Opinion
No. 2 CA-CV 2018-0133
03-12-2019
DAVID CROWE AND COLLEEN CROWE, HUSBAND AND WIFE, Plaintiffs/Appellants, v. TUCSON EMBEDDED SYSTEMS, INC., AN ARIZONA CORPORATION; DENNIS KENMAN AND MARISOL KENMAN, HUSBAND AND WIFE; SEAN MULHOLLAND AND CAROL MULHOLLAND, HUSBAND AND WIFE; ANTONIO PROCOPIO AND SHIRLEY PROCOPIO, HUSBAND AND WIFE; AND LINDSAY BREW AND SUSAN BREW, HUSBAND AND WIFE, Defendants/Appellees.
COUNSEL Timothy Kinney P.L.L.C., Tucson By Timothy J. Kinney and Meade Young LLC, Lafayette, Louisiana By Adam G. Young Counsel for Plaintiffs/Appellants Jackson & Oden P.C., Tucson By Todd Jackson and Jean Roof Counsel for Defendants/Appellees Tucson Embedded Systems, Inc., Dennis and Marisol Kenman, Sean and Carol Mulholland, and Antonio and Shirley Procopio Gordon Rees Scully Mansukhani LLP, Phoenix By Brian R. Booker and Rebecca N. Cain Counsel for Defendants/Appellees Lindsay and Susan Brew
THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES.
NOT FOR PUBLICATION
See Ariz. R. Sup. Ct. 111(c)(1); Ariz. R. Civ. App. P. 28(a)(1), (f). Appeal from the Superior Court in Pima County
Nos. C20174904 and C20174933 (Consolidated)
The Honorable Catherine Woods, Judge
AFFIRMED IN PART; VACATED IN PART
COUNSEL Timothy Kinney P.L.L.C., Tucson
By Timothy J. Kinney and Meade Young LLC, Lafayette, Louisiana
By Adam G. Young
Counsel for Plaintiffs/Appellants Jackson & Oden P.C., Tucson
By Todd Jackson and Jean Roof
Counsel for Defendants/Appellees Tucson Embedded Systems, Inc., Dennis and Marisol Kenman, Sean and Carol Mulholland, and Antonio and Shirley Procopio Gordon Rees Scully Mansukhani LLP, Phoenix
By Brian R. Booker and Rebecca N. Cain
Counsel for Defendants/Appellees Lindsay and Susan Brew
MEMORANDUM DECISION
Presiding Judge Eppich authored the decision of the Court, in which Chief Judge Eckerstrom and Judge Espinosa concurred. EPPICH, Presiding Judge:
¶1 David and Colleen Crowe (individually and collectively, Crowe) appeal from the trial court's award of attorney fees to Tucson Embedded Systems, Inc. (TES), and costs and fees to Lindsay and Susan Brew (individually and collectively, Brew). We affirm the court's award to Brew but vacate its award to TES.
Facts and Procedural Background
¶2 David Crowe is a former president, CEO, director and shareholder of TES. In July 2016, TES and Crowe signed a settlement contract to sever their common business interests. In the contract, the parties agreed to release, and not sue each other for "any and all actual and potential claims, liabilities, losses, and expenses incurred in connection with, based on, or arising from claims existing as of [July 26, 2016]" and claims "based in whole or in part upon facts existing as of [that date]." As relevant here, the contract contained two express exceptions to this release provision. First, TES agreed to indemnify Crowe against "obligations pursuant to TES's corporate documents," including its bylaws; those obligations were "excepted from the releases in [the] Agreement." Second, TES's rights and obligations under a confidentiality agreement the parties had signed in 2015 were similarly excepted from release. The parties further agreed that "[a]ny future disputes, arising from or under this Agreement or any of its terms . . . will be resolved solely and exclusively by binding arbitration" in Arizona.
¶3 Also in July 2016, another company, Turbine Powered Technology, LLC (TPT), sued David Crowe and others in Louisiana state court over certain intellectual property rights. Crowe sought indemnification from TES through arbitration, but TES refused to arbitrate the indemnity claim, contending that it did not arise under the settlement contract. In May 2017, Crowe filed a third-party petition against TES in the Louisiana suit, alleging that he was incurring expenses in the case "by reason of the fact that he was an officer, director, employee, and agent of [TES]" and seeking indemnification. Further disputes arose between TES and Crowe over whether TES had violated the settlement contract and confidentiality agreement; TES and Crowe exchanged written demands for arbitration of this dispute but were unable to agree on arbitration terms.
