The Arkansas Supreme Court recently declined to review an appellate court’s decision involving a long-running feud between the daughters of late Fort Smith businessman H.C. “Dude” Crain Jr. and their stepmother.
The decision not to take the appeal returned the case to Benton County Circuit Court for further processing.
The shareholders derivative lawsuit was initially brought by Crain’s four daughters on behalf of Regional Jet Center Inc. of Bentonville against their stepmother, Shirley Crain, and the company as defendants.
At the center of the case is Regional Jet Center, which provides fixed-based operating services to the Northwest Arkansas Regional Airport Authority. Shirley Crain, her son from a previous relationship and Crain’s four daughters from his first marriage are the owners of the company. But Shirley Crain is the only stockholder who has voting rights, giving her control of RJC.
Back in 2019, Shirely Crain told the sisters that they would receive only a $25,000 quarterly distribution from the company instead of the standard $75,000 one, according to the Arkansas Court of Appeals opinion delivered in February.
Crain also said that it was the last distribution the sisters would receive.
In 2020, the sisters asked for RJC’s financial records. The records resulted in the discovery that in 2019, Crain paid herself a $1.4 million management fee and the company paid her personal travel expenses, totaling nearly $100,000.
“Put another way, Shirley was not ‘manag[ing] [the] corporate treasur[y] to best serve corporate interests,’ but instead, misappropriated money from the corporate treasury to best serve her personal interests,” according to a filing at the Arkansas Supreme Court by the sisters’ attorneys, Tim Hutchinson and Seth Haines of RMP LLP’s office in Fayetteville.
In December 2020, the sisters filed a shareholders derivative complaint that included allegations that Crain grossly mismanaged the company, according to the appellate court opinion. In a derivative lawsuit, a shareholder sues on behalf of a company.
The lawsuit is part of several legal battles between the sisters and their stepmother.
The sisters also sued Crain in 2020 in another case for failing to hand over half of their father’s estate. That case resulted in the daughters receiving about $90 million in 2023. Dude Crain owned Crain Industries Inc., maker of polyurethane foam and polyester fiber items. The company was sold in 1995 for $130 million.
In 2021, Shirley Crain repaid RJC nearly $1.5 million, and then asked that the lawsuit be dismissed as moot because the derivative claims had been addressed.
In June 2022, Benton County Court Judge Thomas Smith ruled from the bench that he would grant Shirley Crain’s motion to dismiss the case.
The sisters asked the judge to distribute the recovered funds to the shareholders “instead of allowing them to be returned to the control of Shirley Crain, who wrongfully misappropriated them,” according to the sisters’ filing at the state’s high court.
But Judge Smith said that distributing corporate funds to shareholders is a corporate matter, not one for a judge to determine. He denied the motion. The Crain sisters appealed to the Arkansas Court of Appeals.
In the opinion written by Judge Stephanie Potter Barrett, the Court of Appeals reversed the decision to grant Crain summary judgment and dismiss the derivative lawsuit.
The appellate court also reversed the Circuit Court’s denial of the motion to distribute the recovered funds and remand it back to Circuit Court for further proceedings, Chief Judge Mark Klappenbach and Judge Wendy Wood also agreed with the decision.
Crain appealed the decision to the Arkansas Supreme Court, but it didn’t take the case.
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