Opinion ID: 1450195
Heading Depth: 1
Heading Rank: 1

Heading: Standing of Sumner Mitchell

Text: We first address the issue of whether Sumner Mitchell had standing to sue Farm Bureau based on that insurer's performance of the insurance policies it had entered into with the farming corporations. Farm Bureau claims that Mitchell had no standing as a shareholder or guarantor of the farming corporations to raise the tort claims. Thus, Farm Bureau urges that on the issue of Mitchell's standing to sue as an individual, the circuit court erred in denying its motion to dismiss, its motion for summary judgment, its motion for a directed verdict, and its motion for judgment notwithstanding the verdict. Mitchell counters that he had standing to sue as a third-party beneficiary under the policies at issue, both as a shareholder and as a guarantor. We treat the question of standing to sue as a threshold issue. See, e.g., Brewer v. Carter, 365 Ark. 531, 231 S.W.3d 707 (2006). It is fundamental in American jurisprudence that in order to bring a lawsuit against an opposing party, one must have standing to do so. Without standing, a party is not properly before the court to advance a cause of action. See Hufsmith v. Weaver, 285 Ark. 357, 687 S.W.2d 130 (1985). Farm Bureau raised the issue of Mitchell's standing to the circuit court in its motion for summary judgment, but that court denied the motion and permitted Mitchell to proceed to trial on his tort claims. We conclude that the circuit court's decision to allow Mitchell to proceed at trial constituted a ruling in Mitchell's favor on the issue of standing, even though the court did not specifically address standing in its order. As standing is now raised by Farm Bureau on appeal, we must consider whether Mitchell, in fact, had standing to sue in this case, though he was not a named insured under the Farm Bureau insurance policies. The question of standing is a matter of law for this court to decide, and this court reviews questions of law de novo. See, e.g., Craven v. Fulton Sanitation Serv., Inc., 361 Ark. 390, 206 S.W.3d 842 (2005). a. Third-Party Beneficiary Farm Bureau maintains that Mitchell's claims must fail because he was not an insured under either insurance policy. The farming corporations were the insureds under the policies, and the only wrong complained of by Mitchell was the failure of Farm Bureau to pay the farming corporations their claims in a timely fashion. Farm Bureau additionally contends that Mitchell has no individual right of action as a corporate officer or as a majority shareholder or guarantor for wrongs allegedly inflicted on the corporation by a third party, especially when the farming corporations have filed suit for such wrongs on their own behalf. Mitchell responds that he is entitled to bring an action against Farm Bureau because he was a third-party beneficiary under the policies at issue and because of his separate and distinct status as a corporate shareholder of the farming corporations. He points to the testimony of Byron Kelly Kelner, an agent of Farm Bureau, who testified that he wrote the insurance policies for Mr. Mitchell on March 18, 1977, and that he felt like he was insuring Mitchell as well as the farming corporations. We agree with Farm Bureau that Mitchell is not a third-party beneficiary under the insurance policies based on Mr. Kelner's testimony. With respect to that testimony, Farm Bureau points out that this parol evidence offered by Mitchell does not alter the legal relationship of the parties established by the written insurance policies. Farm Bureau emphasizes that the integration provision of the policies dictates that the policy terms control without reference to such parol evidence. [2] Additionally, this court has said that [w]hen two parties have made a contract and have expressed it in a writing to which they have both assented as the complete and accurate integration of that contract, evidence, whether parol or otherwise, of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing. U.S. Rubber v. Northern, 236 Ark. 381, 384, 366 S.W.2d 186, 188 (1963); see also Ultracuts Ltd. v. Wal-Mart Stores, Inc., 343 Ark. 224, 232, 33 S.W.3d 128, 134 (2000) (holding that [i]t is a general proposition of the common law that in the absence of fraud, accident or mistake, a written contract merges, and thereby extinguishes, all prior and contemporaneous negotiations, understandings and verbal agreements on the same subject.) b. Shareholder Status Mitchell also claims that he has standing to sue as the primary shareholder of the farming corporations. However, to reiterate, neither Mitchell's claim nor his alleged harms were separate and distinct from that of the farming corporations, but rather, all appellees made the same claim for the same alleged wrong: that Farm Bureau did not timely pay insurance proceeds to the farming corporations, thus causing financial reversals for all the appellees. This court has recognized the near 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, N.A. v. Walker, 333 Ark. 100, 110, 969 S.W.2d 146, 151 (1998), cert. denied 525 U.S. 965, 119 S.Ct. 410, 142 L.Ed.2d 332 (1998). The Arkansas Rules of Civil Procedure provide that a shareholder may bring a derivative action on behalf of a corporation to enforce a right of the corporation when the corporation has failed to do so. Ark. R. Civ. P. 23.1 (2006). But in order for a shareholder to bring an individual cause of action against a third party, that shareholder must be injured for a wrong directly or independently of the corporation. See Golden Tee, Inc. v. Venture Golf Schools, Inc., 333 Ark. 253, 969 S.W.2d 625 (1998). This court has further determined that individual stockholders [have] no standing to sue in their individual capacities for injuries allegedly suffered primarily by the corporation and its shareholders[.] Id. at 260-61, 969 S.W.2d at 629; see also Walker, 333 Ark. at 110, 969 S.W.2d at 151 (holding that [a] corporate officer has no individual right of action against a third party for alleged wrongs inflicted on the corporation, even if the officer is the sole shareholder.). Additionally, this court has held that direct suits are appropriate only where a shareholder asserts a direct injury to the shareholder distinct and separate from harm caused to the corporation. Golden Tee, Inc., 333 Ark. at 261, 969 S.W.2d at 629 (internal quotations omitted) (quoting Hames v. Cravens, 332 Ark. 437, 442, 966 S.W.2d 244 (1998)). Mitchell has not shown that his tort claims are separate and distinct from the harm caused to the farming corporations. Rather, the appellees' claims are the same, that