Opinion
No. 1 CA-CV 18-0151
02-27-2019
AHS RESCUE, LLC, et al., Plaintiffs/Appellants, v. ARIZONA OUTDOOR SPECIALISTS, INC., et al., Defendants/Appellees.
COUNSEL The Roll Law Office, PLLC, Phoenix By Guy P. Roll Counsel for Plaintiffs/Appellants LaVelle & LaVelle, Phoenix By Michael J. LaVelle Counsel for Defendants/Appellees Seth Heald, Ed Ford, Arizona Outdoor Specialists, Inc., and Cliff Creek Outfitters, Inc. Manolio & Firestone, PLC., Scottsdale Veronica L. Manolio Counsel for Defendant/Appellee Jonathan Colby
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV2014-094281
The Honorable David M. Talamante, Judge (Retired)
AFFIRMED
COUNSEL The Roll Law Office, PLLC, Phoenix
By Guy P. Roll
Counsel for Plaintiffs/Appellants LaVelle & LaVelle, Phoenix
By Michael J. LaVelle
Counsel for Defendants/Appellees Seth Heald, Ed Ford, Arizona Outdoor Specialists, Inc., and Cliff Creek Outfitters, Inc. Manolio & Firestone, PLC., Scottsdale
Veronica L. Manolio
Counsel for Defendant/Appellee Jonathan Colby
MEMORANDUM DECISION
Chief Judge Samuel A. Thumma delivered the decision of the Court, in which Presiding Judge David D. Weinzweig and Judge Kent E. Cattani joined. THUMMA, Chief Judge:
¶1 Plaintiffs AHS Rescue, LLC, and its owners Dale and Irene Stewart (collectively AHS) challenge the entry of summary judgment in favor of Arizona Outdoor Specialists, Inc., and its owners Seth Heald and Edward Ford (collectively AOS). Because the superior court did not err in finding AHS failed to adequately disclose damages, the judgment is affirmed.
FACTS AND PROCEDURAL HISTORY
¶2 In 2011, AHS and AOS purchased Desert Voyagers Salt River Rafting, LLC, with each providing half of the purchase price. AHS and AOS formed Cliff Creek Outfitters, Inc. (CCO) as the corporate entity for the company, with AOS and AHS being the sole, equal shareholders. CCO's four-person Board of Directors consisted of the Stewarts (for AHS) and Heald and Ford (for AOS). Heald and Ford, however, were CCO's officers; the Stewarts were not.
¶3 In late 2011, CCO acquired Cimarron River Company, LLC (Cimarron). CCO did so by paying two of Cimarron's three owners in cash and by providing the third owner, Jonathan Colby, 25,000 CCO shares (issued to effectuate the purchase) in exchange for his interest in Cimarron. CCO also hired Colby as an employee, and Colby later became the fifth CCO Director. AHS objected to the Cimarron transaction, including the issuance of new CCO shares and the transfer of them to Colby, claiming those actions violated CCO's shareholders' agreement and bylaws. AHS also challenged various other actions by AOS on behalf of CCO, including AOS receiving "a 15% management fee from CCO;" adding a fifth Director to the Board; CCO paying AOS for "Colby's salary as well as 'non-tour' salaries;" shutting down AHS' portion of the CCO business; and termination of CCO's lease for space where AHS was located.
¶4 AHS filed this suit in July 2014, and AOS, CCO and Colby are named defendants. AHS asserted various legal and equitable claims seeking monetary and non-monetary relief. By the time AOS moved for summary judgment, however, AHS' requests for non-monetary relief were no longer part of the case. By that time: (1) the superior court had dismissed Count 9 (constructive trust) "as to all Defendants" and found Count 10 (declaratory judgment) was "superfluous and not a proper request for relief under the Declaratory Judgment Act" and (2) AHS had made a filing withdrawing Count 11 (equitable relief/accounting for profits).
During oral argument on Colby's motion to dismiss, where all parties participated, AHS limited their claims by avowing that they were
not looking to have [the Cimarron transaction] void. We're not looking to undo the transaction. We're saying that . . . the relief that is being sought are monetary damages . . . . [W]hat the Plaintiffs seek ultimately are, you know, are monetary damages to be proved at trial.The resulting minute entry noted AHS had "limited the relief requested and to which they are now entitled." AHS reaffirmed this at oral argument on appeal; when asked to confirm they were not seeking to undo the Cimarron transaction, AHS stated "that's correct."
