Swindle v. Southern Farm Bureau Casualty Insurance Co.

Cite as 2015 Ark. 241

SUPREME COURT OF ARKANSAS
No. CV-14-250

Opinion Delivered May 28, 2015

KEN DAVID SWINDLE APPEAL FROM THE BENTON
APPELLANT COUNTY CIRCUIT COURT
[NO. CV2012-1854-5]
V.
HONORABLE XOLLIE DUNCAN,
JUDGE
SOUTHERN FARM BUREAU
CASUALTY INSURANCE COMPANY AFFIRMED IN PART; REVERSED IN
APPELLEE PART; COURT OF APPEALS
OPINION VACATED.

JOSEPHINE LINKER HART, Associate Justice

Appellant, Ken David Swindle, sued appellee, Southern Farm Bureau Casualty

Insurance Company (SFB), for breach of contract. SFB moved for summary judgment, and the

circuit court granted the motion and awarded attorney’s fees to SFB pursuant to Rule 11 of

the Arkansas Rules of Civil Procedure. On appeal, Swindle argues that, after filing suit, SFB

paid to him the sum he sued for, and thus, he was the prevailing party in the lawsuit and

entitled to an award of attorney’s fees under Arkansas Code Annotated section 16-22-308

(Repl. 1999). He further argues that the circuit court erred in sanctioning him under Rule 11,

because SFB did not provide him with notice of their request for sanctions. We affirm the

circuit court’s decision to deny him fees as the prevailing party but reverse the circuit court’s
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decision to sanction Swindle under Rule 11.1

In his complaint, Swindle alleged that he represented David Dornan and Araceli Perez

for damages that they sustained in a motor-vehicle collision. The driver of the other vehicle

was insured by SFB. Swindle informed SFB of his attorney’s liens on Dornan’s and Perez’s

claims. According to the complaint, SFB offered to settle both Dornan’s and Perez’s claims,

and both accepted. Swindle further alleged that he had disbursed $24,500 in reliance on the

settlement but that checks written by SFB were never honored by SFB’s bank. Swindle sought

recovery of the $24,500.

In its answer to Swindle’s complaint, SFB alleged that Swindle’s claims were spurious

and not presented in good faith and that the claims were made for an improper purpose such

as to harass or to cause unnecessary delay and needlessly increase the cost of litigation. SFB

asked that the circuit court dismiss the lawsuit, sanction Swindle under Rule 11, and order

Swindle to pay the costs of litigation, including an attorney’s fee.

Swindle moved for a “judgment on the pleadings.” In his motion, he stated that he had

filed the action in order to receive payment on a contract, that SFB had issued payment, and

that he had received the funds. He asserted that because he had obtained the relief he sought,

there was no material issue of fact remaining on the underlying issue. He concluded that the

only remaining issue to be considered was his request for attorney’s fees. He requested that a

judgment be entered by the court finding in his favor and reserving the assessment of costs and

attorney’s fees.

1
Given our conclusions, we need not address whether Swindle’s complaint sounded
in contract or consider the evidentiary arguments raised by Swindle in his brief.
2
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In response, SFB asserted that Swindle’s receipt of the funds was not the result of his

filing of a cause of action and denied that Swindle was entitled to an award of attorney’s fees.

SFB further asserted that the complaint should be dismissed and that the court should award

SFB costs and attorney’s fees, either as the prevailing party in a contract suit or as sanctions

pursuant to Rule 11.

No hearing was held. In its order granting summary judgment to SFB, the circuit court

concluded that Swindle had filed a frivolous claim against SFB without proper and reasonable

investigation. The court granted SFB summary judgment and imposed sanctions in the form

of awarding attorney’s fees to SFB. In a separate order, the court awarded attorney’s fees and

expenses in the sum of $6785.65.

