Appellant Unsuccessfully Appeals to State’s Highest Court to Overrule Long-Standing “New-Business Rule” on Lost Profit Damages
Arloe Designs, LLC v. Arkansas Capital Corp. and National Bank of Arkansas, No. cv-13-158
Supreme Court of Arkansas: Decided January 23, 2014
Arloe Designs, LLC (“Arloe”), which designs, refurbishes, manufacturers, and installs interiors for small aircraft, entered into negotiations with Arkansas Capital Corporation (“ACC”), a nonprofit company that secures niche funding for Arkansas small businesses, and National Bank of Arkansas (“NBA”) to procure a loan for Arloe’s business expansion.
In 2007, Arloe proposed expanding its operations to include exterior aircraft painting and servicing, including building a 4,900 square foot structure at the North Little Rock Municipal Airport. ACC prepared a loan proposal, with a disclaimer that the proposal “did not constitute a contractual commitment of ACC to make a loan on [the terms stated therein] or any other terms.” ACC’s proposal did not require Arloe to provide a bond as collateral. By letter dated August 20, 2007, NBA approved financing for the construction of the building. NBA’s approval, however, was subject to several conditions, including assignment of the lease from the North Little Rock Airport Commission and that the lease must be transferable.
In October 2007, Arloe entered into a 30-year lease with North Little Rock Airport Commission for the new hangar. However, the terms of the lease prohibited assignment.
On October 25, 2007, NBA informed Arloe that it would not close on the loan without a $100,000 bond as collateral. Arloe did not provide the bond as collateral claiming it was not required to do so under the terms of the loan proposal, and as a result, the loan did not close. Arloe sued both ACC and NBA for breach of contract, violation of the Arkansas Deceptive Trade Practices Act (“ADTPA”), negligence, and promissory estoppel. In its lawsuit, Arloe claimed damages equal to the lost profits it would have received had the loan been issued and had Arloe been able to expand its business, as planned.
On summary judgment, the circuit court (Arkansas’ trial court) dismissed all of the claims against ACC and NBA except for Arloe’s promissory estoppel claim, but limited damages on the promissory estoppel claim to the amount that Arloe spent in reliance on the loan. The circuit court also granted NBA’s and ACC’s motion in limine excluding the testimony of Arloe’s expert, Steven Schroeder, who proffered testimony to show that Arloe’s proposed business expansion would have been profitable.
At trial, the jury found that neither ACC nor NBA had made a promise to loan money to Arloe and dismissed Arloe’s promissory estoppel claim.
Arloe appealed before the Supreme Court of Arkansas asserting that the circuit court erred in dismissing its breach of contract, negligence, and ADTPA claims on summary judgment, and that it erred in barring lost profit damages on its promissory estoppel claim.
On appeal, the Court affirmed the circuit court’s dismissal of Arloe’s breach of contract claim finding that there was no contract between the parties because an express condition of NBA’s loan approval, that the lease must be transferable, was not met. As for Arloe’s negligence claim, the Court held that neither ACC nor NBA owed a duty of care to Arloe because Arloe was not a borrower on a loan transaction nor did Arloe introduce evidence demonstrating a special or fiduciary relationship between it and ACC or NBA. The Court also agreed with the circuit court that neither ACC nor NBA are subject to claims brought under the ADTPA absent a specific request made by Arloe to the Arkansas Attorney General, and Arloe failed to introduce evidence demonstrating the existence of such a request.
The Court held that Arloe’s assertion that the circuit court erred in barring lost profit damages was moot because the jury found at trial that neither ACC nor NBA made a promise to loan money to Arloe and dismissed its promissory estoppel claim. Arloe failed to appeal the jury’s factual finding.
The circuit court further held that Arloe’s claim for lost profit damages was barred by the “new-business rule” adopted by the Supreme Court of Arkansas in Marvell Light & Co. v. Gen. Elec. Co., 162 Ark. 467, 259 S.W. 741 (1924), which “prohibits a new, never before operational business from recovering anticipated profits, as such damages are too remote, speculative, and uncertain to support a judgment for their loss.” Arloe asserted on appeal that the new-business rule should no longer be the law of Arkansas and asked the Court to abandon the rule, which it had created in Marvell in 1924. The Court, however, did not need to address whether the new-business rule should remain the law of the State because in failing to appeal the jury’s finding that neither ACC nor NBA had made a promise to loan money to Arloe, Arloe could not demonstrate that either ACC or NBA had committed a wrongful act. As such, it was unnecessary for the Court to address damages stemming from promissory estoppel or the new-business rule.
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