Opinion
No. 1 CA-CV 19-0290
06-09-2020
GOLDWATER BANK NA, Plaintiff/Appellant, v. CRAIG MATTSON, et al., Defendants/Appellees.
COUNSEL Snell & Wilmer, L.L.P., Phoenix By Andrew M. Jacobs, Patrick A. Tighe Co-Counsel for Plaintiff/Appellant SPENCER FANE, L.L.P., Phoenix By Richard Herold Co-Counsel for Plaintiff/Appellant Cohen Dowd Quigley, Phoenix By David P. Quigley, Rebecca L. van Doren Counsel for Defendants/Appellees
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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. CV2015-009825
The Honorable Timothy J. Thomason, Judge
The Honorable Dawn Bergin, Judge
AFFIRMED
COUNSEL Snell & Wilmer, L.L.P., Phoenix
By Andrew M. Jacobs, Patrick A. Tighe
Co-Counsel for Plaintiff/Appellant SPENCER FANE, L.L.P., Phoenix
By Richard Herold
Co-Counsel for Plaintiff/Appellant Cohen Dowd Quigley, Phoenix
By David P. Quigley, Rebecca L. van Doren
Counsel for Defendants/Appellees
MEMORANDUM DECISION
Judge Kenton D. Jones delivered the decision of the Court, in which Presiding Judge Michael J. Brown and Judge D. Steven Williams joined. JONES, Judge:
¶1 Goldwater Bank, N.A. (the Bank) appeals the judgment entered upon a jury verdict in favor of Craig Mattson for claims and counterclaims related to Mattson's employment with and departure from the Bank. For the following reasons, we affirm.
FACTS & PROCEDURAL HISTORY
¶2 The Bank is a national banking association operating in Arizona. In March 2014, the Bank hired Mattson to manage mortgage lending operations at a Scottsdale branch (the Branch). According to the initial employment agreement (the 2014 Agreement), Mattson was responsible for paying the start-up expenses, funding and maintaining a reserve account (the Branch account) to cover operating costs, and generating sufficient loan volume to support the Branch. The Bank would maintain a ledger of income and expenses and pay Mattson "on the 15th day of the month, following reconciliation of the [Branch] Account." Or, if the Branch account fell below the minimum at the month's end, the Bank would invoice Mattson for the balance. The parties also agreed that, if the 2014 Agreement were terminated, the Branch account would be reconciled and its balance disbursed to Mattson. The Branch thus operated as a "net branch," with Mattson bearing full responsibility for the Branch's profits and losses.
We view the facts in the light most favorable to sustaining the jury's verdict in favor of Mattson. See Stafford v. Burns, 241 Ariz. 474, 477, 479, ¶¶ 5 n.2, 14 (App. 2017).
¶3 The Branch thrived under Mattson's direction. Although the 2014 Agreement did not specify an amount of compensation, the Bank reconciled the Branch account each month and designated the net profits as "Branch Manager Comp[ensation]," which it recorded as a liability owed to the Branch manager — Craig Mattson. Informally, the account was recognized within the Bank as "Craig's P&L" or "Craig's Operating Account." Payment was not automatic, but when Mattson requested disbursements from these funds, the Bank obliged.
¶4 In early 2015, the Bank advised Mattson that federal regulations prohibited Mattson from managing the Branch while also originating loans. In April, the Bank and Mattson entered a new agreement (the 2015 Agreement). Regarding "Compensation & Benefits," the 2015 Agreement provided:
A. Manager shall receive a base salary [of $240,000] as set forth in the Manager's Exhibit A. Manager's salary shall be reviewed periodically, but no later than annually on the anniversary date of this Agreement. Manager's base salary shall be adjusted in [the] Bank's sole and exclusive discretion. . . .As before, the Branch agreed to maintain a ledger of income and expenses. The 2015 Agreement also provided for reconciliation of the Branch account upon termination of Mattson's employment with the Bank, specifying that only the income and expenses "attributable to operations predating the termination date" would be counted. Mattson also agreed "that during his . . . employment with [the] Bank and for a period of twelve (12) months after the termination of [his] employment with [the] Bank," he would not solicit Branch employees, other than those listed upon an attached schedule, "to leave the Bank or form or join another entity."