Swindle raises two issues on appeal. In his first issue, he observes that the underlying

question—his entitlement to the payment of the $24,500 by SFB—was resolved in his favor

by SFB’s payment of the funds to him. He argues that because SFB paid him after he had filed

his complaint for breach of contract, he was the prevailing party in the lawsuit, and thus, he

was entitled to an award of attorney’s fees. This issue is one of statutory interpretation, and our

review is de novo because it is for this court to decide what a statute means. See, e.g., Berryhill

v. Synatzske, 2014 Ark. 169, at 4, 432 S.W.3d 637, 640.

Arkansas Code Annotated section 16-22-308 (Repl. 1999) provides as follows:

In any civil action to recover on an open account, statement of account, account stated,
promissory note, bill, negotiable instrument, or contract relating to the purchase or sale
of goods, wares, or merchandise, or for labor or services, or breach of contract, unless
otherwise provided by law or the contract which is the subject matter of the action, the
prevailing party may be allowed a reasonable attorney’s fee to be assessed by the court
and collected as costs.

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The statute provides that in an action for breach of contract, the “prevailing party” may be

allowed a reasonable attorney’s fee.

This court has noted federal precedent for the proposition “that in a judicial process the

plaintiff seeks damages or some change in position by the defendant, and regardless of how that

is achieved, by settlement, trial, or otherwise, the plaintiff then is the prevailing party.” Burnette

v. Perkins & Assocs., 343 Ark. 237, 243, 33 S.W.3d 145, 150 (2000). This court held, however,

that “prevailing party contemplates at least some adjudication on the merits of the actions.” Id.,

33 S.W.3d at 151. The “key to being the prevailing party is that there has been an adjudication

on the merits of issues central to the litigation.” BKD, LLP v. Yates, 367 Ark. 391, 395, 240

S.W.3d 588, 592 (2006). To be a prevailing party, “there must be resolution of the underlying

merits of the claims at issue.” Id., 240 S.W.3d at 592.

Swindle claims that he prevailed on the issue of his entitlement to the payment of the

$24,500. SFB’s payment of the $24,500 to Swindle, however, was not made as a result of an

adjudication by the circuit court resolving the merits of the issue. Thus, Swindle was not the

prevailing party; accordingly, he was not entitled to an award of attorney’s fees under section

16-22-308.

In his second issue on appeal, he argues that SFB failed to comply with the requirements

of Rule 11 in seeking Rule 11 sanctions because SFB did not provide him with twenty-one

days’ notice of its proposed Rule 11 motion and never filed a separate motion for sanctions in

accordance with Rule 11. In response, SFB acknowledges that it did not comply with Rule

11 but nevertheless asserts that Rule 11(a) permits a court, “upon its own initiative,” to impose

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Rule 11 sanctions, including a reasonable attorney’s fee.

In Weaver v. City of West Helena, 367 Ark. 159, 238 S.W.3d 74 (2006), this court held

that the circuit judge abused his discretion in imposing sanctions under Rule 11. There, Judge

L.T. Simes imposed Rule 11 sanctions on his own motion. As in this case, there was no

separate motion for sanctions, and the appellant was not given notice that Rule 11 sanctions

would be addressed. This court held as follows:

In summation, the procedural requirements for the imposition of sanctions under
Rule 11 were disregarded by Judge Simes, and the appellant was subjected to a de facto Rule
11 hearing of which he was given no notice. That hearing occurred before the court
attempted to establish the falsity of the allegations in the motion for recusal, and the
court ultimately failed to establish that the allegations were false. Judge Simes relied on
improper bases in his order imposing the sanctions. For the foregoing reasons, we
conclude that Judge Simes abused his discretion by imposing sanctions upon the
appellant under Rule 11. Based on the record before us, it appears that Judge Simes has
violated the Arkansas Code of Judicial Conduct. Accordingly, we direct the clerk of this
court to forward a copy of this opinion to the Arkansas Judicial Discipline and
Disability Commission.

Id. at 165, 238 S.W.3d at 79 (emphasis added). The clear holding of Weaver is that an attorney

or party is entitled to notice before the circuit court can impose Rule 11 sanctions.

