IN THE 

ARIZONA COURT OF APPEALS

DIVISION ONE

KARL HIATT, Plaintiff/Appellee, 

and 

MCA FINANCIAL GROUP, LTD, through its President, MORRIS C. 

AARON, the court-appointed receiver, Appellee,

v.

HETAL SHAH, Intervenor/Appellant.

No. 1 CA-CV 14-0441 

Appeal from the Superior Court in Maricopa County 

No. CV2010-003106, CV2010-006635, and CV2010-025559 

(Consolidated) 

The Honorable J. Richard Gama, Judge 

AFFIRMED 

COUNSEL 

Conant Law Firm PLC, Phoenix 

By Paul A. Conant, Melissa A. Emmel 

Counsel for Plaintiff/Appellee Karl Hiatt 

Snell & Wilmer, LLP, Phoenix 

By Christopher H. Bayley, Benjamin W. Reeves 

Counsel for Appellee MCA Financial Group, LTD and Morris C. Aaron
2

Gallagher & Kennedy, PA, Phoenix 

By Mark Deatherage 

Counsel for Intervenor/Appellant

Offit Kurman, PA, Baltimore, MD 

By Timothy C. Lynch, Eric Pelletier 

Co-Counsel for Intervenor/Appellant

OPINION 

Presiding Judge Donn Kessler delivered the opinion of the Court, in which 

Judge Andrew W. Gould and Judge Patricia K. Norris joined. 

K E S S L E R, Judge: 

¶1 Intervenor/Appellant Hetal Shah appeals the trial court’s 

approval of a receiver’s decision to honor a receivership certificate issued 

to Appellee Karl Hiatt and his wife Dianna Hiatt (collectively, the “Hiatts”). 

For the reasons set forth below, we affirm. 

FACTUAL AND PROCEDURAL HISTORY 

¶2 The Cheyenne Entities1 were formed to develop video games 

based on the Stargate SG-1 and Stargate Atlantis television series, including 

an online game to be known as Stargate Worlds. Shortly before the 

scheduled release date, three investors filed a derivative action alleging 

misappropriation of various Cheyenne Entities’ assets, which led to the 

appointment of a receiver (the “Receiver”). Two other investor lawsuits 

were consolidated into the receivership case, one brought by Karl Hiatt and 

Keith Deering (the “Hiatt Case”) and one brought by Hetal Shah, Sam 

Dalembert, and David Roberts (the “Shah Case”). 

 

1 The entities are Cheyenne Mountain Entertainment, Inc. (“CME”);

Cheyenne Mountain Games, Inc. (“CMG”); Cheyenne Mountain 

Productions, Inc.; Cheyenne Mountain Software, Inc.; Firesky, LLC; 

Stargate Worlds, LLC; Superstition Studios, LLC; Handcranked Games, 

LLC; Mass Illusions LLC; Knowledge Relay, LLC; Cine Mundo, LLC; and 

World Games, Inc. 
HIATT et al. v. SHAH 

Opinion of the Court 

3

¶3 In October 2010, the Receiver and several parties reached a 

settlement in the Shah Case. As part of the settlement, two of the Cheyenne 

Entities (CME and CMG) would incur debts of $473,364.61 to Hiatt and 

$415,100.00 to Shah, Dalembert, and Roberts, representing expenses Hiatt, 

Shah, Dalembert, and Roberts incurred in preserving the Cheyenne 

Entities’ assets. The parties agreed that this debt would be secured by lien 

rights on receivership assets equivalent to a Receiver’s Certificate in the 

most senior position legally permissible.2 The trial court formally approved 

the Shah Case settlement and authorized the Receiver to issue Receivership 

Certificate No. 1 to Shah, Dalembert, and Roberts, and Receivership 

Certificate No. 2 to the Hiatts. 

¶4 The Receiver then entered into negotiations to obtain a new 

license to complete Stargate Worlds. After some discussion, the owner of 

the Stargate intellectual property rights chose not to issue a new license. 

Because this decision foreclosed any chance of completing Stargate Worlds, 

the Receiver determined that liquidation was in the creditors’ best interest. 

¶5 Before distributing the receivership estate’s assets, the 

Receiver sought to “examine the universe of claims that exist[ed]” against 

the Cheyenne Entities. To achieve this, the Receiver requested an order 

establishing procedures and a deadline for submitting claims against the 

receivership estate. In response, the trial court issued a Claims Bar Order 

that required all claimants to 

submit to the Receiver a completed and signed Claim Form 

along with all documentation supporting the claim no later 

than forty-five (45) days after the date of service of the Bar 

Date Notice and this Order, as reflected below (the “Bar 

 

2 “Receivership certificates are certificates or evidences of indebtedness 

issued under a court order by receivers in possession of property, payable 

out of a particular fund, and are usually a first lien on the property.” 65 

Am. Jur. 2d Receivers § 304, Westlaw (database updated November 2015). 

