Breach-of-contract case over loan-default funds nets $1.7 million

By Linda Satter –Arkansas Democrat Gazette

A breach-of-contract case being tried this week in federal court in Little Rock resulted in a $1.7 million jury verdict late Friday afternoon against Kennedy Funding Inc. of New Jersey.

The verdict includes $675,000 plus interest in compensatory damages and $1 million in punitive damages to be paid to Virgil W. Shelton, 84, who owned Rest In Peace Memorial Gardens, a perpetual-care cemetery in Hensley, for more than 20 years before he sold it in 1992.

Shelton’s attorney, Morgan “Chip” Welch of North Little Rock, said Shelton sold the cemetery to Will Acklin, who, six or seven years later when suffering financial difficulties, turned to Kennedy Funding for a loan.

“In order to effectuate the loan it was necessary for the lender to have assurance that [Shelton] would not exercise his right to foreclose on the property,” according to court documents.

The documents show that Kennedy Funding and Acklin negotiated an agreement in which Kennedy Funding promised to establish an escrow account to pay Shelton in full if Acklin defaulted.

But, “in detrimental reliance on the agreement,” Shelton agreed not to exercise any foreclosure rights in exchange for Kennedy Funding’s setting aside $675,000 to guarantee payment to Shelton in the event of default.

The funds, however, were not aside as promised. Meanwhile, Acklin defaulted on the loan in the summer of 2001.

Welch said Shelton demanded he be paid the $675,000 that was to have been reserved, only to learn that Kennedy had never funded the escrow account as promised.

The case was originally tried in 2006 before the late U.S. District Judge George Howard Jr., but a settlement was reached before the case was handed over to the jury for deliberation.

The case was later reinstated when the settlement fell through. After Howard’s death, the case was reassigned to U.S. District Judge Bill Wilson Jr., who presided over this week’s trial.

This article was published on page 13 of the Saturday, March 07, 2009 edition in the Arkansas section.