IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

KCI RESTAURANT MANAGEMENT LLC, an Arizona limited liability 

company, derivatively on behalf of SVP RESTAURANT FINANCING, 

LLC, Plaintiffs/Appellants/Cross-Appellees,

v.

HOLM WRIGHT HYDE & HAYS PLC; BRAD HOLM and BARBARA 

HOLM, husband and wife; and CHRISTOPHER S. WELKER and TERESA 

WELKER, husband and wife, Defendants/Appellees/Cross-Appellants.

No. 1 CA-CV 13-0430

Appeal from the Superior Court in Maricopa County

No. CV2012-018417

The Honorable J. Richard Gama, Judge

AFFIRMED

COUNSEL

Sherrets Bruno & Vogt LLC, Omaha, NE

By James D. Sherrets, Jason M. Bruno

Counsel for Plaintiffs/Appellants/Cross-Appellees

Jones, Skelton & Hochuli, P.L.C., Phoenix

By Georgia A. Staton, Eileen Dennis GilBride

Counsel for Defendants/Appellees/Cross-Appellants
KCI v. HOLM WRIGHT et al.

Opinion of the Court

2

OPINION

Judge Maurice Portley delivered the Opinion of the Court, in which 

Presiding Judge Patricia A. Orozco and Judge Randall M. Howe joined.

P O R T L E Y, Judge:

¶1 We are asked to resolve whether KCI Restaurant 

Management LLC (“KCI”), an ousted member of SVP Restaurant 

Financing, LLC (“SVP”), can bring a derivative action on behalf of SVP 

despite the plain language in Arizona Revised Statutes (“A.R.S.”) section 

29-831 (2014) that only members of a limited liability company can bring 

derivative actions. We also address the cross-appeal of Holm Wright Hyde 

& Hays PLC, and individual members and their spouses (collectively 

“Holm”), challenging the denial of their request for attorneys’ fees. For the 

following reasons, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 SVP operates approximately two hundred Pizza Hut 

restaurants in five states. SVP had three members—KCI, Jan Kasun, and 

David Dolgen. SVP, Kasun, and Dolgen sued KCI in 2009 for breach of 

contract, bad faith, breach of fiduciary duty, tortious interference with a 

contract, and conversion. See SVP v. KCI, et al., Maricopa County Superior 

Court No. CV2009-022740 (“underlying case”). The trial court granted 

SVP’s motion for partial summary judgment and entered a final judgment 

against KCI for converting $425,000 of SVP’s funds. Kasun and Dolgen then

scheduled a special meeting to expel KCI from SVP. After KCI 

unsuccessfully sought a temporary restraining order to prevent the special 

meeting, KCI was expelled as a member from SVP.

¶3 KCI then amended its third-party complaint against SVP,

Kasun, and Dolgen in the underlying case to request a judgment declaring 

that it was still a member in SVP or, alternatively, damages for breach of 

fiduciary duty. Five months later, and alleging it was a member of SVP, 

KCI filed this separate derivative action against Holm, SVP’s lawyers in the 

underlying litigation, for professional negligence.
KCI v. HOLM WRIGHT et al.

Opinion of the Court

3

¶4 After filing an answer, Holm moved for judgment on the 

pleadings arguing that KCI was not a member of SVP and, as a result, did 

not have standing to bring the derivative action under A.R.S. § 29-831. 

Holm requested the trial court take judicial notice of the underlying case

and preclude KCI from claiming it was a current member of SVP under the 

doctrine of judicial estoppel. Although KCI responded and submitted 

affidavits claiming it was still an SVP member, the court granted Holm’s 

motion for judgment on the pleadings and dismissed the case, but denied 

Holm’s request for attorneys’ fees.

DISCUSSION

I

¶5 KCI first contends the trial court erred by not converting

Holm’s motion for judgment on the pleadings into a motion for summary 

judgment after considering the documents appended to the motion and 

response. We agree.

¶6 Arizona Rule of Civil Procedure (“Rule”) 12(c) provides in 

relevant part that:

If, on a motion for judgment on the pleadings, 

matters outside the pleadings are presented to 

and not excluded by the court, the motion shall 

be treated as one for summary judgment and 

disposed of as provided in Rule 56, and all 

parties shall be given reasonable opportunity to 

present all material made pertinent to such a 

motion by Rule 56.

¶7 The court received and indicated that it considered 

documents Holm attached to its motion as well as KCI’s affidavits attached 

to its response. Because the attachments were outside the pleadings, the 

court should have treated Holm’s motion as one for summary judgment. 

Ariz. R. Civ. P. 12(c) (quoted in Am. Fed’n of State, Cnty. & Mun. Emps. v. 