Receivership certificates are not debts of the insolvent corporations but of 

the receiver and are supported by the pledged faith of the court that the 

property in its custody will be used for their payment. 16 Fletcher Cyc. 

Corp. § 7883, Westlaw (database updated September 2015); accord 3 Ralph 

Ewing Clark, A Treatise on the Law and Practice of Receivers § 459 at 757 (3d 

ed. 1959) (receivership certificates “are debts of the receiver backed by the 

pledged faith of the court, that the property or the proceeds of which they 

are charged, is in its possession, subject to be, and that it will be, disposed 

of by it for the payment of them.”).
HIATT et al. v. SHAH 

Opinion of the Court 

4

Date”), such that the Claim Form is actually received by the 

Receiver on or before the Bar Date. 

The Claims Bar Order further provided that anyone who did not submit a 

timely Claim Form “shall be prohibited from (i) asserting such claim . . . in 

any manner against the receivership estate; (ii) participating in the abovecaptioned receivership case with respect to any plan of liquidation 

proposed by the Receiver . . . ; and (iii) receiving any distribution of the 

proceeds of that liquidation.” 

¶6 The Hiatts did not submit a Claim Form until approximately 

three weeks after the Bar Date. Nonetheless, the Receiver proposed paying 

the Hiatts’ claim in full because the Certificates were debts of the Receiver 

and the Receiver had notice of the Certificates prior to the filing of the 

Claims Bar Order.3 Shah objected, arguing that the Receiver was obligated 

to reject the Hiatts’ claim because they did not submit a Claim Form by the 

Bar Date. The trial court overruled Shah’s objection and approved the 

Receiver’s proposed distribution plan. Shah timely appealed, and we have 

jurisdiction under Arizona Revised Statutes (“A.R.S.”) section 12-

2101(A)(1) (Supp. 2015). 

DISCUSSION 

I. The Trial Court Did Not Abuse its Discretion in Allowing the Hiatts’ 

Claim

¶7 The trial court has broad authority to control claims brought 

against a receivership estate, and the principles of equity govern whenever 

applicable. Ariz. R. Civ. P. 66(c)(4); 75 C.J.S. Receivers § 271, Westlaw 

(database updated December 2015); see also Acad. Life Ins. Co. v. Odiorne, 165 

Ariz. 188, 192 (App. 1990) (stating that the goal of a receivership is to make 

an equitable distribution to those creditors who present viable claims). 

Fashioning an equitable remedy is within the trial court’s discretion, and 

such remedies will not be disturbed on appeal absent an abuse of that 

discretion. Cal X-Tra v. W.V.S.V. Holdings, L.L.C., 229 Ariz. 377, 409, ¶ 106 

(App. 2012). 

 

3 All of the documents needed to effectuate the settlement agreement were 

reviewed, vetted, and approved by the Receiver. These included 

documents setting forth the exact amount of indebtedness incurred to Hiatt, 

Shah, Dalembert, and Roberts, and all of the promissory notes, security 

arrangements, Uniform Commercial Code financing statements, and 

escrow agreements contemplated by the settlement agreement. 
HIATT et al. v. SHAH 

Opinion of the Court 

5

¶8 The issue before us—whether the Hiatts’ failure to timely 

submit a Claim Form bars their claim—is one of first impression in Arizona. 

Our review of other jurisdictions indicates that, absent statutory language 

to the contrary, receivership courts have broad discretion as to whether to 

accept or reject late-filed claims: 

The failure of a creditor to file their claim within the time 

ordered by the [receivership] court does not, like the running 

of a statute of limitations, operate as an absolute bar to the 

claim, at least where the court has not made a final 

distribution of the receivership property. Under certain 

conditions, the court may allow claims to be filed after the 

expiration of the filing deadline. Indeed, the court has wide 

discretion with respect to the filing of claims after the 

expiration of the time set for that purpose. 

16 Fletcher Cyc. Corp. § 7900.20, Westlaw (database updated September 

2015); see also Callahan v. Moneta Capital Corp., 415 F.3d 114, 120 (1st Cir. 