In Arkansas Judicial Discipline & Disciplinary Commission v. Simes, 2011 Ark. 193, 381

S.W.3d 764, Justice Baker, in her dissent, noted that Rule 11(a) states that “[i]f a pleading,

motion, or other paper is signed in violation of this rule, the court, upon motion or upon its

own initiative, shall impose upon the person who signed it, a represented party, or both, an

appropriate sanction.” In considering Rule 11(a), Justice Baker wrote that “[i]n Weaver, this

court determined that Judge Simes conducted a de facto Rule 11 hearing without notice to

Murray and Weaver and stated that ‘no separate motion for sanctions was made in this case,

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and such a motion is required by Rule 11 before sanctions may be imposed.’ This is simply

wrong.” Id. at 26, 381 S.W.3d at 780 (Baker, J., dissenting).

Once this court has interpreted its rules, that interpretation becomes a part of the rule

itself. Arnold v. Camden News Pub. Co., 353 Ark. 522, 528, 110 S.W.3d 268, 272 (2003). Thus,

at the time sanctions were imposed against Swindle, Rule 11 did not allow a circuit court to

impose, without notice, sanctions on an attorney or party on its own initiative.2 Accordingly,

we reject SFB’s alternative argument.

We further acknowledge SFB’s argument that it is nevertheless entitled to attorney’s fees

under Arkansas Code Annotated section 16-22-308, which provides that, in a contract action,

“the prevailing party may be allowed a reasonable attorney’s fee.” An award of attorney’s fees

under section 16-22-308 is not mandatory; rather, it is a matter within the discretion of the

circuit court. S. Bank of Commerce v. Union Planters Nat’l Bank, 375 Ark. 141, 149, 289 S.W.3d

414, 420 (2008). Despite SFB’s argument in its pleadings before the circuit court that it was

entitled to attorney’s fees under section 16-22-308, the circuit court did not award fees on that

basis. Rather, the circuit court awarded attorney’s fees as a Rule 11 sanction. Because the

circuit court did not award attorney’s fees or make a ruling on SFB’s request for fees under

section 16-22-308, we decline to affirm the award of attorney’s fees on this alternative basis.

Affirmed in part; reversed in part; court of appeals opinion vacated.

Special Justice WARREN E. DUPWE joins in this opinion.

2
Rule 11 has since been amended. Under the new rule, this court acknowledges that
an attorney or party should have notice and an opportunity to respond, as Rule 11(c)(6) states
that if a court is to impose, “[o]n its own initiative,” Rule 11 sanctions, then the attorney or
party is to be given “a reasonable time to respond, but not less than 14 days.”
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HANNAH, C.J., and DANIELSON and WOOD, JJ., concur in part and dissent in part.

WYNNE, J., not participating.

JIM HANNAH, Chief Justice, concurring in part and dissenting in part. While

I concur with the majority opinion that Swindle is not entitled to an award of attorney’s fees,

I disagree with the majority for the following three reasons. First, I would overrule Weaver v.

City of West Helena, 367 Ark. 159, 238 S.W.3d 74 (2006), on which the majority relies,

because this court misquoted Arkansas Rule of Civil Procedure 11 in that case. Second, I

would affirm the circuit court’s award of Rule 11 sanctions because the circuit court properly

found that Swindle had filed a frivolous lawsuit. Third, I would defer to the superior position

of the circuit court in ordering sanctions in this case. For these reasons, I respectfully dissent.

I. Facts

For a better understanding of Swindle’s lawsuit, I will provide a more thorough

recitation of the facts. Swindle, a licensed attorney in Arkansas, negotiated a settlement with

Farm Bureau on behalf of two clients. Farm Bureau sent two settlement checks in the amount

of $13,500 and $11,000 to Swindle, and the clients signed the checks. Swindle then deposited

the checks into his Interest On Lawyers Trust Account (“IOLTA”), which was held at Arvest

Bank. On September 10, 2012, First Security Bank rejected the checks because of a missing

endorsement, and on September 18, 2012, First Security Bank again rejected the checks

because of an illegible endorsement. In an affidavit, Davia Swindle, a bookkeeper for Swindle

Law Firm, stated that Jason Lyles, a bank teller at First Security Bank, told her that there was

no problem with the endorsements and that the checks had been returned because of

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insufficient funds. On September 28, 2012, Swindle wrote a letter to Farm Bureau and

threatened to file suit if he did not receive the money by the close of business that day. Trevitt

Blackburn, Senior Adjuster for Farm Bureau, offered to reissue the checks, but Swindle elected

to file suit.

