, 2021, when
Mays, Jr.’s attorney orally moved to dismiss VLV’s complaint for lack of subject-matter
jurisdiction pursuant to Arkansas Rule of Civil Procedure 12(b)(1). We hold that the circuit
court properly denied the motion.
We note at the outset that the parties to the Funding Agreement were VLV and
DSMC. DSMC, Stephens, and Korneevets requested, and were granted, a default judgment
against themselves over two years before Mays, Jr. raised a defense of subject-matter
jurisdiction based on the forum-selection clause. For good reason, DSMC, Stephens, and
Korneevets did not join in Mays, Jr.’s motion to dismiss. In any event, to the extent that
Mays, Jr. had standing to rely on a forum-selection clause contained in an agreement to which
he was not a party, his Rule 12(b)(1) motion to dismiss did not invoke the court’s subject-
matter jurisdiction. Parties may by agreement consent to personal jurisdiction in a given
court, but subject-matter jurisdiction cannot be conferred merely by agreement of the parties.
Roller v. TV Guide Online Holdings, LLC, 2013 Ark. 285, at 4. While a forum-selection clause
17
implies consent as to personal jurisdiction, it cannot confer subject-matter jurisdiction. Id.Subject-matter jurisdiction also may not be created by agreement of the parties. Id.Further, to the extent that appellants now assert a personal-jurisdiction challenge
based on the forum-selection clause, their failure to raise the argument below precludes
review of the issue on appeal. Brown v. Lee, 2012 Ark. 417, at 7, 424 S.W.3d 817, 821.
Appellants are bound by the scope and nature of the arguments made at trial; they cannot
change the grounds for a motion on appeal. Id. And even assuming, arguendo, that Mays,
Jr.’s motion to dismiss had raised a personal-jurisdiction defense under Rule 12(b)(2), its
denial still would have been proper because any personal-jurisdiction challenge was waived
by the clear failure to timely raise the issue. Elaine Petroleum Distrib., Inc. v. Snyder, 2022 Ark.
App. 59, at 9–11, 640 S.W.3d 704, 712–13 (holding lack-of-personal-jurisdiction defense
waived when not raised at the first opportunity). The motion to dismiss was made for the
first time at trial, after over three and a half years of litigation and after a default judgment
had already been entered against DSMC, Stephens, and Korneevets. Accordingly, we affirm
the circuit court’s decision denying the motion to dismiss.
V. Common-Defense Doctrine
Joint appellants DSMC, Stephens, and Korneevets challenge the circuit court’s entry
of a default judgment against them, arguing that Mays, Jr.’s and MBA’s timely answers inured
to their benefit under the common-defense doctrine. See, e.g., Macom v. Di Cresce, 2023 Ark.
App. 530, at 8, 680 S.W.3d 36, 41 (explaining that, under the common-defense doctrine, an
answer that is timely filed by a codefendant inures to the benefit of a defaulting codefendant).
18
Appellants, however, did not raise this argument in the circuit court. To the contrary, they
affirmatively stated that they had no objection to entry of a default judgment, and they never
asked to have the default judgment set aside. In short, because appellants did not raise this
argument below, we are precluded from considering it on appeal. See, e.g., Jean-Pierre v.
Plantation Homes of Crittenden Cnty., Inc., 350 Ark. 569, 574, 89 S.W.3d 337, 340 (2002)
(holding failure to raise common-defense-doctrine argument below preluded review of
argument on appeal).