¶4 On October 11, 2017, TES commenced Pima County cause number C20174904 by filing a motion to compel arbitration of the claims in its written arbitration demand, which included several alleged breaches of the settlement contract and confidentiality agreement, and "any other claims [Crowe] may possess related to the two contracts," including "without limitation" those asserted in Crowe's arbitration demand. The next day, Crowe commenced Pima County cause number C20174933 by filing a complaint against TES, which included claims of various breaches of the settlement contract and confidentiality agreement, breach of the covenant of good faith and fair dealing, interference with contract, fraudulent conveyance, fraudulent concealment and fraudulent misrepresentation. The complaint also alleged that Lindsay Brew, a TES attorney, had breached fiduciary duties to Crowe. Upon the parties' joint motion, the trial court consolidated the cases, and TES moved "to arbitrate their claims asserted in C20174933, and all other claims between the parties arising from or relating to the terms of [the settlement contract and confidentiality agreement]."
¶5 The court granted the motions to compel arbitration "in both cause numbers C20174904 and C20174933" except that arbitration would "not address the Crowes' claims against Defendants Brew in cause number C20174933." Under the ruling, TES was to submit a proposed form of order, which TES lodged a week later. The proposed form of order stated in relevant part:
IT IS ORDERED granting the moving parties' Motions to Compel Arbitration in both cause numbers C20174904 and C20174933. The claims and controversies referenced in [Crowe's previous arbitration complaint] and [TES's demand for arbitration], and the claims in
[Crowe's] Complaint, are subject to the above-referenced arbitration provisions . . . .Three days later, Crowe filed a notice that they did not object to the proposed order.
¶6 Approximately two weeks later, TES filed a motion for clarification and amended proposed form of order, explaining that after lodging its initial proposed order, a dispute had arisen with Crowe, who asserted that the court's ruling to compel arbitration either included Crowe's claims against TES in the Louisiana suit or was ambiguous on that point. TES suggested that this was obviously not the court's intent, asserting that neither it nor Crowe had ever sought arbitration of the Louisiana lawsuit; that there was "obvious waiver" through filing the claim in Louisiana; and that in any event the indemnity claims in the Louisiana case arose out of TES's corporate bylaws, not the settlement contract or confidentiality agreement, and were not subject to the arbitration clauses in the two agreements. TES asked the court to amend its ruling to explicitly exclude the claims in the Louisiana suit from the arbitration to quell further dispute. TES also sought its attorney fees incurred in preparing the motion, contending it was "made necessary by Mr. Crowe's actions to needlessly expand the proceedings on the motion to compel." Crowe opposed the motion and requested the court to amend its order to encompass "'any and all' claims and controversies between the parties that are part of either the [settlement contract] or the Confidentiality Agreement."
¶7 In the court's ruling on the motion for clarification, the court granted TES attorney fees, stating:
In its ruling in open court on March 12, 2018, this Court determined that the claims and defenses asserted in these consolidated cases in the Pima County Superior Court are subject to arbitration pursuant to contract. The Court in its Ruling did not determine that any other claims or causes of action, including those matters being litigated in another jurisdiction, are subject to arbitration. The Court finds that Crowe's new contention that claims pending in Louisiana also are subject to the contractually-mandated arbitration is untimely and unfounded.Crowe filed a motion to reconsider, which the court denied, stating:
The issue before the Court when it issued its ruling regarding contractually-enforceable arbitration clauses had to do only with the claims and defenses asserted in Pima County Superior Court cases C20174904 and C20174933. As stated in this Court's Ruling dated May 3, 2018, the Court finds Crowe's new effort to force the Louisiana claims into the same arbitration was untimely and unfounded. The party opposing Crowe's untimely and unfounded effort is entitled to an award of the reasonable attorney's fees it incurred in litigating Crowe's untimely and unfounded position.