On October 1, 2012, Swindle filed an action against Farm Bureau, alleging breach of

contract and claiming that he incurred losses totaling $24,500 by the bank’s refusal to honor

Farm Bureau’s checks. Swindle presented an affidavit from two of his employees that Lyles

stated that Farm Bureau had insufficient funds in the account for the two checks, but Swindle

never presented an affidavit from Lyles himself. On October 24, 2012, Farm Bureau filed its

answer. In the answer, Farm Bureau stated that “[d]efendant respectfully asks the court to

sanction Plaintiff and to order Plaintiff to pay Defendant the reasonable expenses incurred in

defending herein, including a reasonable attorney’s fee pursuant to Rule 11 of the Arkansas

Rules of Civil Procedure.” Farm Bureau did not file a separate Rule 11 motion.

Farm Bureau later reissued the checks to Swindle. On April 9, 2013, Swindle filed a

motion for judgment on the pleadings, requesting that the case be dismissed and that he should

be awarded attorney’s fees. On April 19, 2013, Farm Bureau filed a response to Swindle’s

motion for judgment on the pleadings and a cross-motion for summary judgment, denying that

it had entered into a contract with Swindle, contending that it was the successful party, and

asking for Rule 11 sanctions for Swindle’s filing a frivolous action. Attached to Farm Bureau’s

motion for summary judgment were (1) an affidavit of Brenda K. Reynolds, Vice President

of First Security Bank, who stated that the illegible endorsement was the only reason that the

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bank rejected the checks and that Farm Bureau had sufficient funds to cover the checks; (2)

an affidavit of Blackburn, who testified that Mayra Palacios, an assistant in Swindle’s office,

called to tell him that the checks had been rejected and that he told her to call First Security

Bank to get an explanation or to bring the checks back to get them reissued; (3) a certified

letter from Farm Bureau’s attorney stating that the checks would be honored by First Security

Bank if they were properly endorsed and presented; (4) emails between Farm Bureau’s attorney

and Swindle; and (5) a copy of unopened, certified mail returned to sender as unclaimed. In

its brief in support, Farm Bureau requested attorney’s fees pursuant to Rule 11.

On June 20, 2013, the circuit court found that Farm Bureau did not breach any

contract and ruled that “sanctions [were] appropriate against Plaintiff in the form of attorney

[sic] fees,” granted Farm Bureau’s motion for summary judgment, and awarded attorney’s fees

“leaving a blank for the amount of attorney fees to be awarded.” On July 11, 2013, the circuit

court entered a final order, and Swindle timely filed his notice of appeal.

II. Law and Analysis

The version of Rule 11 that was in effect when Swindle filed his lawsuit provided in

pertinent part as follows:

If a pleading, motion, or other paper is signed in violation of this rule, the court,
upon motion or upon its own initiative, shall impose upon the person who signed
it, a represented party, or both, an appropriate sanction, which may include an
order to pay to the other party or parties the amount of the reasonable expenses
incurred because of the filing of the pleading, motion, or other paper, including
a reasonable attorney’s fee.

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Ark. R. Civ. P. 11(a) (emphasis added).1 This court has stated that, when a violation of Rule

11 occurs, the rule makes sanctions mandatory. Crockett & Brown, P.A. v. Wilson, 321 Ark.