VI. Motion for Continuance
Appellant Mays, Jr. argues that the circuit court abused its discretion in denying his
request to continue the August 11–12, 2021 bench trial because his medical condition
constituted “good cause” for a continuance. On June 25, 2021, Mays, Jr. filed (under seal) a
written motion requesting a continuance of the August 2021 trial setting until such time
that he was able (1) to participate in the preparation for, and defense of, the case; (2) to
attend the trial; and (3) to participate as the trial progressed and evidence was presented. He
alleged that his ongoing and worsening medical issues prevented him from doing these
things. The circuit court denied the motion in a written order filed on July 28, 2021. Mays,
Jr.’s attorney renewed the motion at the beginning of trial, arguing that, for the reasons
stated in his written motion, Mays, Jr. was unable to attend the trial and that proceeding in
his absence would result in a violation of due process, fundamental fairness, and
fundamental justice. The circuit court ruled from the bench, noting that the case was filed
in 2017 and had been going on for four years, “so in balancing everyone’s due-process rights,
19
the Court made the decision that that motion would be denied then, and the oral renewal
is denied as well.”
The decision to grant or deny a motion for continuance is within the sound discretion
of the circuit court, and this court will not reverse the circuit court’s decision absent an abuse
of discretion amounting to a denial of justice. Dollar Gen. Corp. v. Elder, 2020 Ark. 208, at
12, 600 S.W.3d 597, 605. An abuse of discretion is a high threshold that does not simply
require error in the circuit court’s decision but requires that the circuit court act
improvidently, thoughtlessly, or without due consideration. Id. An appellant must show
prejudice from the denial of a continuance, and the burden of showing prejudice is on the
appellant. Id.A court “may, upon motion and for good cause shown, continue any case previously
set for trial.” Ark. R. Civ. P. 40(b). A circuit court, however, has an obligation to manage
and control its docket in an efficient manner. Frost v. Frost, 2009 Ark. App. 290, at 4, 307
S.W.3d 41, 44. And we have recognized that “it is crucial to our judicial system that trial
courts retain the discretion to control their dockets.” Id.Mays, Jr.’s June 25, 2021 written motion for continuance (and its renewal at trial) was
not his first request to continue the trial in this case. A bench trial previously had been
scheduled for June 5–6, 2019. That setting was continued the day before it was to begin
because of a medical emergency Mays, Jr. suffered the night before. Mays, Jr.’s medical issues
that began in June 2019 proved to be chronic, resulting in a delay of more than two years
before the trial ultimately was rescheduled for August 11–12, 2021. When Mays, Jr.
20
requested yet another continuance, he offered no evidence from which the circuit court
could have determined, with any degree of certainty, that his ongoing medical issues were
likely to improve such that he ever would be able to attend the trial, participate in his defense,
and testify. Moreover, because of Mays, Jr.’s health-related unavailability, the circuit court
permitted use of his April 22, 2019 deposition testimony at trial and let his attorney
designate the portions of the deposition transcript for the court to consider. See Ark. R. Civ.
P. 32(a)(3)(C) (permitting use of deposition of a witness, whether or not a party, when the
witness is unable to attend or testify because of age, illness, infirmity, or imprisonment).
Given the significant delay involved in this case, the uncertain prognosis for improvement
in Mays, Jr.’s health, and the availability and use of Mays, Jr.’s deposition testimony at trial,
we cannot say that the circuit court’s decision to move the case forward constituted an abuse
of discretion. See Hamm v. Hamm, 2013 Ark. App. 501, at 8, 429 S.W.3d 384, 389 (holding
that circuit court did not abuse its discretion in denying continuance when there had been
a five-year delay in proceedings, substantive issues were briefed before the hearing, counsel
appeared on absent party’s behalf, and there was no proffer showing why denial of justice
might ensue in the party’s absence).
VII. Mays, Jr.’s Liability
Mays, Jr. challenges the circuit court’s findings regarding his liability for negligence,
breach of contract, breach of fiduciary duty, conversion, fraud and misrepresentation, and
constructive trust and equitable lien based on unjust enrichment. For the reasons set forth
below, we affirm the circuit court’s findings as to negligence, breach of contract, breach of
21
fiduciary duty, conversion, and fraud and misrepresentation; and we reverse and dismiss its
findings as to constructive trust and equitable lien based on unjust enrichment.
