Hitt v. Lyle

2020 Ark. App. 124, 596 S.W.3d 540
Court of Appeals of Arkansas·Decided February 19, 2020·Published·Cited by 2 cases

Opinion

Cite as 2020 Ark. App. 124 Reason: I attest to the accuracy and integrity of this document Date: 2021-06-30 14:44:31 ARKANSAS COURT OF APPEALS Foxit PhantomPDF Version: 9.7.5 DIVISION II

No. CV-18-401

SHIRLEY LYLE HITT Opinion Delivered: February 19, 2020

APPELLANT/CROSS-APPELLEE APPEAL FROM THE JACKSON COUNTY CIRCUIT COURT

V. [NO. 34CV-07-77]

JAMES WALLER LYLE, HONORABLE PHILIP SMITH, JUDGE INDIVIDUALLY; ANN LYLE,

INDIVIDUALLY; KATHERINE AFFIRMED IN PART ON DIRECT LYLE HARBISON, INDIVIDUALLY; APPEAL; REVERSED AND REMANDED AND D/B/A LYLE FARMS WITH INSTRUCTIONS IN PART ON PARTNERSHIP DIRECT APPEAL; AFFIRMED ON CROSS-APPEAL

APPELLEES/CROSS-APPELLANTS

MEREDITH B. SWITZER, Judge This is an appeal from protracted litigation concerning the dissolution of a family farming partnership—Lyle Farms Partnership.

Lyle Farms Partnership was formed by Ann Lyle, Katherine Lyle Harbison, James Waller Lyle, and Shirley Lyle Hitt. In this lawsuit, Shirley sued her mother, Ann; her sister, Katherine; her brother, James; and the Lyle Farms Partnership seeking to dissolve the partnership. It is primarily the siblings who have conflicted. As a general premise, Katherine and James clashed with Shirley over what they consider her lack of involvement in the farming operations, whereas Shirley accused James and Katherine of excluding her from the partnership operations and misappropriating partnership funds.

This litigation began over a decade ago when Shirley filed her initial complaint in 2007. Since then, the case has been plagued by difficulties and irregularities. Both Ann and

James died during the pendency of the litigation. The circuit court held a bench trial on the merits of this case in 2011 and 2012 but did not rule until 2017. Once the circuit court fully and finally ruled on the matter, both an appeal and a cross-appeal were filed. Both are now ripe for our court to decide.

I. Background

J.P. Lyle began farming in Jackson County, Arkansas, in the 1920s. He married Ann in 1955, and they had three children—Katherine, Shirley, and James.

Each member of the Lyle family worked on the farm, and for many years, they all lived in the family home. Additionally, no family member collected a salary for work on the farm. Instead, until 2005, they shared one bank account, which each family member used for both farming and personal purchases. Beginning in 1986, it was Katherine’s responsibility to keep track of the family’s financial records.

In 1990, J.P. died. Ann, Shirley, Katherine, and James continued to operate the farm.

In 2003, they executed a partnership agreement under the name Lyle Farms. The partnership agreement was backdated to 1986. The agreement reflected that each individual was an equal partner with authorization to transact business for the partnership. However, the consent of all partners was required for the partnership to “borrow or lend money or make, deliver or accept any extraordinary commercial paper or execute a mortgage, security agreement, or a bond, or lease, or contract to purchase, or contract to sell any property of the partnership.” The partnership agreement also provided that it would terminate in the event any partner gave one year advance notice of said termination.

Problems arose around 2005. James and Katherine contend that Shirley’s level of involvement with the farming operations had dramatically declined. Shirley claims James and Katherine excluded her from management and operations of the partnership and used partnership assets for their personal benefit.

On June 30, 2006, Shirley gave written notice of her intent to dissolve the partnership pursuant to the terms of the partnership agreement. Nearly one year later, on May 9, 2007, she filed a lawsuit against Ann, James, Katherine, and Lyle Farms seeking to dissolve the partnership, to liquidate its assets, and an accounting.1 James and Katherine would later file a counterclaim against Shirley seeking damages for breach of contract, breach of fiduciary duty, conversion, and misappropriation.

Shirley filed several amendments to her original complaint. The third amended complaint filed in December 2010 is the operative complaint in this case. 2 In it, Shirley sought substantially the same relief as she had initially, including a declaration from the court that two parcels of land were actually partnership property. She asserted that one parcel, a 273-acre property known as Sink Farm that was deeded solely to James in 1986 was partnership property pursuant to Arkansas Code Annotated section 4-46-204(c) (Repl. 2011) because partnership funds were used to purchase it. Shirley also claimed that a second parcel consisting of fifteen acres of land deeded solely to Katherine was partnership property. The fifteen acres was deeded to Katherine by all of the partners, but Shirley claims the land

1 This dispute is primarily between James, Katherine, and Shirley. Because of this, we will often refer to the appellees/cross-appellants as James and Katherine.

2 By the time the third-amended complaint was filed, Ann had died, and the Estate of Ann Lyle was substituted for Ann.

was deeded to Katherine with the understanding that each partner also would receive a deed for land as his or her separate property, which never occurred. Additionally, Shirley claimed that a mobile home that sat on the fifteen acres was partnership property rather than Katherine’s sole property.

Shirley’s complaint also alleged that James and Katherine borrowed against partnership assets without the agreement and consent of all parties, which was required by the partnership agreement. Specifically, James and Katherine obtained a loan from Iberia Bank and used crops that were partnership assets as collateral for the loan.

Iberia Bank sought to intervene in this matter in order to collect from James and Katherine. It claimed it had a first-priority lien on the partnership crops pledged as collateral for its loan and sought an order of delivery. Shirley objected since she had not been a party to the loan or agreed to using the partnership crops as collateral for it. Despite her objections, the circuit court issued an order of delivery in August 2010 requiring that all proceeds from the sale of the crops be paid to Iberia Bank.

Mere days after the order of delivery in favor of Iberia Bank was entered, Shirley filed a new lawsuit (“the 2010 lawsuit”), which was a complaint in foreclosure on landlord’s crop lien. In that complaint, Shirley sought injunctive relief based on the same facts of this litigation. The 2010 lawsuit was assigned to a different judge in the same judicial district. Pursuant to Arkansas Rule of Civil Procedure 11, James and Katherine filed a motion for sanctions in the 2010 lawsuit accusing Shirley of forum shopping. James and Katherine also sought to have Shirley held in contempt for her conduct. Ultimately, Shirley’s request to

proceed on the injunction claim was denied, and the 2010 lawsuit was transferred and consolidated with this case.

Because the financial status of the partnership was a significant issue in this litigation, the circuit court ordered an accounting and appointed Jones & Co., Ltd., to perform it. Jones & Co. prepared an accounting report at the circuit court’s direction. It undertook to account for all expenditures—including personal expenditures paid from farm accounts and farm income deposited into personal accounts. In the report, several obstacles were highlighted: there was not a complete set of books or financial statements and general ledgers for any Lyle Farms operations; most of the farm income was not deposited into bank accounts; and many times, information was incomplete. It found that personal expenditures were not kept separate from farm expenditures and that there were no accounting records for any of the Lyle Farms operations.

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Hitt v. Lyle, 2020 Ark. App. 124, 596 S.W.3d 540 (Ark. Ct. App. 2020).

2020 Ark. App. 124 (Hitt v. Lyle) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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