Lewis, 165 Ariz. 149, 151, 797 P.2d 6, 8 (App. 1990)). We will review it as 

such. We review a motion for summary judgment de novo and view all 

facts in favor of the opposing party. Mousa v. Saba, 222 Ariz. 581, 585, ¶ 15, 

218 P.3d 1038, 1042 (App. 2009) (citing Eller Media Co. v. City of Tucson, 198 

Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App. 2000)). “[W]e . . . will affirm only 

if there is no genuine [dispute] of material fact and the movant is entitled 

to judgment as a matter of law.” Yollin v. City of Glendale, 219 Ariz. 24, 27, 
KCI v. HOLM WRIGHT et al.

Opinion of the Court

4

¶ 6, 191 P.3d 1040, 1043 (App. 2008) (citing Lemons v. Showcase Motors, Inc.,

207 Ariz. 537, 539, ¶ 6, 88 P.3d 1149, 1151 (App. 2004)).

II

¶8 KCI also raises two substantive arguments on appeal. First, 

claiming that it is a member of SVP, KCI argues there is a genuine issue of 

material fact precluding summary judgment. Second, KCI contends it can 

prosecute the derivative action because it only needed to be a member of 

the limited liability company at the time it demanded SVP take action.

A.

¶9 We begin our review by looking at the plain language of 

§ 29-831, the statute authorizing a derivative action, and, if the language is 

clear and unambiguous, we need not resort to other methods of statutory 

construction. Wells Fargo Credit Corp. v. Tolliver, 183 Ariz. 343, 345, 903 P.2d 

1101, 1103 (App. 1995). Indeed, “where the language is plain and 

unambiguous, courts generally must follow the text as written.” Canon Sch. 

Dist. No. 50 v. W.E.S. Constr. Co., 177 Ariz. 526, 529, 869 P.2d 500, 503 (1994).

¶10 Section 29-831 gives a member the right to bring a derivative 

action on behalf of the limited liability company if one or more of the 

statutory conditions are met.1 The statute mandates that the member must 

 

1 Section 29-831 provides as follows:

A member may bring an action in the right of the 

limited liability company to recover a judgment in its 

favor if all of the following conditions are met:

1. Either of the following:

(a) Management of the limited liability company is 

vested in a manager or managers who have the sole 

authority to cause the limited liability company to sue 

in its own right.

(b) Management of the limited liability company is 

reserved to the members and the plaintiff does not 

have the authority to cause the limited liability 
KCI v. HOLM WRIGHT et al.

Opinion of the Court

5

be “a member of the limited liability company at the time the action is 

brought and was a member of the limited liability company at the time of 

the transaction of which he complains . . . .” A.R.S. § 29-831(4). The statute’s 

plain language mandates that KCI may prosecute its derivative action only 

if it was a member of SVP both at the time of the transaction of which it 

complains and at the time it filed the derivative lawsuit. The only question 

here is whether KCI was a member of the limited liability company at the 

time it filed this lawsuit.

B.

¶11 KCI contends that it was a member at the time of this lawsuit 

and the trial court improperly applied judicial estoppel to find otherwise. 

We agree the court should not have considered judicial estoppel because 

 

company to sue in its own right under the provisions 

of an operating agreement.

2. The member has made demand on the manager or 

those members with such authority requesting that the 

manager or the members cause the limited liability 

company to sue in its own right.

3. The members or managers with such authority have 

wrongfully refused to bring the action or, after 

adequate time to consider the demand, have failed to 

respond to the demand.

4. The member is a member of the limited liability 

company at the time the action is brought and was a 

member of the limited liability company at the time of 

the transaction of which he complains or his status as 

a member of the limited liability company thereafter 

devolved on him pursuant to the terms of an operating 

agreement from a person who was a member at such 

time.

5. The member fairly and adequately represents the 

interests of the members, except those members that 

would be defendants in the action, in enforcing the 

right of the limited liability company.
KCI v. HOLM WRIGHT et al.

Opinion of the Court

6

Holm was not a party in the underlying case. See State v. Towery, 186 Ariz. 

168, 182, 920 P.2d 290, 304 (1996) (judicial estoppel only applies to prevent 

a party from taking an inconsistent position in a successive or separate 

action where: “(1) the parties [are] the same, (2) the question involved [is]

the same, and (3) the party asserting the inconsistent position [was]

successful in the prior judicial proceeding.” (citing Standage Ventures, Inc. v. 

State, 114 Ariz. 480, 562 P.2d 360 (1977))).