2005) (stating a receivership court “has broad discretion in determining 

whether to permit a claimant to file a late claim”) (citing 3 Ralph Ewing 

Clark, A Treatise on the Law and Practice of Receivers § 652 (3d ed. 1959)); Frank 

Settelmeyer & Sons, Inc. v. Smith & Harmer, Ltd., 197 P.3d 1051, 1060 (Nev. 

2008) (“The receivership court has discretion to allow a late-filed claim, and 

generally, to refuse to do so when sufficient assets to cover the claim remain 

at the time when the claim is made constitutes an abuse of that discretion.”). 

¶9 In exercising its discretion, the court should consider all 

relevant circumstances surrounding the party’s failure to file a timely claim. 

Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993). 

These include, but are not limited to, “the excuse offered by the party 

seeking the waiver or extension and the consequences to all persons 

affected by the granting or denying of it.” Commodity Futures Trading 

Comm’n v. Lake Shore Asset Mgmt. Ltd., 646 F.3d 401, 405 (7th Cir. 2011). 

¶10 We find no abuse of discretion. The Hiatts explained they did 

not believe a Claim Form was necessary because the Receiver was already 

aware of their claim. Shah does not dispute that the Receiver already knew 

of the Hiatts’ claim or that a completed Claim Form from the Hiatts, 

whether timely or not, would have only repeated information the Receiver 

already knew. “The object of requiring the filing of claims within a stated 

period is to give the Receivers timely notice of the existence thereof.” 

Bankers Tr. Co. v. Fla. E. Coast Ry. Co., 31 F. Supp. 961, 963 (S.D. Fla. 1940). If 

the receiver already knows about a particular claim, “[t]here is no 
HIATT et al. v. SHAH 

Opinion of the Court 

6

substantial reason for requiring further proof of such a claim.” Id. Shah 

also had notice of the Hiatts’ claim due to his participation in the settlement 

agreement. The Hiatts’ delay in filing a Claim Form was relatively short 

and did not substantially impact the proceedings or implicate the doctrine 

of laches.4 Thus there was no reliance by the Receiver or Shah on the Hiatts’ 

filing of a Claim Form and no prejudice to Shah by approving the claim 

after a short delay. 

¶11 The out-of-state cases on which Shah relies do not compel a 

different conclusion. In SEC v. Hardy, the Ninth Circuit acknowledged that 

a district court overseeing a receivership has “broad equitable powers,” 

including the power to “establish deadlines for filing claims, and to bar 

untimely claims.” 803 F.2d 1034, 1038-39 (9th Cir. 1986). The Hardy court 

affirmed the district court’s rejection of various claims filed between three 

weeks and three years beyond the claims bar date, but also affirmed the 

allowance of several late claims where circumstances warranted. Id. at 

1038-39. 

¶12 Likewise, in First-Citizens Bank & Trust Co. v. Berry, the court 

affirmed the rejection of a late-submitted claim, but noted that the trial court 

had discretion under North Carolina law as to whether to accept or reject 

it. 163 S.E.2d 505, 509 (N.C. Ct. App. 1968). Finally, in Krause v. Featherston,

the court found that the trial court properly exercised its discretion to reject 

a claim where the claimant had waited three years and thus “[o]bviously . . 

. slept on his rights.” 376 F.2d 832, 833 (1st Cir. 1967). 

¶13 Each of these cases confirms that a trial court has discretion to 

reject late-filed claims, but none say that a trial court cannot accept late-filed 

claims if the circumstances warrant. See 75 C.J.S. Receivers § 274 (stating 

claims bar orders “are not given the effect of inflexible rules” and “a claim 

not filed within the prescribed time is not barred where the circumstances 

are such that the receiver has ample notice of it.”); see also Foster v. Ames, 3 

Ariz. App. 206, 208 (1966) (relying on Corpus Juris Secundum to resolve an 

 

4 “A claimant may be guilty of laches in presenting his claim, dependent 

upon the circumstances of the case, particularly if he claims property 

already distributed, or attempts to set aside a distribution or if to grant the 

claimant’s request would require readjustment of many of the receiver’s 

accounts, delay of distribution and be prejudicial to many just claimants. . . 