¶5 The parties agreed to, and the superior court ordered, a February 15, 2017 deadline for final Ariz. R. Civ. P. 26.1 disclosures, and a March 31, 2017 discovery deadline. After the deadlines for disclosures and discovery had passed, AOS moved for summary judgment on AHS' remaining claims. Noting AHS had "limited the relief they sought" to claims for monetary relief, AOS argued AHS failed to establish damages "with reasonable certainty" and that AHS' claims also were barred by the business judgment rule. After full briefing and oral argument, the court granted the motion. As relevant here, the court found AHS "failed to adequately disclose damages and/or an adequate factual basis to support a damage calculation" for any equitable claim, and that AHS' remaining claims were "not supported by an adequate disclosure of a damage calculation. Although an expert is not necessarily required, [AHS] failed to come forward with an adequate factual basis" for any monetary relief sought. The court added that, "[t]o the extent that [AHS] relies on the percentage calculations discussed at the oral argument," AHS "has failed to come forward with facts that negate" the business judgement rule argument by AOS.
¶6 After entry of a final judgment awarding defendants' attorneys' fees and costs, see Ariz. R. Civ. P. 54(c) (2019), AHS timely appealed. This court has jurisdiction over AHS' timely appeal, which challenges only that portion of the judgment in favor of AOS, pursuant to Article 6, Section 9, of the Arizona Constitution and Arizona Revised Statutes (A.R.S.) sections 12-120.21(A)(1) and -2101(A)(1).
Absent material revisions after the relevant dates, statutes and rules cited refer to the current version unless otherwise indicated.
CCO and Colby were named in the notice of appeal and AHS' Case Management Statement states the appeal is to all defendants. AHS' opening brief, however, states that "they appeal only the judgment and dismissal of the claims as to the AOS Defendants." As a result, Colby joined in AOS' Answering Brief "in an abundance of caution." Given that the resolution of AHS' claims against CCO and Colby is not challenged on appeal, that portion of the judgment in favor of CCO and Colby is affirmed.
DISCUSSION
¶7 "The court shall grant summary judgment if the moving party shows that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(a). Uncontroverted "facts alleged by affidavits attached to a motion for summary judgment may be considered as true." Portonova v. Wilkinson, 128 Ariz. 501, 503 (1981). The entry of summary judgment is reviewed de novo on appeal, "viewing the evidence and reasonable inferences in the light most favorable to the party opposing the motion," Andrews v. Blake, 205 Ariz. 236, 240 ¶ 12 (2003), to determine "whether any genuine issues of material fact exist," Brookover v. Roberts Enters., Inc., 215 Ariz. 52, 55 ¶ 8 (App. 2007). Summary judgment will be affirmed if it is correct for any reason. Hawkins v. State, 183 Ariz. 100, 103 (App. 1995).
¶8 AHS argues the court erred in granting summary judgment for AOS because "there were additional claims that had not been specifically decided;" AHS "pled special damages" and "provided very specific amounts and details of their general damages" and the business judgment rule did not apply to certain of AOS' acts.
I. AHS Has Not Shown Entry Of Final Judgment Was Improper.
¶9 AHS argues the superior court's entry of final judgment was premature because their claims for "declaratory and injunctive relief" (Claims 9, 10 and 11) had not been heard or resolved. Because AHS did not seek injunctive relief, there was no such claim to resolve. Furthermore, before AOS filed their motion for summary judgment: (1) the superior court dismissed Count 9 (constructive trust) "as to all Defendants" and found Count 10 (declaratory judgment) was "superfluous and not a proper request for relief under the Declaratory Judgment Act" and (2) AHS withdrew Count 11 (equitable relief/accounting for profits). Accordingly, these counts were not pending at the time AOS moved for summary judgment.
¶10 AOS' motion for summary judgment sought entry of judgment as to "[t]he entire suit." In granting AOS' motion, the court vacated trial and all other hearings and directed AOS to submit a form of judgment addressing attorneys' fees and costs. AOS did so consistent with the applicable rules, providing AHS with the proposed form of judgment, see Ariz. R. Civ. P. 58(a)(1), which stated "that judgment is entered in favor o[f] each of the Defendants on every count asserted against them." Despite being given the opportunity, AHS did not object to the proposed form of judgment, see Ariz. R. Civ. P. 58(a)(2)(B), which the superior court then entered, noting "no further matters remain pending and this Judgment is entered under" Ariz. R. Civ. P. 54(c). This failure to object with the superior court further negates AHS' argument on appeal that the final judgment was entered when claims were unresolved. On this record, AHS has shown no procedural irregularity in the superior court entering final judgment.