A. Negligence
To prove negligence, there must be a failure to exercise proper care in the
performance of a legal duty that the defendant owed the plaintiff under the circumstances
surrounding them. Wochos v. Woolverton, 2010 Ark. App. 802, at 16, 378 S.W.3d 280, 289.
The law of negligence requires as essential elements that the plaintiff show that a duty was
owed and that the duty was breached. Id. Duty is a concept that arises out of the recognition
that relations between individuals may impose upon one a legal obligation for the other. Id.
at 16, 378 S.W.3d at 289–90. The question of what duty is owed is one of law that is reviewed
de novo. Id. at 16, 378 S.W.3d at 289.
An escrow agent is the agent of both parties to a transaction and is charged with the
duty of carrying out the terms and conditions of the escrow agreement. Id. at 15, 378 S.W.3d
at 289. As such, an escrow agent is in a relationship of confidence, which it cannot violate
to its own advantage or to the detriment of either principal. Id. “[A]n agent, regardless of
how innocent his intentions may be, cannot place himself in a situation where personal
interests conflict with the duties owed his principal.” Collins v. Heitman, 225 Ark. 666, 672,
284 S.W.2d 628, 633 (1955).
The testimony and evidence sufficiently demonstrate that Mays, Jr., on behalf of
MBA, agreed to serve as an escrow agent for VLV and DSMC relating to the Funding
Agreement between VLV and DSMC. As an escrow agent, Mays, Jr./MBA owed a duty to
22
carry out the terms of the escrow agreement. The terms of the escrow agreement required
Mays, Jr./MBA to “hold and disburse” VLV’s $290,000 deposit (including interest earned
thereon) “in accordance with the terms of the Funding Agreement.” The terms of the
Funding Agreement provided only that Mays, Jr./MBA was to disburse the return on VLV’s
$290,000 deposit to VLV. Moreover, the February 2015 escrow agreement relating to VLV’s
investment provided that, if the Funding Agreement required return of the deposit to VLV,
then Mays, Jr./MBA “shall return and disburse” the deposit (including interest earned
thereon) “to VLV rather than to DS[MC].” (Emphasis added.) No provision in either the
Funding Agreement or the escrow agreement authorized Mays, Jr./MBA to disburse VLV’s
funds at the sole direction of Stephens/DSMC, the second party to the transaction. And no
provision in either agreement authorized Mays, Jr./MBA to disburse VLV’s funds to the
various entities to which he claimed to have disbursed them; certainly not to AMS Energy,
LLC—an entity with which Mays, Jr. (and Stephens) was personally affiliated.
The evidence shows that Mays, Jr./MBA breached not only its duty to carry out the
terms of the escrow agreement but also its duties to refrain both (1) from acting to the
detriment of one principal over another principal and (2) from placing itself in a situation
where its personal interests conflict with the duties owed to a principal. Accordingly, we
cannot say that the circuit court clearly erred by finding Mays, Jr./MBA liable for negligence.
B. Breach of Contract
A cause of action for breach of contract requires proof of “the existence of an
agreement, breach of the agreement, and resulting damages.” Gunn, 2024 Ark. App. 111, at
23
7, 684 S.W.3d at 344 (citation omitted). The same evidence supporting the circuit court’s
negligence finding supports its finding regarding Mays, Jr./MBA’s liability for breach of
contract. The February 2015 escrow agreement required Mays, Jr./MBA to “hold and
disburse” VLV’s $290,000 deposit (including interest earned thereon) “in accordance with
the terms of the Funding Agreement.” Mays, Jr./MBA did not fulfill its obligations under
the terms of either agreement. Because of Mays, Jr./MBA’s failure in these regards, VLV
suffered damages, including the total loss of its principal investment. Therefore, we hold that
the circuit court did not clearly err by finding Mays, Jr./MBA liable for breach of contract.
C. Breach of Fiduciary Duty
The duty of an escrow agent is a fiduciary duty; an escrow agent has “the duty of
carrying out the terms and conditions of the escrow agreement.” Wochos, 2010 Ark. App.