B. On a monthly basis, and in the Bank's sole discretion, Manager may receive additional bonus compensation based upon the overall financial performance of the Branch after the Bank's minimum reserve requirements are met. . . .
The 2014 Agreement contemplated a single ledger which Mattson was required to maintain at a minimum of $30,000 after income and expenses were reconciled. Under the procedural modifications of the 2015 Agreement, the Bank maintained two ledgers: one to track the Branch's income and expenses, and a second, funded by the first, to hold the minimum reserve amount of $75,000. The Bank did not change its accounting practices, however, and the effect of the agreements is the same. Accordingly, we refer to the monies attributable to the Branch, whether tracked on one or multiple ledgers, as "the Branch account."
¶5 Mattson agreed he would no longer write loans but neither the independent nature of the Branch, nor Mattson's control over its operations and responsibility for its profitability changed. The Bank did not pay Mattson the $285,000 balance in the Branch account in April 2015, but instead continued its prior practice of reconciling the Branch account monthly, designating the net profit from that account as "Branch Manager Compensation," and disbursing those funds to Mattson upon his request.
¶6 At the same time, however, the Bank was debiting the Branch account for expenses related to errors of the Bank's corporate office. Although the Bank acknowledged its error, it did not reverse the charges, nor cease the debits from the Branch account. Eventually, the Bank directed Mattson to cease operations at the Branch because the Bank did not have the resources to process and fund the loans he was generating.
¶7 When Mattson tendered his resignation in July 2015, intending to provide the same services to a competing institution, the parties discussed the process by which Mattson would separate from the Bank. The Bank initially offered to credit the Branch account $100,000 to compensate for the amounts wrongfully debited and, after a final reconciliation, disburse the remaining funds to Mattson. Instead, the Bank retained nearly half a million dollars it identified as Branch profits and filed a lawsuit alleging Mattson had misappropriated confidential information and improperly solicited Branch employees and customers.
¶8 Before trial, the court dismissed the Bank's allegations that Mattson acted improperly in soliciting Branch employees. After considering the parties' evidence and argument, the trial court found that: (1) the Bank intended that Branch employees would be "free to go with [Mattson] if he left," (2) the Bank authorized Mattson to solicit employees after he tendered his resignation, and (3) the Bank did not present evidence of damages attributable to the solicitation.
¶9 In the course of a fourteen-day jury trial in September and October 2018, the Bank argued Mattson breached his employment contract, breached his fiduciary duty to the Bank, and otherwise interfered with Bank operations. Mattson counterclaimed for payment of the net profits remaining in the Branch account on theories of breach of written and oral contracts, conversion, and promissory estoppel.
Various other claims and parties were dismissed or otherwise resolved in the four years of pretrial litigation and have no bearing on this appeal.
¶10 The jury returned a general verdict in favor of Mattson for $650,000. In a special interrogatory, the jury found the Bank did not have a "good faith basis on which to refuse to pay Craig Mattson the net profits of the Branch." The trial court agreed there was no good faith basis to withhold the funds from Mattson and trebled the damages pursuant to Arizona's wage penalty statute, see Ariz. Rev. Stat. (A.R.S.) § 23-355, ultimately entering judgment for Mattson for $1.95 million, plus attorneys' fees and costs and pre- and post-judgment interest.
Absent material changes from the relevant date, we cite a statute's current version.
¶11 After filing several unsuccessful post-trial motions, the Bank timely appealed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1), -2101(A)(1) and (5)(a).
DISCUSSION
I. No Genuine Issue of Material Fact Precluded Judgment in Mattson's Favor Upon the Bank's Claims Arising From Purported Employee Solicitation.
¶12 The Bank argues the trial court erred in entering judgment in Mattson's favor upon the employee-solicitation claims because it improperly interpreted the 2015 Agreement to allow solicitation of all Branch employees. We need not decide the issue, however, because we may affirm summary judgment upon any ground argued by the parties and supported by the record. See KB Home Tucson, Inc. v. Charter Oak Fire Ins., 236 Ariz. 326, 329, ¶ 14 (App. 2014) (citing Mutschler v. City of Phx., 212 Ariz. 160, 162, ¶ 8 (App. 2006)).