II. The Superior Court Properly Granted Summary Judgment Based On An Inadequate Disclosure Of Damages.
¶11 AHS offers various arguments for why the superior court erred in granting summary judgment against them based on inadequate disclosure of damages. None of AHS' arguments, however, shows error.
¶12 Although asserting the disclosure of damages is irrelevant for "declaratory and injunctive relief" claims, as noted above, AHS did not seek injunctive relief and their declaratory relief claims (Counts 9, 10 and 11) had been resolved against them or withdrawn by the time AOS sought summary judgment. See supra ¶ 4. On appeal, AHS offers no argument contesting the merits of the court's dismissal of Counts 9 or 10. And having withdrawn Count 11 in their own filing, AHS may not now argue it should have been resolved on the merits. Because no declaratory or injunctive relief remained pending, because no argument contesting the merits of the court's rulings on Counts 9 and 10 is made on appeal, and because AHS withdrew Count 11, AHS' argument that those claims prevented entry of summary judgment fails.
¶13 Addressing what is required to prove damages at trial, AHS argues "that 'certainty in amount' of damages is not essential to recovery when the fact of damages is proven." Gilmore v. Cohen, 95 Ariz. 34, 36 (1963). Gilmore, the primary case AHS cites on the point, clearly contains this language. Id. Gilmore, however, also states that plaintiffs have the burden at trial to prove "the amount of their damages with reasonable certainty." Id. Thus, "the plaintiff in every case should supply some reasonable basis for computing the amount of damage and must do so with such precision as, from the nature of his claim and the available evidence, is possible." Id.; see also Rancho Pescado, Inc. v. Nw. Mut. Life Ins. Co., 140 Ariz. 174, 183 (App. 1984) (requiring "a reasonable basis in the evidence for the trier of fact to fix computation when a dollar loss is claimed"). Disclosure obligations, adopted decades after Gilmore, require that each party disclose "a computation and measure of each category of damages alleged by the disclosing party, the documents and testimony on which such computation and measure are based" and contact information for "each witness [it] expects to call at trial to testify on damages." Ariz. R. Civ. P. 26.1(a)(7). Applying the Gilmore directives in the context of Rule 26.1 disclosures and Rule 56 motion practice, AHS has not shown error.
¶14 Given AOS' motion for summary judgment, AHS had the burden to provide admissible evidence "set[ting] forth specific facts showing a genuine issue for trial." Ariz. R. Civ. P. 56(e). Stated differently, because AOS challenged AHS' damages claim on summary judgment, AHS needed to "set forth specific facts" in response establishing "a computation and measure" of damages with "reasonable certainty," "supply[ing] some reasonable basis for computing the amount of damage . . . with such precision as, from the nature of [their] claim and the available evidence, [wa]s possible." Ariz. R. Civ. P. 26.1; Gilmore, 95 Ariz. at 36. AHS failed to do so.
¶15 AHS argues that their operative pleading sought "special damages" in the form of "the mathematically obvious fact that [AOS] . . . diluted [AHS'] 50% interest in stock ownership, an equal controlling interest, to a 43% minority interest," which constitutes "'adequate disclosure' of damages" under Ariz. R. Civ. P. 9(g). But filing a complaint that complies with Rule 9 does not constitute compliance with Rule 26.1. AHS failed to set forth the monetary amount they claimed was lost by their ownership dilution, much less the calculation used to reach such an amount. AHS has not shown that the ownership dilution alleged in their complaint constitutes disclosure of "a computation and measure of each category of damages alleged . . . [and] the documents and testimony on which such computation and measure are based." Ariz. R. Civ. P. 26.1(a)(7).
¶16 When facing AOS' motion for summary judgment, AHS could "not rely merely on allegations or denials of [their] own pleading," Ariz. R. Civ. P. 56(e), negating AHS' argument on appeal that they "adequately pled the special damages of loss of a business interest" sufficient to survive summary judgment. Contrary to AHS' argument, Gilmore did not provide that "pleading of special damages" can "override[] testimony generally expressing ignorance of an explicit amount of general damages." Instead, Gilmore affirmed the superior court's ruling for defendants, entered after the close of the evidence at trial, finding that "the amount of plaintiffs' damages could not be ascertained from the evidence with any degree of reasonable certainty," even though plaintiffs adequately pled special damages. 95 Ariz. at 35, 37.
