Court Opinion

ID: 4911590
Source: CourtListenerOpinion
Date Created: 2021-09-16 21:04:42.382692+00
Date Added: 2024-06-11T08:13:33.312599
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        SEP 16 2021
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

AJMAN STUD, a business entity organized         Nos. 19-16779
and existing under the laws of the United            20-16648
Arab Emirates, Ajman Emirate; SHEIKH
AMMAR BIN HUMAID AL NUAIMI,                     D.C. No. 2:15-cv-01045-DJH

                Plaintiffs-Appellees,
                                                MEMORANDUM*
 v.

DAVID CAINS; et al.,

                Defendants-Appellants,

and

UNKNOWN PARTIES, 1 through 30,
inclusive,

                Defendant.

                   Appeal from the United States District Court
                             for the District of Arizona
                   Diane J. Humetewa, District Judge, Presiding

                        Argued and Submitted July 8, 2021
                                Portland, Oregon

Before: M. MURPHY,** PAEZ, and BENNETT, Circuit Judges.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The Honorable Michael R. Murphy, United States Circuit Judge for
      In 2012, Plaintiff-Appellee, Ajman Stud, purchased a mare named La

Bella Versace (the “Mare”) from Defendant, Stonewall Farms Arabians,

LLC (“Stonewall”). Defendant-Appellant, David Cains, negotiated the sale

on behalf of Stonewall. According to Ajman Stud’s agent, Elisa Grassi,

Cains told her the Mare had not been bred and he failed to disclose the Mare

was subject to reserved embryo rights. Stonewall received payment for the

Mare on February 28, 2012, but did not deliver her to Appellees until May

2012. While the Mare was in Stonewall’s care, she was artificially

inseminated and two embryos were extracted. Appellees did not learn the

Mare was bred while at Stonewall Farms until June 2013.

      In 2015, Appellees brought an action in Arizona state court raising the

following claims: (1) breach of contract, (2) breach of the covenant of good

faith and fair dealing, (3) fraud, (4) conversion of property rights, (5) breach

of fiduciary duty, and (6) breach of bailment duties. Appellees also sought

declaratory relief. Appellants removed the case to federal district court.

After a six-day bench trial, judgment was entered in favor of Appellees on

all claims except the breach of contract claim. Appellees were awarded

$975,000 in compensatory damages and $100,000 in punitive damages.

the U.S. Court of Appeals for the Tenth Circuit, sitting by designation.

                                         2
Thereafter, the district court awarded Appellees their attorneys’ fees, exper t

witness fees, and non-taxable costs in the amount of $743,356.93.

      Our jurisdiction over these consolidated appeals arises under

28 U.S.C. § 1291. We affirm in part, reverse in part, and remand for

further proceedings.

                            Appeal No. 19-16779

      1. Appellants seek a new trial, arguing the district court’s written

Order contains numerous clearly erroneous findings of fact and miscitations

to the record, thereby undermining confidence in the court’s judgment. 1

Conspicuously missing from Appellants’ briefs, however, are examples

illustrating how the district court’s alleged errors and miscitations actually

affected any aspect of the court’s judgment. All of Appellants’ arguments

are based on mere speculation. Further, Appellants have failed to identify

any precedent in this court, or any other, supporting the proposition that a

party is entitled to a new trial when a district court makes erroneous

nonmaterial findings. Accordingly, the request for a new trial is denied.

      1
             Related to this claim, Appellants have moved this court to take
judicial notice of a four-page, single-spaced Exhibit appended to their
opening appellate brief. Because the Exhibit contains argument, not
materials amenable to judicial notice pursuant to Fed. R. Evid. 201(b), the
motion is denied.

                                       3
      2. Before trial, Appellants moved to dismiss Appellees’ claims as a

sanction for alleged improprieties that occurred during the deposition of

Plaintiff, Sheikh Ammar bin Humaid al Nuaimi, the Crown Prince of the

Emirate of Ajman (“Sh. Ammar”). Appellants’ belief that Grassi coached

Sh. Ammar during his deposition by sending text messages to his phone is

not supported by any evidence. To the contrary, Grassi testified she did not

text Sh. