Jody Underwood, Individually and as a Shareholder and Member of Conway Precision Products, Inc. v. Jeffrey S. Underwood and Conway Precision Products, Inc.

2024 Ark. App. 51, 684 S.W.3d 896
CourtCourt of Appeals of Arkansas
DecidedJanuary 24, 2024
StatusPublished
Cited by1 cases

This text of 2024 Ark. App. 51 (Jody Underwood, Individually and as a Shareholder and Member of Conway Precision Products, Inc. v. Jeffrey S. Underwood and Conway Precision Products, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Arkansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Jody Underwood, Individually and as a Shareholder and Member of Conway Precision Products, Inc. v. Jeffrey S. Underwood and Conway Precision Products, Inc., 2024 Ark. App. 51, 684 S.W.3d 896 (Ark. Ct. App. 2024).

Opinion

Cite as 2024 Ark. App. 51 ARKANSAS COURT OF APPEALS DIVISION III No. CV-20-606

Opinion Delivered January 24, 2024

JODY UNDERWOOD, INDIVIDUALLY APPEAL FROM THE FAULKNER AND AS A SHAREHOLDER AND COUNTY CIRCUIT COURT MEMBER OF CONWAY PRECISION [NO. 23CV-18-157] PRODUCTS, INC. APPELLANT/CROSS-APPELLEE HONORABLE SUSAN WEAVER, JUDGE V. APPELLANT’S/CROSS-APPELLEE’S JEFFREY S. UNDERWOOD AND PARTIAL MOTION TO DISMISS CONWAY PRECISION PRODUCTS, INC. DENIED; APPELLEES’/CROSS- APPELLEES/CROSS-APPELLANTS APPELLANTS’ PARTIAL MOTION TO DISMISS GRANTED; REVERSED AND REMANDED ON DIRECT APPEAL; AFFIRMED ON CROSS- APPEAL

MIKE MURPHY, Judge I. Introduction

This case is a business dispute between an ex-husband and his ex-wife. Conway

Precision Products, Inc. (“CPPI”), was purchased by Jeff Underwood while he and Jody

Underwood were married, at which point Jeff was the sole shareholder, director, and officer

of the company. When the couple divorced, each was granted 50 percent of CPPI.

Approximately three years later, Jody brought an individual and derivative action against Jeff

and CPPI. At the conclusion of the trial, the jury found in Jody’s favor in derivative actions

for breach of fiduciary duty and conversion. The jury also entered a verdict in Jody’s favor, individually, for breach of fiduciary duty. She now appeals the jury’s denial of a derivative

claim regarding a shareholder loan that Jeff took from CPPI and the jury’s denial of her

declaratory-judgment action. On direct appeal, we reverse and remand.

Jeff cross-appeals the jury’s verdict on Jody’s breach-of-fiduciary-duty claim and her

other derivative claims. On cross-appeal, we affirm.

Further, both parties have also moved to dismiss portions of the other’s appeal. We

grant Jeff’s motion to dismiss and deny Jody’s motion to dismiss.

II. Factual and Procedural Background

Jody and Jeff Underwood married in 1985. During the marriage, Jeff purchased CPPI

from his father in 2001, and he was the sole shareholder, director, and officer until the

couple divorced on May 8, 2015. As part of the divorce, Jeff and Jody were each awarded 50

percent of CPPI. After the divorce, Jeff was elected chairman of the board of directors and

president of CPPI, and Jody was elected vice chairman of the board and the corporate vice

president and secretary.

Because CPPI was an S Corporation, Jeff and Jody incurred tax obligations as the

shareholders. Jody received distributions to pay the taxes she incurred as an owner for the

tax years 2015 and 2016. Also in 2015 and 2016, Jody requested and was provided access to

CPPI’s QuickBooks and other financial documents.

Prior to the divorce, Jeff’s annual salary from CPPI was $65,000. Each year, he also

received a payment from CPPI that was listed on the company’s tax return as a “loan to

shareholder,” which Jeff considered to be a portion of his total compensation and which he

2 and the family used for their expenses. Jeff testified several times during the trial that the

loan-to-shareholder designation was a tax strategy advised by his accountant and that he

anticipated CPPI would deal with the alleged loans at some point in the future. Starting after

the divorce, Jeff no longer received a loan to shareholder as a portion of his compensation

and was instead paid an annual salary of $148,337 for 2015. In 2016, his annual salary and

benefits totaled $211,148. In 2017, his annual salary was $195,211. Jody testified that she

asked him several times to lower his salary, and he ignored that request.