¶17 AHS argues that, "for some of their damages, they have provided amounts down to the penny," citing "accounting records" provided to the superior court. The "accounting records," however, are Desert Voyagers' (now CCO) profit and loss statements for six fiscal years ending November 2016, which contain dozens of rows on each of six pages. In seeking to defeat AOS' motion for summary judgment, AHS pointed to five such rows. For three, AHS noted a purportedly "unapproved 15% 'management' fee" was paid in different amounts to AHS and CCO. Another showed a payment of $420,916.76 for non-tour payroll (which AHS claimed AOS had paid themselves "without the required approval"); and the fifth showed rent totaling $159,234.44 (which AHS claimed was "rent that the Defendants AOS are now paying to themselves, in an amount over $100,000").
¶18 Before the superior court, AHS claimed to have "summarized and presented these damages" in their third supplemental Rule 26.1 disclosure statement. That third disclosure statement, however, was provided on March 31, 2017, 45 days after the final disclosure deadline had passed. Even then, the disclosure statement was not "signed under oath by the disclosing party" as is required. Ariz. R. Civ. P. 26.1(g). Moreover, AHS' untimely, unverified disclosure statement failed to provide any "computation and measure of each category of damages alleged by" AHS. Ariz. R. Civ. P. 26.1(a)(7). Instead, it simply stated that AHS was entitled "to recover payments" that AOS "wrongfully made . . . in the form of Operations Management fees, 'Non-Tour' Payroll allocations, rent, lost revenue and expectant revenue from 'shutting down' [AHS'] operations related to CCO, as well as others," and that "[AHS] expect[ed] to prove at trial that such resulting damages are in excess of $900,000." On this record, AHS has not shown how the superior court erred in concluding that their "claims [were] not supported by an adequate disclosure of a damage calculation."
¶19 Although deposition testimony can, at times, cure such disclosure deficiencies, see Bryan v. Riddell, 178 Ariz. 472, 476-77 (1994), neither Dale nor Irene Stewart's deposition testimony provided any clarity regarding damages. Dale testified he did not have documents to support AHS' losses and could only "take a stab at it." Irene likewise admitted she would need to talk to her accountant regarding loss, providing only a "ballpark" during her deposition and admitting she "ha[d] not actually put pen to paper."
¶20 Again asserting they pled special damages, AHS argues "the court's duty to review the entire record" means entry of summary judgment was error. To the extent the "review of the entire record" dictum remains valid, see Tilley v. Delci, 220 Ariz. 233, 237 ¶ 10 n.4 (App. 2009) (citing cases), AHS has not shown how the superior court's review of the record would have divined, in a way that allowed "computation and measure," "each category of damages" AHS claimed, Ariz. R. Civ. P. 26.1(a)(7); accord Tilley, 220 Ariz. at 237 ¶ 10 n.4 ("Here, the facts at issue were not actually in the record at the relevant time and would not have been discovered by the trial court had it performed an independent search.").
¶21 AHS' initial and first supplemental disclosure statements, which were timely, addressed damages in their entirety as follows: "Plaintiffs seek a judgment against the Defendants for compensatory, general, consequential, incidental, and punitive damages in an amount to be proven at trial." A separate disclosure addressing "expert testimony" stated "Plaintiffs anticipate calling experts in the areas of accounting, auditing, business valuation, corporate structure financial statements." AHS, however, never designated or disclosed such an expert. As summarized above, the depositions of the Stewarts did not fix the inadequate disclosures and, instead, provided speculative estimates that conflicted with the amount listed in AHS' untimely, unverified disclosure supplement provided more than a year later. None of this information, individually or collectively, provides a reasonably certain "computation and measure for each category of damages alleged" by AHS. See Ariz. R. Civ. P. 26.1(a)(7).