802, at 15, 378 S.W.3d at 289. An escrow agent “is required to exercise reasonable skill and
ordinary diligence in carrying out his or her responsibilities and must conduct the affairs
with which he or she is entrusted with scrupulous honesty, skill, and diligence.” Id. A person
standing in a fiduciary relationship may be held liable for any conduct that breaches a duty
imposed by the fiduciary relationship. Id. Moreover, regardless of the express terms of an
agreement, a fiduciary may be held liable for conduct that does not meet the requisite
standards of fair dealing, good faith, honesty, and loyalty. Id. at 16, 378 S.W.3d at 289. For
the same reasons stated above with respect to both negligence and breach of contract, we
hold that the circuit court did not clearly err by finding Mays, Jr./MBA liable for breach of
fiduciary duty.
24
D. Conversion
The tort of conversion is committed when a party wrongfully commits a distinct act
of dominion over the property of another that is inconsistent with the owner’s rights. Dent
v. Wright, 322 Ark. 256, 262, 909 S.W.2d 302, 305 (1995). Conversion does not require
conscious wrongdoing; the mere intent to exercise control or dominion over another
person’s property is sufficient. Car Transp. v. Garden Spot Distribs., 305 Ark. 82, 88, 805
S.W.2d 632, 635 (1991). Conversion entails interference with a party’s right to possession,
irrespective of disputed ownership claims. Id. If the defendant exercises control over the
property in exclusion or defiance of the owner’s rights, it is conversion, whether it is for
defendant’s own use or for another’s use. Reed v. Hamilton, 315 Ark. 56, 59, 864 S.W.2d
845, 847 (1993). An act of conversion may occur even when the alleged converter derives no
benefit from the transaction, id. at 60, 864 S.W.2d at 847, and even if the owner makes no
demand for the return of the property. Ford Motor Credit Co. v. Herring, 267 Ark. 201, 204,
589 S.W.2d 584, 586 (1979). Retention of the property after a demand has been made,
however, is evidence on the issue of punitive damages. Williams v. O’Neal Ford, Inc., 282 Ark.
362, 364, 668 S.W.2d 545, 546 (1984).
The same evidence supporting Mays, Jr.’s liability for negligence, breach of contract,
and breach of fiduciary duty also demonstrates that he wrongfully exercised control over
VLV’s $290,000. Mays, Jr. received and held the money in his IOLTA trust account before
it disappeared. Whether Mays, Jr. simply followed Stephens’s instructions to disburse the
money is immaterial; mere intent to exercise control or dominion is sufficient to prove
25
conversion. The same is true as to any claim that Mays, Jr. did not profit from holding and
disbursing VLV’s money. And in this case, VLV did make a demand for the return of the
money, and Mays, Jr. initially denied having any knowledge about the money and
subsequently gave multiple inconsistent explanations regarding the money’s whereabouts.
The circuit court, therefore, did not clearly err by finding Mays, Jr. liable for conversion.
E. Fraud and Misrepresentation
Mays, Jr. contends that because he did not make any representations of any kind to
VLV prior to VLV’s depositing its $290,000 investment into his IOLTA trust account, the
circuit court erred by finding him liable for fraud and misrepresentation. We disagree.
To establish fraud, the following five elements must be proved: (1) a false
representation of a material fact; (2) knowledge or belief 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. Wilson v. Gillentine, 2021
Ark. App. 46, at 4, 618 S.W.3d 145, 147. A person may commit fraud even in the absence
of an intent to deceive. Id. With constructive fraud, liability is based on representations that
are made by one who, not knowing whether the representations are true or not, asserts them
to be true. Id. at 4, 618 S.W.3d at 148. Thus, neither actual dishonesty of purpose nor intent
to deceive is an essential element of constructive fraud. Id. Constructive fraud has been
defined as a breach of a legal or equitable duty, which, irrespective of the moral guilt of the
fraudfeasor, the law declares to be fraudulent because of its tendency to deceive others.