¶13 The Bank relied upon the circumstances surrounding Mattson's solicitation of Branch employees to support its claims for breach of contract, breach of fiduciary duty, unfair competition, and intentional interference with contract. To survive summary judgment upon these claims, the Bank was required to present evidence sufficient to permit the jury to find in favor of the Bank upon each element of a claim. See Cox v. May Dep't Store Co., 183 Ariz. 361, 364 (App. 1995) (citing Tucson Gas & Elec. Co. v. Larsen, 19 Ariz. App. 266, 267 (1973)). "Black-letter tort law tells us that as an essential element of the action, the plaintiff must provide evidence that the defendant's conduct caused plaintiff's damage." Piner v. Superior Court, 192 Ariz. 182, 185, ¶ 11 (1998) (citing W. Page Keeton et al., Prosser & Keeton on the Law of Torts § 41, at 263 (5th ed. 1984)). Damages are also an essential element of a breach of contract claim. Chartone, Inc. v. Bernini, 207 Ariz. 162, 170, ¶ 30 (App. 2004) (citing Thunderbird Metallurgical, Inc. v. Ariz. Testing Lab., 5 Ariz. App. 48, 50 (1967), and Gilmore v. Cohen, 95 Ariz. 34, 36 (1963)).
¶14 The trial court here found the Bank failed to present evidence of damages attributable to the purported misconduct. The Bank does not challenge that finding within its opening brief and fails to identify any genuine issue of material fact upon this issue that would preclude summary judgment in Mattson's favor. See Rigel Corp. v. State, 225 Ariz. 65, 67, ¶ 8 n.3 (App. 2010) (declining to consider issues not raised on appeal) (citing Nelson v. Rice, 198 Ariz. 563, 567, ¶ 11 n.3 (App. 2000). Accordingly, we find no error in the court's disposition of the Bank's claims for employee solicitation.
In its reply brief, the Bank relies upon non-binding authority to argue we may infer damage from the fact of breach. Even if the argument were not waived, see Marquette Venture Partners II, L.P. v. Leonesio, 227 Ariz. 179, 184, ¶ 18 n.8 (App. 2011) ("[W]e will not consider issues first raised in a reply brief.") (citing Nelson, 198 Ariz. at 567, ¶ 11 n.3), we find these authorities wholly unpersuasive. Nor is the mere "assert[ion] in the Superior Court that [the Bank] had separate damages from the employee solicitation" — another point voiced for the first time within the Bank's reply brief — sufficient to survive summary judgment. See Cimino v. Always, 18 Ariz. App. 271, 273 (1972) ("Mere assertions of fact made by counsel in his memoranda or brief are not entitled to consideration on the motion for summary judgment.") (citations omitted).
II. Sufficient Evidence Supports the General Verdict in Favor of Mattson.
¶15 The Bank argues the trial court erred in denying its motion for judgment as a matter of law (JMOL) upon Mattson's theory that the 2015 Agreement required the Bank to pay Mattson the net profits in the Branch account upon termination of his employment. As a general rule, we review the denial of a motion for JMOL de novo and will reverse if there is no legally sufficient basis upon which a reasonable jury could find for the prevailing party. Dupray v. JAI Dining Servs. (Phx.), Inc., 245 Ariz. 578, 582, ¶ 11 (App. 2018). Here, however, the jury returned a general verdict in Mattson's favor. "We will uphold a general verdict if evidence on any one count, issue or theory sustains the verdict." Murcott v. Best W. Int'l, Inc., 198 Ariz. 349, 361, ¶ 64 (App. 2000) (citing Reese v. Cradit, 12 Ariz. App. 233, 238 (1970), and Dunlap v. Jimmy GMC of Tucson, Inc., 136 Ariz. 338, 341-42 (App. 1983)).