150, 901 S.W.2d 826 (1995). Whether a violation occurred is a matter for the court to

determine, and this determination involves matters of judgment and degree. Id. The purpose

of Rule 11 is to deter future litigation abuse. Sanford v. Harris, 367 Ark. 589, 242 S.W.3d 277

(2006).

The majority mistakenly relies on Weaver, 367 Ark. 159, 238 S.W.3d 74, to support its

position that, before a circuit court can impose Rule 11 sanctions on its own motion, “an

attorney or party is entitled to notice.” In doing so, the majority fails to recognize that the

Weaver court did not quote Rule 11 in its entirety, thereby leaving the impression that there

was no authority for a circuit court to act on its own initiative. The Weaver court cited Rule

11 as follows:

Ark. R. Civ. P. 11 states in pertinent part:

(a) The signature of an attorney or party constitutes a certificate by him
that he has read the pleading, motion or other paper; that to the best of his
knowledge, information and belief it is well grounded in fact and is warranted
by existing law or a good faith argument for the extension, modification, or
reversal of existing law and that it is not interposed for any improper purpose,
such as to harass or to cause any unnecessary delay or increase in the cost of
litigation.
(b) A motion for sanctions under this rule shall be made separately from

1
Rule 11 was amended on April 1, 2015, and now states, “On its own initiative, the
court may order an attorney or party to show cause why conduct specifically described in the
order has not violated subdivision (b). The order shall afford the attorney or party a reasonable
time to respond, but not less than 14 days.” Ark. R. Civ. P. 11(c)(6). We note that the
current amendment to Rule 11 is inapplicable to the present case because the former Rule
11 was in effect at the time. See, e.g., Ligon v. Davis, 2012 Ark. 440, 424 S.W.3d 863
(applying the version of the rules in effect at the time of the conduct).
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other motions or requests and shall describe the specific conduct alleged to
violate subdivision (a). It shall be served as provided in Rule 5 but shall not be
filed with or presented to the court unless, within 21 days after service of the
motion (or such other period as the court may prescribe) the challenged paper,
claim, defense, contention, allegation, or denial is not withdrawn or
appropriately corrected.

Weaver, 367 Ark. at 162, 238 S.W.3d at 77. In doing so, the Weaver court omitted the

remaining portion of Rule 11(a), which stated,

If a pleading, motion, or other paper is not signed it shall be stricken unless it is
signed promptly after the omission is called to the attention of the pleader or
movant. If a pleading, motion, or other paper is signed in violation of this rule,
the court, upon motion or upon its own initiative, shall impose upon the person who
signed it, a represented party, or both, an appropriate sanction, which may include an
order to pay to the other party or parties the amount of the reasonable expenses
incurred because of the filing of the pleading, motion, or other paper, including
a reasonable attorney’s fee.

Ark. R. Civ. P. 11 (2006) (emphasis added).

Further, in Weaver, this court stated,

There was no separate motion for sanctions made in this case, and such
a motion is required by Rule 11 before sanctions may be imposed. At the
January 7 hearing, which was scheduled as a recusal hearing, Judge Simes
immediately began a protracted inquiry into possible Rule 11 violations by the
appellant. The appellant was given no notice that Rule 11 would be addressed
at the hearing. Judge Simes had Weaver removed from the courtroom initially,
and he then conducted an intensive inquiry into Murray’s knowledge and
application of the Rules of Professional Conduct. The examination generally
consisted of Judge Simes reading sizable passages from the rule book aloud, and
then questioning Murray on the extent of his knowledge thereof. Murray stated
that he was familiar with the rules and had adhered to them in the present case,
although he admitted that he could not recite the rule book verbatim. Weaver
was then returned to the courtroom and similarly quizzed, as if he were an
attorney and familiar with the rules. All this occurred prior to any real inquiry
into the veracity of Weaver’s allegations supporting the motion to recuse. Judge
Simes seemed to presume the falsity of the allegations throughout the
proceedings.
In summation, the procedural requirements for the imposition of

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sanctions under Rule 11 were disregarded by Judge Simes, and the appellant was
subjected to a de facto Rule 11 hearing of which he was given no notice. That
hearing occurred before the court attempted to establish the falsity of the
allegations in the motion for recusal, and the court ultimately failed to establish
that the allegations were false. . . . [W]e conclude that Judge Simes abused his
discretion by imposing sanctions upon the appellant under Rule 11. Based on
the record before us, it appears that Judge Simes has violated the Arkansas Code
of Judicial Conduct. Accordingly, we direct the clerk of this court to forward
a copy of this opinion to the Arkansas Judicial Discipline and Disability
Commission.