On November 7, 2017, Jody requested financial information from CPPI via email to

Jeff. On December 8, Jody drove to CPPI’s office and asked for bank statements, credit-card

statements, and financial information. During that visit, Jeff called the police to keep Jody

from the premises. On November 10, Jeff responded to Jody’s November 7 email that she

would have to follow the provisions of the Arkansas Business Act of 1987 to obtain corporate

information. On December 20, Jody’s counsel sent a letter requesting to inspect financial

documents on December 29. CPPI’s counsel responded on December 27, alleging that Jody’s

request was not made in good faith or for a proper purpose to CPPI and declined the request.

On January 31, 2018, Jody filed a verified complaint on behalf of herself individually

and as a shareholder and member of CPPI against Jeff and CPPI.

The first count was a request for the inspection of records. The circuit court ordered

Jeff to allow Jody complete access to the CPPI QuickBooks and other corporate records on

April 9, 2018. Jody’s remaining claims were tried before a jury. Jody prevailed on some of

her claims and lost on others. The jury found in Jeff’s favor on the derivative collection-of-

3 loan claim and on the request for declaratory judgment. The jury awarded $40,456.36 to

Jody, individually, on her breach-of-fiduciary-duty claim. The breach-of-fiduciary-duty claim

and the conversion claim were listed on separate verdict forms, and the jury awarded CPPI

$152,614.00 on each. The jury did not award any punitive damages.

The circuit court entered judgment consistent with the jury’s verdicts on March 25,

2020. The circuit court awarded judgment in favor CPPI in the amount of $152,614.00 on

the derivative conversion claim and for $152,614.00 on the derivative breach-of-fiduciary-

duty claim but stated in its order that CPPI “may collect the $152,614.00 judgment described

in Paragraphs A and B herein only once in order to avoid any potential for double recovery

from Defendant, Jeffrey Underwood.” Additionally, the circuit court ordered that judgment

be entered in favor of Jody against Jeff for $40,456.36 on her individual claim for breach of

fiduciary duty.

Jody timely appealed, and Jeff timely cross-appealed. Both parties have also filed

partial motions to dismiss. On May 6, 2021, Jeff moved to dismiss Jody’s appeal as to the

declaratory judgment, arguing that her notice of appeal was deficient. On May 13, 2021,

Jody moved to dismiss a portion of Jeff’s cross-appeal, arguing that he had voluntarily paid a

portion of the judgment with the property sale described above. These two motions were

passed until the case was submitted.

III. Motions to Dismiss

A. Jeff’s Motion to Dismiss Jody’s Appeal of the Declaratory-Judgment Verdict

In her notice of appeal, Jody stated:

4 Notice is hereby given that Jody Underwood (Jody Lynn Doran), Individually, and as a shareholder and member of Conway Precision Products, Inc. (“Plaintiff”) appeals to the Arkansas Court of Appeals the March 25, 2020 Judgment of the Faulkner County Circuit Court entering judgment in favor of Jeffrey Underwood on Plaintiff’s claim for collection of loan and each and every issue or intermediate order decided in the above-captioned case necessarily affecting the Judgment in favor of Jeffrey Underwood on Plaintiff’s claim for collection of loan.

(Emphasis added.)

Jeff moved to dismiss the portion of Jody’s appeal wherein she asks this court to

reverse the circuit court’s judgment regarding her declaratory-judgment action. He argues

that Jody’s notice of appeal is deficient because it does not identify the declaratory judgment

as an issue on appeal. We agree.

Arkansas Rule of Appellate Procedure–Civil 3(ii) mandates that an appellant

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2024 Ark. App. 51, 684 S.W.3d 896, Counsel Stack Legal Research, https://law.counselstack.com/opinion/jody-underwood-individually-and-as-a-shareholder-and-member-of-conway-arkctapp-2024.