¶16 The Bank does not challenge the sufficiency of the evidence to sustain the general verdict upon Mattson's theories of breach of an oral contract, conversion, or promissory estoppel and has waived any argument that the general verdict lacks support under these theories. See Rigel, 225 Ariz. at 67, ¶ 8 n.3 (citing Nelson, 198 Ariz. at 567, ¶ 11 n.3). The Bank thus fails to prove any reversible error in the submission of Mattson's claims to the jury or its verdict.
III. The Trial Court Acted Within its Discretion in Trebling Damages.
¶17 The Bank argues the trial court erred in applying A.R.S. § 23-355(A) to treble the damages awarded to Mattson. That section provides that "if an employer . . . fails to pay wages due any employee, the employee may recover in a civil action against an employer or former employer an amount that is treble the amount of unpaid wages." A.R.S. § 23-355(A). "The treble damages penalty should not be awarded when there is a reasonable good faith wage dispute between the employer and employee." Apache E, Inc. v. Wiegand, 119 Ariz. 308, 312 (App. 1978).
¶18 Although the Bank does not explicitly dispute that the jury award to Mattson qualifies as "wages" subject to enhancement under A.R.S. § 25-355(A), it implies as much by repeatedly suggesting that the only basis for application of the statute would be through a finding that the Bank was contractually obligated to pay the funds. "Wages" subject to enhancement under A.R.S. § 25-355(A) include "nondiscretionary compensation due an employee in return for labor or services rendered by an employee for which the employee has a reasonable expectation to be paid whether determined by a time, task, piece, commission or other method of calculation." A.R.S. § 23-350(7). Thus, the obligation to remit promised, nondiscretionary compensation is absolute, regardless of how the compensation is calculated or the label attached thereto. See Schade v. Diethrich, 158 Ariz. 1, 12-13 (1988) (holding the employer's promise of severance pay in exchange for continued services were wages subject to A.R.S. § 23-355).
¶19 To render a verdict in Mattson's favor, the jury had to believe Mattson reasonably expected to be paid the net profits remaining in the Branch account in exchange for services rendered to the Bank as its manager. This is true regardless of whether the promise to pay was express or implied. Accordingly, the net profits in the Branch account were wages subject to enhancement under A.R.S. § 23-355(A).
¶20 The Bank argues insufficient evidence supports the trial court's finding that the Bank lacked a good faith basis to withhold the funds from Mattson. We review the court's application of the wage penalty statute for an abuse of discretion. Velarde v. PACE Membership Warehouse, Inc., 105 F.3d 1313, 1318 (9th Cir. 1997) (citing Apache E., 119 Ariz. at 313). We defer to the court's factual findings on the issue, see Clark v. Renaissance W., L.L.C., 232 Ariz. 510, 512, ¶ 7 (App. 2013) (citing Harrington v. Pulte Home Corp., 211 Ariz. 241, 247, ¶¶ 16, 40 (App. 2005)), and will not reverse the decision if any competent evidence supports it, Apache E., 119 Ariz. at 313.
¶21 After presiding over the trial, the court found the Bank knew the Branch was operated as a net branch whose profits and losses were Mattson's to bear, and the Bank acted consistently with that understanding when it accounted for the Branch's net profits as a liability to the Bank, referred to the funds as "Branch Manager Compensation," and disbursed the funds from that account to Mattson, without question, upon his request. Notably, the 2015 Agreement "certainly did not provide that the net profits would be paid to the Bank." The trial court further found that when Mattson tendered his resignation, the Bank agreed to reverse erroneous debits from the Branch account and "made no secret of the fact that it knew Mattson would be paid net profits" upon reconciliation of the Branch account. But then the Bank "reversed course . . . [s]eemingly overnight . . . t[aking] the position that Mattson was not, in fact, entitled to anything," without any rational explanation and despite its prior practice of paying Mattson the net profits and agreement to do so upon Mattson's departure. These findings are supported by the record and sufficient to sustain the court's determination that the Bank had no good faith basis upon which to refuse Mattson the Branch's net profits. And although the jury's answer to the special interrogatory may not have been binding upon the court, Bohmfalk v. Vaughan, 89 Ariz. 33, 38-39 (1960) (explaining that answers to special interrogatories may be binding or advisory depending upon the nature of the proceeding), the court's findings are consistent with the jury's evaluation of the evidence.