¶8 Meanwhile, after the court granted arbitration, Crowe voluntarily dismissed their claims against Brew pursuant to Rule 41(a), Ariz. R. Civ. P. Brew then filed a motion for expenses and attorney fees pursuant to A.R.S. § 12-349, alleging that Crowe's claims against them had been "entirely unjustified" and "intended to harass," and also pursuant to A.R.S. § 12-341.01, contending they were entitled to fees as the prevailing party in a matter arising out of contract. The court found that while the record did not support sanctions under § 12-349, Brew was entitled to attorney fees under § 12-341.01 as the prevailing party. The court denied Crowe's ensuing motion for reconsideration, stating:
Defendants Brew actively litigated to gain a dismissal of Crowe's claims against them. At a time when Plaintiffs Crowe were facing a substantive judicial determination as to whether to grant Brew's Motion to Dismiss with prejudice, Crowe invoked Rule 41, ARCP to voluntarily dismiss all of their claims against Brew without prejudice. Notwithstanding that the dismissal was without prejudice, the Court finds that Defendants Brew are the prevailing parties. Brew successfully defended the claims brought against them. Their efforts resulted in them paying nothing to Crowe, and Crowe's claims against them are dismissed.
¶9 The court entered judgments pursuant to Rule 54(b), Ariz. R. Civ. P., awarding TES $6,514.50 in attorney fees under § 12-349 and Brew $52,234.32 in costs and attorney fees under § 12-341.01. Crowe timely appealed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and 12-2101(A)(1).
TES's Attorney Fees
¶10 On appeal, Crowe challenges the trial court's attorney fees award to TES under § 12-349(A), which provides:
[I]n any civil action . . . , the court shall assess reasonable attorney fees [and] expenses . . . if the attorney or party does any of the following:Parties seeking an attorney fees award authorized by a statute bear the burden of showing that they are entitled to fees under that statute. McMurray v. Dream Catcher USA, Inc., 220 Ariz. 71, ¶ 7 (App. 2009). A court awarding sanctions under § 12-349(A) must state the reasons for the award with enough specificity to allow a reviewing court to verify its validity. Rogone v. Correia, 236 Ariz. 43, ¶ 22 (App. 2014) (citing A.R.S. § 12-350). Whether an attorney fees statute applies is a question of law we review de novo, but we review an attorney fees award only for abuse of discretion, viewing the evidence in the light most favorable to upholding the award. Vicari v. Lake Havasu City, 222 Ariz. 218, ¶ 23 (App. 2009). We will uphold the court's findings of fact unless clearly erroneous. McMurray, 220 Ariz. 71, ¶ 6. "A finding of fact is not clearly erroneous if substantial evidence supports it, even if substantial conflicting evidence exists." Kocher v. Dep't of Revenue, 206 Ariz. 480, ¶ 9 (App. 2003).
1. Brings or defends a claim without substantial justification.
2. Brings or defends a claim solely or primarily for delay or harassment.
3. Unreasonably expands or delays the proceeding.
¶11 Even under our deferential standard of review, the record here does not support the trial court's finding that "Crowe's new contention that claims pending in Louisiana . . . are subject to the contractually-mandated arbitration [was] untimely and unfounded." Crowe's Louisiana claim against TES—that TES had an obligation to indemnify Crowe under its bylaws—is an obligation that is explicitly incorporated into the settlement contract. As the court granted TES's motion to compel arbitration of all claims between the parties "arising from or relating to" the terms of the settlement contract, considerable support exists for Crowe's contention that the Louisiana claim is within the scope of the court's ruling compelling arbitration. See § 12-349(A)(1).
On appeal, Crowe does not challenge the trial court's rulings to the extent they exclude the Louisiana claim from arbitration. We thus analyze the apparent scope of the order compelling arbitration only to assess whether Crowe had a reasonable basis for opposing the motion to clarify.
¶12 TES argues, in essence, that conflicting evidence supports the trial court's finding that Crowe's contentions were untimely and unfounded. It contends, for example, that neither it nor Crowe had ever specifically asked the court to order arbitration of the Louisiana claim, that Crowe did not specifically include the Louisiana claim within their complaint, and that Crowe waived arbitration of the indemnity issue by filing the Louisiana claim. But even assuming that these factors might have provided good reason for the court to exclude the Louisiana claim from the scope of its original ruling and order, it does not negate the fact that the Louisiana claim appears to fall within their scope as written. The fact that TES sought to have the court amend its ruling in the first place suggests that, even in TES's view, the court's ruling was not altogether clear in excluding the Louisiana claim from arbitration.