367 Ark. at 164–65, 238 S.W.3d at 78–79 (citation omitted).2

In Weaver, this court clearly misstated the requirements of Rule 11 and implied that the

circuit court does not have the authority to act on its own initiative by stating that “[t]here was

no separate motion for sanctions . . . in this case, and such a motion is required by Rule 11

before sanctions may be imposed.” Weaver, 367 Ark. at 164, 238 S.W.3d at 78. The Weaver

court ignored Rule 11’s specific language authorizing the circuit court to act on its own

initiative when sanctions are necessary and that, under those circumstances, notice to the

attorney or party was not required. For these reasons, I would overrule the Weaver case to the

extent that it conflicts with the language of former Rule 11.

More significantly, the majority skirts around the circuit court’s initial finding that

Swindle filed a frivolous lawsuit before then imposing Rule 11 sanctions “upon its own

initiative.” This threshold finding is critical to any Rule 11 analysis. In its June 20, 2013

order, the circuit court found that Farm Bureau did not breach any contract and

was reasonable in its efforts to correct a situation created by [Swindle] and his

2
Judge Simes did not dispute the procedural errors determined by this court in Weaver
because he contended that the appropriate remedy for his errors had already been provided
through appellate review in the Weaver case. See Simes, 2011 Ark. 193, 381 S.W.3d 764.
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staff. . . . With minimal effort, [Swindle] could have and should have
discovered, before rushing to file suit, that the fault, if it falls upon anyone but
[Swindle], might fall on the bank which was rejecting the checks, but that [Farm
Bureau] had done everything required of it. Instead, [Swindle] filed what
amounted to a frivolous claim against [Farm Bureau] without proper and
reasonable investigation.

Accordingly, the circuit court ruled that “sanctions [were] appropriate against Plaintiff in the

form of attorney [sic] fees[.]” Before the circuit court was evidence, particularly the affidavits

of Blackburn and Reynolds, that the checks were returned because of Swindle’s failure to

obtain proper endorsements. Swindle refused to accept Farm Bureau’s offer to reissue the

checks in exchange for a return of the original checks and rushed to file his lawsuit. Based on

this evidence, I agree with the circuit court’s finding that Swindle filed a frivolous claim against

Farm Bureau—a ruling that the majority neglects to analyze before reaching the issue of

sanctions—and with the ruling to award Rule 11 sanctions.

Finally, our standard of review should dictate the outcome of this case. This court has

stated repeatedly that the imposition of sanctions rests within the discretion of the circuit court.

Grand Valley Ridge, LLC v. Metropolitan Nat’l Bank, 2012 Ark. 121, 388 S.W.3d 24; Sanford,

367 Ark. 589, 242 S.W.3d 277; Whetstone v. Chadduck, 316 Ark. 330, 871 S.W.2d 583 (1994).

Having served on the trial bench for twenty-two years, I acknowledge the superior position

of the circuit court to determine whether a violation has occurred and whether Rule 11

sanctions are warranted. Thus, in this instance, I would defer to the circuit court’s sound

judgment and hold that it did not abuse its discretion in finding that Swindle had filed a

frivolous lawsuit and in imposing Rule 11 sanctions.

DANIELSON and WOOD, JJ., join.
Law Offices of Steven H. Kay, P.A., by: Joseph Paul Smith, for appellant.
Davis, Clark, Butt, Carithers & Taylor, PLC, by: Constance G. Clark and Sidney P. Davis,
Jr., for appellee.