¶22 That the case survived multiple dispositive motions is not determinative. Factual issues may have precluded summary judgment earlier in the case, but that did not prevent the trial court, after viewing the evidence and hearing the testimony actually presented over fourteen days of trial, from later concluding, as it did, that "[t]here is no doubt . . . that Goldwater always knew and understood that Mattson would be paid the net profits." Nor does dismissal of Mattson's punitive damage claim preclude a finding that the Bank lacked a good faith basis for its dispute over the disposition of the Branch account. An action taken without good-faith justification may nonetheless fall short of the evil mind and outrageous conduct required to justify punitive damages. See Linthicum v. Nationwide Life Ins., 150 Ariz. 326, 330-31 (1986). On this record, we find no abuse of discretion.
The Bank re-advances its argument that it was entitled to JMOL upon Mattson's claim for breach of the 2015 Agreement, thus proving it had reasonable grounds to contest Mattson's claim to the net profits. But the jury could have found Mattson had a reasonable expectation of compensation even without proving a contractual right. See supra ¶ 16. Notably, the Bank does not offer any argument, nor point to any evidence, suggesting it had a good faith defense to Mattson's claims based upon breach of an oral agreement, conversion, or promissory estoppel. For the same reasons, we reject the Bank's suggestion that the timing of Mattson's disclosure of the basis for his breach of contract theory precludes application of A.R.S. § 23-255(A).
IV. The Trial Court Acted Within Its Discretion in Calculating Attorneys' Fees.
¶23 The Bank argues the trial court abused its discretion by awarding Mattson $1.52 million in attorneys' fees pursuant to A.R.S. § 12-341.01(A), which authorizes an award of fees to the prevailing party in a contract dispute. In evaluating whether to award fees under A.R.S. § 12-341.01(A), the court should consider the statute's intended purpose to:
(1) mitigat[e] the burden of the expense of litigation to establish a just claim or a just defense; (2) encourag[e] more careful analysis prior to filing suit by imposing the risk of paying the opposing party's attorneys' fees where legitimate settlement offers are rejected; and (3) promot[e] settlements and thus reduc[e] caseloads involving contractual matters.Hall v. Read Dev., Inc., 229 Ariz. 277, 282, ¶ 18 (App. 2012) (quotation and citations omitted). "The trial court has broad discretion in awarding attorney's fees to the successful party pursuant to A.R.S. § 12-341.01." Croci v. Travelers Ins., 163 Ariz. 346, 348 (1990) (citing Associated Indem. Corp. v. Warner, 143 Ariz. 567, 571 (1985)). We will affirm the decision "if it has any reasonable basis even if the trial court gave no reason for denying the request for fees." Tucson Estates Prop. Owners Ass'n v. McGovern, 239 Ariz. 52, 56, ¶ 12 (App. 2016) (citing Uyleman v. D.S. Rentco, 194 Ariz. 300, 305, ¶ 27 (App. 1999)).
¶24 The trial court here issued a detailed order summarizing the relevant standard and containing specific findings regarding the relevant factors set forth in Associated Indemnity, including: (1) a fee award "would not discourage parties with legitimate claims or defenses from litigating due to fear over a fee award"; (2) even if the 2015 Agreement were not clear, the Bank's litigation position was "totally disingenuous" given its understanding at the outset — as evidenced through its employees' testimony — that Mattson was entitled to the Branch net profits, (3) although "[b]oth parties have some responsibility for not getting this case settled, . . . Goldwater was the primary [party] who could have avoided this litigation," specifically, by simply "paying the monies it owed to Mattson"; (4) there was no evidence Mattson misappropriated confidential information or otherwise acted improperly in the winding up of Branch business such that litigation was warranted; in fact "[t]hings appeared to be going smoothly" until, "without any notice, Goldwater filed this suit"; and (5) "Goldwater is a sophisticated entity, with very capable legal advisors [who] knew or should have known of the risks of litigation," including "the risk of a big fee claim if it lost." See Associated Indem., 143 Ariz. at 570 (listing factors "useful to assist the trial judge in determining whether attorney's fees should be granted" under A.R.S. § 12-341.01(A)) (citing Wistuber v. Paradise Valley Unified Sch. Dist., 141 Ariz. 346, 350 (1984), and Sloatman v. Gibbons, 104 Ariz. 429, 430-31 (1969)). The court then listed fourteen matters for which it found the Bank's position "simply def[ied] explanation," including its initial attempt at and abandonment of injunctive relief designed to put Mattson's new venture out of business, and its insistence upon lengthy and expensive discovery and pretrial motion practice.