¶13 Aside from finding Crowe's position was "untimely and unfounded," the trial court made no other factual findings supporting the award, and we see nothing in the record indicating that Crowe's intent in defending the motion was to delay or harass, or that they unreasonably delayed or expanded the litigation. See § 12-349(A)(2), (3). To the contrary, Crowe filed a justifiable opposition to TES's motion for clarification within the allowed time. Particularly under circumstances where TES composed the original order and then initiated the court proceedings to amend it, the award of fees to TES under § 12-349(A) was unwarranted. We conclude that the court erred in awarding TES its fees incurred in litigating its motion to clarify.
We do not reach Crowe's contention that the trial court did not make adequate factual findings to support its ruling. --------
Brew's Attorney Fees
¶14 "In any contested action arising out of a contract, . . . the court may award the successful party reasonable attorney fees." § 12-341.01(A). Again, we review the court's award for abuse of discretion, viewing the evidence in the light most favorable to upholding the award. Vicari, 222 Ariz. 218, ¶ 23. "The determination of the successful party under A.R.S. § 12-341.01(A) is within the 'discretion of the trial court,' and we will not disturb the court's award 'if any reasonable basis exists' to support it." Lee v. ING Inv. Mgmt., LLC, 240 Ariz. 158, ¶ 8 (App. 2016) (quoting Berry v. 352 E. Virginia, LLC, 228 Ariz. 9, ¶ 21 (App. 2011)).
¶15 Crowe contends that because they voluntarily dismissed their case without prejudice under Rule 41(a)(1), and Brew did not prevail on any motions or issues, Brew is not a successful party under § 12-341.01(A). But although Rule 41(a)(1) "permits a plaintiff to dismiss his case without prejudice in the early stages of proceedings and effectively returns him to the same legal position as if the action had never been filed," the rule is not intended "to reward a plaintiff for ending his case early by shielding him from the liability of attorneys' fees." Vicari, 222 Ariz. 218, ¶ 21 (adopting federal analysis of Fed. R. Civ. P. 41(a)(1)). If a defendant appears and contests the plaintiff's claims, for example by filing a motion to dismiss, a court may find the defendant to be the prevailing party and grant the defendant's reasonable attorney fees request despite the plaintiff's later dismissal of the defendant under Rule 41(a)(1). See Vicari, 222 Ariz. 218, ¶¶ 26-27.
¶16 Here, a reasonable basis supports the trial court's conclusion that Brew was a successful party in a contested action. Brew contested Crowe's claims by filing a motion to dismiss, and while the court, after hearing oral argument, deferred a ruling on that motion, it did find that Crowe's claims against Brew were "vague" and that Brew had a "valid point" that Crowe's complaint did not provide Brew sufficient notice of the claims against them. Though the court granted Crowe leave to amend the complaint to correct the deficiency, Crowe never did so and chose instead to voluntarily dismiss their case against Brew ten days later. On this record, which supports the court's finding that Crowe was facing an impending ruling on Brew's motion to dismiss, the court did not abuse its discretion in finding Brew to be a successful party and awarding fees under § 12-341.01(A). See Vicari, 222 Ariz. 218, ¶¶ 26-27 (affirming attorney fees award where plaintiff dismissed action under Rule 41 after defendant filed motion to dismiss).
¶17 Crowe further contends that their claims against Brew were tort claims and did not arise out of a contract, as § 12-341.01(A) requires. But Crowe did not raise this argument in the trial court; to the contrary, Crowe explicitly stated that they did "not contest a valid contract exists" when they objected to Brew's attorney fee request. We decline to address this issue raised for the first time on appeal. See Lee, 240 Ariz. 158, n.1.
Disposition
¶18 We affirm the trial court's award of attorney fees and costs to Brew, but vacate the court's award of attorney fees to TES. We also grant Brew's request for attorney fees and costs incurred on appeal pursuant to A.R.S. §§ 12-341 and 12-341.01 upon compliance with Rule 21, Ariz. R. Civ. App. P. We similarly grant Crowe costs and attorney fees incurred on appeal pursuant to §§ 12-341 and 12-341.01 upon compliance with Rule 21, but limited to only those fees and costs incurred exclusively for the purpose of opposing the trial court's award to TES.