Case Notes

The business asset purchase agreement provided that any disputes among the parties must be resolved in Pulaski County, AK. However, the premises lease included no provision concerning the venue of adjudication of any future disputes.

The relationship between the parties deteriorated over time. Boydston, believing that Brown had breached not only the lease but also the business sale and purchase agreement, served Brown with a notice of default and opportunity to cure. Further poisoning the waters, the Faulkner County location was soon destroyed by a tornado, and Boydston and Brown could not agree on how much pro-rata rent was owed for the remaining two operational business locations. The parties went back and forth for a while on what was needed to bring the agreements into compliance with both their expectations. When that failed, Boydston sent Brown a letter, dated June 6, 2014, notifying of uncured defects, terminating the lease and demanding that Brown vacate the Crawford County property. Similar letters were sent to Brown in July and September, and a notice to vacate was served on June 13. Still, Brown held over.

On June 12, 2014, Brown sued Boydston in the Pulaski County Circuit Court seeking a declaratory judgment concerning the parties' various disputes. Seller/landlord Boydston counterclaimed, seeking damages for the breaches of the agreements, which included damages for unpaid rent. In addition, on June 23, 2014, Boydston filed the unlawful-detainer action in a different venue — the Crawford County Circuit Court — pursuant to Arkansas Code Annotated sections 18-60-301 et. seq. (Repl. 2015). Brown, among other claims, filed a motion to dismiss that action pursuant to Arkansas Rule of Civil Procedure 12(b)(8), arguing that venue was proper in Pulaski County but not in Crawford County.

The parties filed a number of motions in Crawford County Circuit Court that were not ruled upon prior to the litigation of the case before the Pulaski County Court, which took place in February 2016. The Pulaski court ultimately found largely for landlord Boydston in the lease dispute matters and ordered Brown to pay just over $40,000 in back rent for the two leased properties on which businesses were still operational, yet declined to consider the question of unlawful detainer after concluding it lacked jurisdiction over that matter. It also stated in its decision that “[t]he [Pulaski] Court's findings of fact regarding when [Brown was] in breach of the Lease Agreement and Asset Purchase and Sale Agreement and the proper pro rata rent amounts that should have been paid by [Brown] to [Boydston] are instructive, but are not binding, for the … Crawford County Court in the unlawful detainer litigation.” Brown appealed the Pulaski County Circuit Court's order to the Arkansas Court of Appeal, but the court affirmed nearly every portion of the decision.

The parties next moved back to the Crawford County Courthouse to deal with the unlawful detainer action. There landlord Boydston filed a motion for summary judgment based on the Pulaski County Circuit Court's finding that Brown had breached the lease and owed $40,000 in unpaid rent. Boydston contended that the only matter left to adjudicate was his entitlement to treble damages in accordance with Ark. Code Ann. Section 18-60-309(b)(2). Brown moved to dismiss on the basis, inter alia, that Boydston's unlawful-detainer claim was barred by the doctrine of res judicata. The Crawford County Court dismissed the matter, providing in its order that “the doctrine of claim preclusion and the concepts of res judicata and judicial economy” apply.

The Arkansas Court of Appeals noted that when the Crawford County Circuit Court conducted its Aug. 29, 2017, hearing on the parties' competing motions it “grappled with whether the Pulaski County litigation of the amount of unpaid rent Brown owed amounted to an adjudication of the Crawford County unlawful-detainer claim.” In the end, that trial court determined that the unlawful detainer complaint must be dismissed with prejudice based on “the doctrine of claim preclusion and the concepts of res judicata and judicial economy.”

The Boydston appeal asserted that res judicata did not apply to the unlawful detainer action, neither on the basis of claim preclusion nor issue preclusion.

The appeals court noted that the purpose of res judicata is to prevent endless litigation by preventing a party who has already had a fair trial on the matter from litigating it again. Hardy v. Hardy, 2011 Ark. 82. In addition, res judicata consists of “two facets, one being issue preclusion and the other claim preclusion.” Id.

The appeals court explained that to show res judicata on the basis of claim preclusion, the following factors must be present: 1) the first suit resulted in a final judgment on the merits; 2) the first suit was based on proper jurisdiction; 3) the first suit was fully contested in good faith; 4) both suits involve the same claim or cause of action; and 5) both suits involve the same parties or their privies. In this action, applying the above five elements, the appeals court agreed that claim preclusion did not apply because “Boydston's claim in the Crawford County Circuit Court was for unlawful detainer of commercial property, and accordingly, he sought possession of the property plus treble damages for unpaid rent. In Pulaski County, Boydston had a claim for breach of contract and sought damages for unpaid rent. These claims are certainly related as they both require a determination of the proper amount of rent owed by Brown. Nevertheless, they are separate and distinct actions.” An unlawful detainer action is created and governed by statute in Arkansas, and that statute specifically requires that an unlawful detainer action be brought in the county in which the property lies. Because Boydston could not have brought his unlawful detainer action concerning property located in Crawford County in the Pulaski County Court even if he had wanted to and that court had been willing, he was not able to get a full and fair hearing on the issue there. Thus, claim preclusion did not bar Boydston from seeking relief in the second action in Crawford County Court.

As to issue preclusion — otherwise known as collateral estoppel — the appeals court observed that it was a question easily disposed of in this matter, and concluded that this doctrine did not bar Boydston from seeking relief from the Crawford court with his unlawful detainer complaint. In this regard, the appellate court stated, “Although it is correct that the Pulaski County Circuit Court determined the amount of unpaid rent Brown owed Boydston, it specifically found that the rent amounts were instructive and not binding on the Crawford County Court. Moreover, the amount of rent owed is not the only element of an unlawful-detainer action. Because the parties did not have a full and fair opportunity to litigate all components of the unlawful-detainer action in Pulaski County, the Crawford County Circuit Court was not barred from doing so on the basis of issue preclusion.”

Moreover, judicial economy, by itself, is insufficient to support dismissal, the appeals court stated, as “[j]udicial economy is merely a policy consideration used when a court makes various determinations and not a basis by which a suit can be barred.” See, Pennington v. Harvest Foods, 326 Ark. 704 (1996).