26
Wochos, 2010 Ark. App. 802, at 13, 378 S.W.3d at 288. When there is a duty to communicate
the concealed material fact, liability for nondisclosure may be found. Id. When one party in
a confidential relationship knows the other is relying on misinformation to his detriment,
failure to speak is the equivalent of fraudulent concealment. Id.Here, as stated above with respect to negligence, breach of contract, breach of
fiduciary duty, and conversion, Mays, Jr. breached his escrow obligations by failing to
disburse VLV’s money pursuant to the terms of the Funding Agreement. Instead, he
followed Stephens’s unilateral instructions to disburse VLV’s money to third parties,
including an entity with which he had a personal affiliation, in clear breach of his fiduciary
duty as an escrow agent to remain neutral and to refrain from acting to the detriment of
VLV. VLV relied on representations in the agreements that its money would be transferred
only as authorized, and VLV was financially damaged when this did not occur. Moreover,
Mays, Jr. made multiple material misrepresentations regarding VLV’s money after the fact.
We hold that there was sufficient evidence that Mays, Jr. committed fraud. The circuit court,
therefore, did not clearly err by finding him liable on this count.
F. Constructive Trust and Equitable Lien Based on Unjust Enrichment
Constructive trusts are imposed against a person who secures legal title by violating a
confidential relationship or fiduciary duty or who intentionally makes a false oral promise
to hold legal title for a specific purpose and, after having acquired the title, claims the
property for himself. Herring v. Ramsey, 2021 Ark. App. 249, at 5, 626 S.W.3d 116, 120. The
basis of a constructive trust is the unjust enrichment that would result if the person having
27
the property was permitted to retain it. Id. To impose a constructive trust, there must be full,
clear, and convincing evidence leaving no doubt with respect to the necessary facts. Id. at 6,
626 S.W.3d at 120. An equitable lien is a right to have a demand satisfied from a particular
fund or specific property. C.A.R. Transp. Brokerage Co. v. Seay, 369 Ark. 354, 361–62, 255
S.W.3d 445, 451 (2007). It is a remedy that awards a nonpossessory interest in property to a
party who has been prevented by fraud, accident, or mistake from securing that to which he
was equitably entitled.
Here, the evidence demonstrated that Mays, Jr. exercised control over VLV’s money
and then wrongfully disbursed it to third parties. Other than $40 that Mays, Jr. claimed was
still in his IOLTA trust account, there was no evidence showing that Mays, Jr. received any
of the rest of the $290,000 back and then kept it for himself. Indeed, no evidence was
presented indicating where that money ultimately ended up. For these reasons, we cannot
say that the remedies at law were inadequate and that equitable remedies of constructive
trust and equitable lien were appropriate in this case. Accordingly, we reverse and dismiss
the circuit court’s findings on the claim for constructive trust and equitable lien based on
unjust enrichment.
VIII. Punitive Damages
Mays, Jr. challenges the circuit court’s award of punitive damages, arguing that the
circuit court erred by finding that he acted with the requisite mental state or purpose to
justify an award of punitive damages. Punitive damages are awarded when justified by the
facts of a case to punish a wrongdoer and deter others from similar future wrongdoing. Jim
28
Ray, Inc. v. Williams, 99 Ark. App. 315, 321, 260 S.W.3d 307, 310 (2007). To recover punitive
damages, the plaintiff has the burden of proving that the defendant is liable for
compensatory damages and that either or both of the following aggravating factors were
present and related to the injury for which compensatory damages were awarded:
(1) That the defendant knew or ought to have known, in light of the
surrounding circumstances, that his or her conduct would naturally and
probably result in injury or damage and that he or she continued the conduct
with malice or in reckless disregard of the consequences, from which malice
may be inferred; or
(2) The defendant intentionally pursued a course of conduct for the
purpose of causing injury or damage.