¶12 We, however, find that KCI’s admission in the underlying 

case supports the ruling.2 An admission in a pleading can bind a party:

[T]his is a rule not of evidence but of pleading. 

When the parties have framed the issues for 

resolution, they may not change them absent an 

amendment of the pleadings or trial of the issue 

by consent. A party so bound is often said to 

have made a judicial admission.

Bank of Am. Nat. Trust & Sav. Ass'n v. Maricopa Cnty., 196 Ariz. 173, 176, 

¶ 11, 993 P.2d 1137, 1140 (App. 1999) (quoting Black v. Perkins, 163 Ariz. 292, 

293, 787 P.2d 1088, 1089 (App. 1989)). If, however, a party seeks to use an 

opponent’s admission in a different proceeding, the admission is only 

evidentiary, and the admitting party is entitled to attempt to overcome the 

apparent inconsistency. See Fox v. Weissbach, 76 Ariz. 91, 95, 259 P.2d 258, 

260 (1953).

¶13 At Holm’s request, the trial court took judicial notice that KCI 

acknowledged in the underlying case that it had been expelled as a member 

of SVP. Although contending in this case that it is one of the three members 

of SVP and was a member at the time of the transactions, KCI attempted to 

back away from its earlier, contrary admission in the underlying case by 

submitting two affidavits attempting to prove that it was an SVP member.

See id. at 95, 259 P.2d at 261 (the party whose prior pleading is admitted as 

 

2 We can, however, affirm the judgment if the court was “correct in its ruling 

for any reason.” Phelps Dodge Corp. v. El Paso Corp., 213 Ariz. 400, 404 n.7, 

¶ 17, 142 P.3d 708, 712 n.7 (App. 2006) (quoting City of Tucson v. Morgan, 13 

Ariz. App. 193, 195, 475 P.2d 285, 287 (1970)); see Dube v. Likins, 216 Ariz. 

406, 417 n.3, ¶ 36, 167 P.3d 93, 104 n.3 (App. 2007) (in examining the trial 

court’s ruling, we noted that we may affirm the trial court if it is correct for 

any reason supported by the record).
KCI v. HOLM WRIGHT et al.

Opinion of the Court

7

an admission is entitled to present evidence to overcome the apparent 

inconsistency).

¶14 The affidavits, however, do not challenge KCI’s earlier 

judicial admission that it is not an SVP member nor create a genuine issue 

of material fact. The Scott Seldin affidavit identified Seldin as the manager 

of another limited liability company, which is the sole member of KCI, and 

declared that Kasun and Dolgen made “improper attempts” to expel KCI. 

The affidavit also stated that “[t]here is no basis for the expulsion of KCI as 

a member of SVP” and “KCI has not been paid anything for its membership 

interest in SVP, KCI has not agreed to withdraw or transfer its membership 

interest in SVP, and KCI is still a member of SVP.” The Seldin affidavit, 

however, provides only conclusory statements and does not undermine 

KCI’s acknowledgment in the underlying action that it had been ousted and 

seeks to set aside its ouster. See Florez v. Sargeant, 185 Ariz. 521, 526, 917 

P.2d 250, 255 (1996) (“[A]ffidavits that only set forth ultimate facts or 

conclusions of law can neither support nor defeat a motion for summary 

judgment.”). Moreover, calling the expulsion an “attempt to expel” is a 

legal conclusion that fails to create a genuine dispute of material fact. See 

id; In re Sherer’s Estate, 10 Ariz. App. 31, 455 P.2d 480 (App. 1969) (mere 

conclusions of ultimate fact and law do not satisfy the rule’s requirement 

that specific facts be set forth which show a genuine dispute of material fact

to be decided at the trial); see also Ariz. R. Civ. P. 56(e)(1) (“An affidavit used 

to support or oppose a motion shall . . . set out facts that would be 

admissible in evidence . . . .”). The Seldin affidavit, as a result, does not 

undermine KCI’s admission in the underlying litigation.

¶15 Likewise, the Sheldon Lerner affidavit does not create a 

genuine dispute of material fact. The affidavit, from a Pennsylvania lawyer 

KCI retained as an expert to review Holm’s obligations to its client, notes

that “[w]hether the attempt to expel KCI was warranted is an issue of 

contract interpretation of the Operating Agreement and fact to be 

determined by a Court or jury as appropriate.” Again, the affidavit does

not contradict KCI’s acknowledgement in the underlying action that it had 

been expelled from SVP. As a result, the affidavits do not create a genuine 

issue of material fact about KCI’s status at the time it filed its derivative 

lawsuit. Consequently, because KCI had been removed from SVP before it 

filed this derivative lawsuit, it could not file the derivative lawsuit as a 

matter of law.
KCI v. HOLM WRIGHT et al.