. [m]ere lapse of time does not constitute laches, but it must appear that 

something has occurred that would make it inequitable to grant the relief 

prayed for.” Clark, supra, § 652(b) at 1144. 
HIATT et al. v. SHAH 

Opinion of the Court 

7

open question of law regarding an Arizona receivership). Here, the record 

clearly reflects not only that the Receiver knew of the Hiatts’ claim, but that 

the Receiver “created the indebtedness and agreed to the Receivership 

Estate’s obligations pursuant to the Court’s Orders.” We therefore find that 

the trial court did not abuse its discretion when it allowed the Hiatts’ claim.5

II. Shah Did Not Request a Hearing on Excusable Neglect 

¶14 Shah next argues that the trial court failed to take evidence to 

determine whether the Hiatts’ tardiness constituted excusable neglect, 

citing Commodity Futures Trading Commission, 646 F.3d at 404-05. Even 

assuming that excusable neglect is the applicable standard under Arizona 

law—an issue we do not reach—Shah did not raise this issue in the trial 

court and did not request an evidentiary hearing. He therefore has waived 

the issue on appeal. See Crowe v. Hickman’s Egg Ranch, Inc., 202 Ariz. 113, 

116, ¶ 16 (App. 2002); see also Brake Masters Sys., Inc. v. Gabbay, 206 Ariz. 360, 

365, ¶ 15 (App. 2003) (holding that any error in trial court’s failure to hold 

an evidentiary hearing was waived because the parties did not raise the 

issue at trial). 

III. Shah Fails to Show that the Claims Process was Meaningless 

¶15 Finally, Shah argues that, “[i]f this Court accepts the premise 

that all of the Receivership Certificates were themselves ‘claims’ nunc pro 

tunc to the date of issuance, the claims process was a meaningless exercise” 

because “repaying the holders of the Receivership Certificates and the 

Administrative claims would render the Receivership Estate effectively 

insolvent.” A receiver must consider not only the rights of claimants as 

against the receivership estate, but also as among themselves. Sisk v. White, 

50 Ariz. 103, 106 (1937). We find that the Receiver met this standard. 

¶16 The Hiatts’ claim rights were documented in Receivership 

Certificate No. 2, and were “deemed secured by the Receivership Assets on 

a first priority basis” before the trial court entered the Claims Bar Order. 

Moreover, the Receiver’s proposed distribution plan estimated that there 

would be approximately $54 million in claims while the estate carried a cash 

balance of approximately $1.3 million. Shah provides no reason—other 

than the tardiness of the Hiatts’ Claim Form, discussed above—that the 

 

5 In so holding, we do not imply that anyone who holds a receivership 

certificate can ignore claims processes without consequence. We instead 

hold that the trial court did not abuse its discretion in choosing to allow the 

Hiatts’ claim given the specific facts of this case. 
HIATT et al. v. SHAH 

Opinion of the Court 

8

Hiatts’ claim, which enjoyed “first priority,” should have been 

subordinated to any other claims. 

ATTORNEYS’ FEES AND COSTS ON APPEAL 

¶17 The Hiatts request attorneys’ fees and costs on appeal 

pursuant to A.R.S. § 12-341.01 (Supp. 2015), which permits a discretionary 

award to the successful party in an action arising out of a contract. The 

Hiatts say this appeal arises out of the Shah Case settlement agreement, but 

do not contend that Shah has repudiated the agreement. 

¶18 In determining whether an action arises out of contract, the

court is not bound by the form of the pleadings but looks to the nature of 

the action and the surrounding circumstances. Marcus v. Fox, 150 Ariz. 333, 

335 (1986). “When the contract in question is central to the issues of the 

case, it will suffice as a basis for a fee award.” In re Larry’s Apartment, L.L.C., 

249 F.3d 832, 836-37 (9th Cir. 2001). Our courts have broadly interpreted 

which types of actions arise from a contract. See, e.g., Marcus, 150 Ariz. at 

335-36 (determining action arose from contract although dispute was not 

over whether there was a breach of contract, but whether the contract was 

valid in the first place); Pinetop Lakes Ass’n v. Hatch, 135 Ariz. 196, 198 (App. 

1983) (determining action to enforce covenant arises out of contract); Shirley 

v. Hartford Accident & Indem. Co., 125 Ariz. 70, 71 (App. 1979) (permitting an 

award of attorneys’ fees where defendant proved absence of contractual 

relationship). In this case, the Hiatts’ claim was premised on Receivership 

Certificate No. 2, which is premised on the settlement agreement. Because 

the Hiatts’ claim ultimately arises out of the settlement, this action arose out 

of contract for the purposes of A.R.S. § 12-341.01(A). 

CONCLUSION 

¶19 Based on the foregoing, we affirm the trial court’s ruling and 

will award the Hiatts their reasonable attorneys’ fees and taxable costs on 

appeal upon compliance with Arizona Rule of Civil Appellate Procedure 

21.