¶25 The trial court nonetheless determined significant reductions in Mattson's fee request were warranted, including: $200,000 for an excess of fees incurred "at the outset of the case and during the trial and trial prep phases," $300,000 for "block billing and vague and general time descriptions," $200,000 to account for Mattson's co-defendant's unsuccessful claim, and $380,000 for the "general 'excessive' and sometimes duplicative nature of the fees." Thus, the order makes clear that the court considered the relevant circumstances, concluded that, in toto, they weighed in favor of granting a fee award to Mattson, and determined a $1.08 million reduction in Mattson's fee request was warranted, ultimately awarding Mattson $1.52 million of its $2.6 million fee request.
¶26 The Bank complains that the trial court did not consider or give proper weight to certain factors, including: the merits of the Bank's position on its claims and defenses to Mattson's counterclaims; the extent to which the requested fees related to the defense of parties other than Mattson; the parties' conduct as it related to settlement; the potential chilling effect of a large fee award; and the extent that block-billing affected the court's ability to evaluate the reasonableness of Mattson's requested award. But the Bank made these same arguments below, and the court made explicit findings to support its resolution of each issue.
Of particular note, the Bank argues the trial court erred in failing to consider "the Court's own management and assessment of this case" when evaluating the merits of the Bank's claims, suggesting the court's handling of the case "sen[t] a strong signal to Goldwater that its contract position had merit." What the Bank fails to acknowledge is that the court's conclusion that the Bank's claims and defenses lacked merit was not apparent until it heard the testimony of the Bank's employees — information the Bank had from the case's inception but which was not revealed to the court until trial.
¶27 On review, we do not substitute our opinion for that of the trial court; rather, we consider "whether a judicial mind, in view of the law and [the] circumstances, could have made the ruling without exceeding the bounds of reason." Associated Indem., 143 Ariz. at 571 (quoting Davis v. Davis, 78 Ariz. 174, 179 (1954) (Windes, J., specially concurring)). Thus, although another court could have viewed the circumstances or calculated the adjustments differently, the Bank has not shown that the findings and reductions here are unreasonable or unsupported by the evidence. Accordingly, we find no abuse of discretion. See McGovern, 239 Ariz. at 56, ¶ 14 ("[T]he other factors may weigh in favor of [denying fees], but because a reasonable basis supports the ruling, we do not substitute our discretion for that of the trial court.") (citing Orfaly v. Tucson Symphony Soc'y, 209 Ariz. 260, 266, ¶ 21 (App. 2004)); see also Schweiger v. China Doll Rest., Inc., 138 Ariz. 183, 189 (App. 1983) (agreeing with Hensley v. Eckerhart, 461 U.S. 424, 436 (1983), that there is "no precise rule or formula for making these determinations" regarding the reasonableness of fees incurred).
Although the Bank asserts that "block billing typically warrants a 30% reduction," it does not cite to any authority that mandates such a practice. Nor does it explain with any particularity how a smaller adjustment was an abuse of discretion upon the facts presented here, particularly in light of the other substantial reductions applied by the trial court. --------
CONCLUSION
¶28 The judgment in favor of Mattson is affirmed.
¶29 Both parties request an award of attorneys' fees and costs incurred pursuant to A.R.S. §§ 12-341 and -341.01(A). The Bank is not the prevailing party and its request is denied. Mattson is awarded his reasonable attorneys' fees and costs incurred on appeal upon compliance with ARCAP 21(b).