Ark. Code Ann. § 16-55-206 (Supp. 2023). When receiving an award for punitive damages,
the court considers the extent and enormity of the wrong, the intent of the party committing
the wrong, all of the circumstances, and the financial and social condition and standing of
the erring party. Hudson v. Cook, 82 Ark. App. 246, 261, 105 S.W.3d 821, 830 (2003).
Punitive damages are a proper assessment for conduct that is malicious or done with
deliberate intent to injure another. Id. Malice does not necessarily mean hatred; it is rather
an intent or disposition to do a wrongful act greatly injurious to another. Brown v. Blake, 86
Ark. App. 107, 118, 161 S.W.3d 298, 306 (2004).
While punitive damages are not available when the sole cause of action is based in
contract, they are available in cases based in tort and contract that involve fraud,
misrepresentation, or deceit. Trakru v. Mathews, 2014 Ark. App. 154, at 12, 434 S.W.3d 10,
18. Punitive damages also are available when liability is based on conversion. Brown, 86 Ark.
29App. at 116–18, 161 S.W.3d at 305–06. In addition, breach of fiduciary duty accompanied
by evidence of neglect of fiduciary responsibilities can support an award of punitive damages.
Horton v. Mitchell, 2018 Ark. App. 610, at 10–11, 568 S.W.3d 274, 282–83. Punitive damages
also are justified when “the negligent party knew, or had reason to believe, that his act of
negligence was about to inflict injury, and that he continued in his course with a conscious
indifference to the consequences, from which malice may be inferred.” D’Arbonne Constr.
Co., Inc. v. Foster, 354 Ark. 304, 308–09, 123 S.W.3d 894, 898 (2003).
In this case, Mays, Jr. acted in clear violation of a fiduciary duty at the unilateral
direction of Stephens and to the detriment of VLV. His course of conduct in these respects
was taken to facilitate what the circuit court described as a “scam.” And to conceal his breach
of fiduciary duty, breach of contract, conversion, and fraud, he made multiple inconsistent
statements and misrepresentations. By one of his own contradictory explanations, he
engaged in self-dealing when he transferred $30,000 of VLV’s money to AMS Energy, LLC,
an entity that he created and for which he was held out publicly as general counsel and senior
management. In short, at the very least, Mays, Jr. knew or ought to have known, in light of
the circumstances, that his conduct would naturally and probably result in injury, and he
continued in such conduct with malice or in reckless disregard of the consequences of his
conduct, from which malice may be inferred. Accordingly, we cannot say that the circuit
court clearly erred by finding that there was a sufficient basis upon which to award punitive
damages.
IX. Agency
30
Appellant MBA argues that, without sufficient proof that Mays, Jr. was an agent of
MBA, the circuit court had no basis for finding MBA liable for negligence, breach of
contract, and breach of fiduciary duty. MBA further challenges the circuit court’s finding
that Mays, Jr.’s actions proximately caused VLV’s loss. VLV contends that MBA’s argument
is at least partially unpreserved because MBA failed to raise it in its motion to dismiss at trial.
We are not persuaded by VLV’s preservation argument. In a civil bench trial, a party who
does not challenge the sufficiency of the evidence at trial does not waive the right to do so
on appeal. See, e.g., AgriFund, LLC, 2020 Ark. 246, at 7 n.4, 602 S.W.3d at 730 n.4 (rejecting
preservation argument regarding sufficiency challenge in civil bench trial). We also find no
merit in MBA’s agency and causation arguments.