Opinion of the Court

8

C.

¶16 KCI also argues that we should interpret A.R.S. § 29-831(4) to 

require membership status only when the demand is made. We disagree.

¶17 Section 29-831(4) provides:

The member is a member of the limited liability 

company at the time the action is brought and 

was a member of the limited liability company 

at the time of the transaction of which he 

complains or his status as a member of the 

limited liability company thereafter devolved 

on him pursuant to the terms of an operating 

agreement from a person who was a member at 

such time.

(Emphasis added.)

¶18 Although there is no dispute that KCI was a member of SVP 

at the time it alleges Holm was negligent, the plain language of § 29-831(4) 

requires that KCI also needed to be a member at the time the derivative 

lawsuit was filed. Id. There is nothing in the statute that supports KCI’s 

argument that a derivative action can be brought so long as the entity was 

a member at the time of the transaction or demand. See City of Phoenix v. 

Donofrio, 99 Ariz. 130, 133, 407 P.2d 91, 93 (1965) (“[C]ourts will not read 

into a statute something which is not within the manifest intention of the 

legislature as gathered from the statute itself.”).

3 And KCI has not 

articulated a legal basis for ignoring the plain language of the statute. 

Consequently, because KCI was ousted as a member before it filed its 

derivative action, it cannot as a matter of law maintain the derivative action 

on behalf of SVP.

 

3 KCI also challenges A.R.S. § 29-831’s constitutionality. KCI did not raise 

the issue with the trial court, and we will not address it. See McDowell 

Mountain Ranch Land Coalition v. Vizcaino, 190 Ariz. 1, 5, 945 P.2d 312, 316 

(1997) (declining to consider constitutional claims not first made to the trial 

court); Cullum v. Cullum, 215 Ariz. 352, 355 n.5, ¶ 14, 160 P.3d 231, 234 n.5 

(App. 2007) (generally, issues raised for the first time on appeal are waived).
KCI v. HOLM WRIGHT et al.

Opinion of the Court

9

III

¶19 In its cross-appeal, Holm asserts that the trial court erred in 

refusing to award attorneys’ fees under A.R.S. § 29-833(B) (2014) because 

no reasonable attorney would have brought the derivative action. Section 

29-833(B) provides:

In an action instituted in the right of any 

domestic or foreign limited liability company 

by a member or members, the court having 

jurisdiction on final judgment and a finding that 

the action was brought without reasonable 

cause may require the plaintiff or plaintiffs to 

pay to the parties named as defendants the 

reasonable expenses, including attorney fees, 

incurred by them in the defense of such action.

¶20 “Reasonable cause” to bring an action is an objective standard

that asks whether any reasonable attorney would have thought the claim 

was tenable. Cal X-Tra v. W.V.S.V. Holdings, L.L.C., 229 Ariz. 377, 412, ¶ 121, 

276 P.3d 11, 46 (App. 2012). However, even if a trial court finds that a 

derivative action was brought without reasonable cause, the statute still 

gives the court discretion to grant or deny a request for attorneys’ fees

because the statute says “may” and not “shall.” See, e.g., Associated Indem. 

Corp. v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1985) (explaining

that the legislature’s use of “may” gives the trial court discretion to award 

attorneys’ fees). Consequently, we will not overturn the trial court’s 

decision if the record reasonably supports it. See West v. Salt River Agric. 

Improvement & Power Dist., 179 Ariz. 619, 626, 880 P.2d 1165, 1172 (App. 

1994).

¶21 Although the trial court agreed that KCI could not proceed 

with its derivative claim, which would support Holm’s argument that KCI 

did not have a viable derivative cause of action for professional negligence, 

the court nevertheless exercised its discretion and denied the fee request. 

Because the court reviewed the pleadings and exercised the discretion 

given by statute, we cannot find as a matter of law that the court abused its 

discretion by denying the request. Cf. Orfaly v. Tucson Symphony Soc'y, 209 

Ariz. 260, 267, ¶ 25, 99 P.3d 1030, 1037 (App. 2004) (court not required to 

explain factual basis of fee award, which we will affirm if the record reflects 

a reasonable basis for it). 
KCI v. HOLM WRIGHT et al.

Opinion of the Court

10

IV

¶22 Holm has requested its attorneys’ fees incurred on appeal 

under A.R.S. § 29-833(B). Having considered the merits on appeal, we

exercise our discretion and award Holm a reasonable sum for its attorneys’

fees on appeal and for its costs on appeal upon compliance with ARCAP 

21.

CONCLUSION

¶23 Based on the foregoing, we affirm the judgment.