¶22 In their reply on appeal, AHS seeks to press additional arguments to show the superior court erred in granting summary judgment based on the lack of damages disclosure. Raising an argument for the first time in a reply on appeal, however, comes too late in the judicial day to preserve it. See, e.g., Odom v. Farmers Ins. Co. of Ariz., 216 Ariz. 530, 535 ¶ 18 (App. 2007) (stating "arguments raised for the first time on appeal are untimely and deemed waived"); Nelson v. Rice, 198 Ariz. 563, 567 ¶ 11 n.3 (App. 2000) (noting arguments not raised in opening brief are waived and cannot be raised for first time in reply brief). Even apart from AHS' waiver, however, these arguments fail.
Although AHS' reply brief claims damage disclosures in personal injury cases do not require the degree of specificity the superior court required here, this is not a personal injury case. Accordingly, AHS is wrong in asserting that a disclosure that "I lost my 50% interest in my company," without "the amount of the stock loss in dollars" is a sufficient disclosure of damages under Rule 26.1.
¶23 First, AHS argues that the owner of property is competent to testify to his property's loss of value. That concept, where applicable, is the law of Arizona. See Atkinson v. Marquart, 112 Ariz. 304, 307 (1975). But AHS has not shown how that concept trumps the requirement to make pretrial disclosure of "a computation and measure of each category of damages alleged by the disclosing party," a requirement the Stewarts' deposition testimony failed to discharge. Ariz. R. Civ. P. 26.1(a)(7).
¶24 Second, conceding the summary judgment proceedings came after the disclosure and discovery deadlines passed, AHS' reply on appeal now argues AHS "could have sought to re-open discovery to meet evidentiary shortcomings" and that "the proper remedy" for the superior court to impose was "a discovery sanction for the proof void as to the details of the damage, not finding no damage at all." In essence, AHS' argument is that they needed more time to formulate their damages claims. AHS, however, filed this litigation in July 2014. During the nearly three years that followed, before the disclosure deadline and discovery cutoff in the first part of 2017, AHS: (1) objected to providing their own financial records, including claiming they were not relevant; and (2) objected to providing documents supporting claims for monetary damages, instead referring to their inadequate Rule 26.1 disclosures.
¶25 If AHS was unable to "present evidence essential to justify [their] opposition" to the motion for summary judgment, they could have sought relief with the superior court by providing an "affidavit establishing specific and adequate grounds for the request" and "an estimate of the amount of time the additional discovery [would] require." Ariz. R. Civ. P. 56(d)(1)(A). AHS, however, made no such request. And absent such a request, the superior court "[did] not err in proceeding to rule on a motion for summary judgment." Wells Fargo Credit Corp. v. Smith, 166 Ariz. 489, 493 (App. 1990).
¶26 At oral argument on appeal, AHS suggested they were unable to provide a timely damage calculation because they deposed AOS' expert on the last day of discovery - the same day they sent the unverified, untimely third supplemental disclosure. The superior court had ordered staggered expert disclosures. AHS never made any expert disclosures. AOS, in contrast, timely disclosed their expert on December 15, 2016 and, at that same time, disclosed the expert's opinion, which attached the Desert Voyagers' (now CCO) profit and loss statements on which AHS purportedly relied to establish damages. That disclosure by AOS occurred months before the close of discovery. That AHS did not depose AOS' expert until the last day of discovery does not excuse AHS' failure to make meaningful disclosure regarding their damage claims.
¶27 Alternatively, AHS could have sought additional time for discovery either before the close of disclosure and discovery (when good cause for such an extension would have been required) or after (when excusable neglect would have been required). See Ariz. R. Civ. P. 6(b)(1). AHS, however, failed to do so. In addition, and particularly given their waiver, AHS has not shown on appeal that the superior court would have granted such a request. In short, AHS has not shown the superior court erred in granting summary judgment against them given their failure to adequately disclose the computation and measure of their claimed damages, including an adequate factual basis for those damages.
Because the superior court properly granted summary judgment on that basis, the court need not, and does not address AHS' arguments related to the business judgment rule. See First Credit Union v. Courtney, 233 Ariz. 105, 107 ¶ 7 (App. 2013) (noting appellate court "will uphold the [superior] court if it is legally correct for any reason").
CONCLUSION
¶28 Because AHS has shown no reversible error, the judgment is affirmed. AOS and Colby request an award of attorneys' fees on appeal, citing A.R.S. § 12-341.01. In the exercise of the court's discretion, AOS and Colby are awarded an amount of reasonable attorneys' fees on appeal, as well as taxable costs on appeal, contingent upon compliance with Arizona Rule of Civil Appellate Procedure 21.