An agency relationship is created from the conduct of two parties in which one party,
the principal, allows another, the agent, to act for him subject to the principal’s control, and
the agent consents to act in that manner. Schuster’s, Inc. v. Whitehead, 291 Ark. 180, 181–82,
722 S.W.2d 862, 863 (1987). An agency relationship may be implied where one party, by his
conduct, holds out another as his agent, or thereby invests him with apparent or ostensible
authority as agent. Id. In doing so, the party becomes liable as the principal for the acts of
the one held out or apparently authorized to act as agent, whether or not the party actually
intended to be bound. Id. When the evidence shows that the person causing the injury was
at the time rendering a service for the defendant and being paid for that service, and the
facts presented are as consistent with the master-servant relationship as with the
independent-contractor relationship, then the burden is on the party asserting the
31
independence of the contractor to show the true relationship of the parties. Id. at 182–83,
722 S.W.2d at 863.
Here, among other evidence, there was evidence that MBA provided office space and
an office telephone number for Mays, Jr., and Mays, Jr. was listed on MBA’s letterhead as an
associate attorney. MBA allowed Mays, Jr. to use an email address associated with the law
firm’s domain, maysbyrdlaw.com, which Mays, Jr. used in connection with the transactions
at issue in this case. Mays, Jr. also included MBA in his signature block on pleadings. In
addition, MBA gave Mays, Jr. access to MBA’s case-management database and billing
software, and MBA was listed on the fee agreements for any work Mays, Jr. did on behalf of
MBA. MBA provided malpractice insurance coverage for Mays, Jr. MBA also allowed Mays,
Jr. to use an MBA IOLTA trust account, which MBA left in Mays, Jr.’s autonomy to manage
and reconcile—the same as MBA did with its partner attorneys. Suffice it to say, there was
plenty of evidence that MBA allowed Mays, Jr. to use the firm name and broadcast to the
general public that he was an associate member of the firm.
To counter this evidence, MBA’s corporate representative, Tiffany Mays O’Guinn,
testified that Mays, Jr. worked for the law firm as an independent contractor and not as an
employee. Through O’Guinn’s testimony, MBA introduced a document titled “Attorney
Services Agreement,” which purportedly was signed by Mays, Jr. and Richard Mays, Sr., on
October 13, 2010, and sets out the terms of Mays, Jr.’s independent-contractor relationship
with MBA. O’Guinn, however, admitted on cross-examination that this document was
disclosed for the first time the night before her February 24, 2019 deposition as a supplement
32
to MBA’s original discovery response. MBA’s original discovery response had been filed
eleven months earlier and stated that “no documents exist, as they are not required by
Arkansas law.” O’Guinn could not explain how or when the Attorney Services Agreement
had been discovered in the eleven-month period after MBA’s original discovery response.
O’Guinn also testified that Mays, Jr. reimbursed the firm for the monthly premiums MBA
paid for his malpractice insurance coverage, but she could not provide any documentation
to that effect.
Viewed in the light most favorable to VLV, we cannot say that the evidence was
insufficient to support a finding that Mays, Jr. was in an agency relationship with MBA. The
circuit court, therefore, did not err by finding MBA liable for negligence, breach of contract,
and breach of fiduciary duty. We also hold that the circuit court did not clearly err by finding
that the actions of Mays, Jr. proximately caused VLV’s loss. Proximate cause is that which,
in a natural and continuous sequence unbroken by any efficient intervening cause, produces
the injury, and without which, the result would not have occurred. Chamber v. Stern, 347
Ark. 395, 64 S.W.3d 737 (2002). As stated above with respect to his liability for negligence,
breach of contract, breach of fiduciary duty, conversion, and fraud and misrepresentation,
Mays, Jr. was obligated to disburse VLV’s money pursuant to the terms of the Funding
Agreement. His failure to do so directly resulted in the loss of VLV’s money.
Affirmed in part; reversed and dismissed in part.
GRUBER and BARRETT, JJ., agree.
Malone Law Firm, by: Jerry L. Malone, for separate appellant Richard L. Mays, Jr.
33
Gill Ragon Owen, P.A., by: Christopher L. Travis; and Kenya G. Davenport, for separate
appellant Mays, Byrd & Associates, P.A.
Charlie Cunningham and Dustin A. Duke, for separate appellants Derrick Stephens, D.
Stephens Management & Consulting, LLC, and Olena “Lola” Korneevets.
James, House, Swann & Downing, P.A., by: Matthew R. House and Kayla M. Applegate,
for appellee.
34