Farm Bureau was dilatory in paying the claims of the farming corporations which had severe economic repercussions for those corporations as well as Mitchell. Accordingly, we conclude that Mitchell did not have standing to raise his individual claims as a shareholder of the farming corporations as they were not separate and distinct from the claims formally raised by those corporations. c. Guarantor We turn next to the question of whether Mitchell had standing to sue Farm Bureau as a personal guarantor of the debts of the farming corporations. In the instant case, Mitchell had personally guaranteed payment of the loans made by People's Bank and Loan and other creditors. This court has defined a guarantor as one who makes a contract, which is distinct from the principal obligation, to be collaterally liable to the creditor if the principal debtor fails to perform. Walker, 333 Ark. at 112, 969 S.W.2d at 152. In Walker , the individual stockholder and guarantor of the corporation was Walker, who claimed that he should have standing to bring a lender-liability action against the Bank because he was a party to the loan agreements between his company, Aerth, and the Bank and because he was a guarantor of the various loans. This court, however, concluded that Walker had acted as a representative of the corporation and as a guarantor of the debt, and that these actions did not provide him with standing to maintain a separate, individual action against the Bank apart from the corporation. Accordingly, we reversed and dismissed Walker's claim due to lack of standing. In the instant case, Mitchell attempts to distinguish Walker by explaining that in that case, this court noted that Walker did not allege that the Bank's conduct caused a third party to discontinue a contractual relationship with him. Thus, seeking to distinguish his case from that in Walker , Mitchell merely asserts that he had proven that the wrongful actions of a third party (Farm Bureau), not the lending institution, caused his creditors to fail to continue a contractual relationship with him. We fail to see how this distinction conveys standing on Mitchell to sue independently from the farming corporations in the case at hand. We further look to the case of Hufsmith v. Weaver, 285 Ark. 357, 687 S.W.2d 130 (1985), to determine whether Mitchell's status as a guarantor conveys standing for him to sue individually. In that case, Hufsmith, who was the president, majority shareholder, and guarantor of Ready Mix, claimed that his posture as the guarantor made him a third-party beneficiary to the contract. He argued that as a result, this gave him standing to individually sue a third party who had allegedly engaged in tortious interference with a Ready Mix contract. The facts were that Ready Mix had entered into a contract to sell its assets to Razorback Quality Concrete Company (RQCC). This sale was dependent on the issuance of industrial revenue bonds, which allegedly were not issued because of a fraudulent lawsuit filed by the third party to block the bond issue. Hufsmith further alleged that the third party, who was a competitor of Ready Mix, knew that the failure of the bond issue, and thus of the sale, would cause the financial ruin of Ready Mix. In an affidavit, Hufsmith stated that because of the tortious interference with Ready Mix by the third-party company, which caused Ready Mix to lose the contract, Hufsmith was forced to use his own assets to pay off obligations of Ready Mix, which he had personally guaranteed. Despite these circumstances, this court concluded that Hufsmith's status as a guarantor did not give him standing to sue on behalf of Ready Mix for tortious interference with Ready Mix's contract. This court explained that even accepting Hufsmith's claim that he was the guarantor of obligations owed by Ready Mix, there was no allegation or evidence that Ready Mix owed him anything when the contract was entered between Ready Mix and RQCC so as to give Hufsmith a financial interest. Thus, he could not claim a third-party beneficiary status. In fact, it was only after the contract was entered into that Hufsmith received a demand letter requesting that he personally pay the notes he had guaranteed. This court further reasoned that had the sale between Ready Mix and RQCC been consummated, any financial obligation owed by Ready Mix to Hufsmith would have been discharged because there would have been no default by Ready Mix on the loans. Thus, no duty on the part of Ready Mix to reimburse Hufsmith, as a creditor, would have arisen. We cited to the Restatement of Contracts and noted that [t]he duty or obligation of the promisee to the purported third-party creditor beneficiary and the prospect of satisfaction of that duty by performance are integral elements of the description of a third-party creditor beneficiary according to the [ Restatement of Contracts, Second, § 302(1)(a) (1981)]. Hufsmith, 285 Ark. at 360, 687 S.W.2d at 132. We affirmed the summary judgment in favor of the third-party competitor due to Hufsmith's lack of standing to sue. Mitchell also tries to distinguish Hufsmith by referring to an equipment-lease agreement between Mitchell and the farming corporations and contends that that qualified as a financial obligation. However, based on this court's definition of a guarantor, it is not this lease arrangement that makes Mitchell a guarantor of the farming corporations. Rather, it was the fact that he pledged his own personal assets to guarantee payment of the loans taken out by the farming corporations. Further, Farm Bureau underscores the fact that there was no proof at trial that the insurance proceeds, once paid to the farming corporations, were intended to satisfy the lease payments to Mitchell. According to Farm Bureau, the proof was that the proceeds were to be used to pay the bank and other third-party creditors. Moreover, Farm Bureau states that there was no testimony that the lease payments went unpaid but there was proof at trial that Mitchell actually owed the farming corporations more than $300,000, an amount well in excess of the lease payments owed to him. We hold that, under both Hufsmith and Walker , Mitchell's status as a guarantor of the farming corporations does not give him standing to sue Farm Bureau individually as a third-party beneficiary. The circuit court erred in refusing to grant summary judgment in favor of Farm Bureau on the issue that Mitchell lacked standing to sue as an individual. We reverse the judgment in favor of Sumner Mitchell and dismiss. The remainder of this opinion will concern Farm Bureau's appeal relative to the farming corporations.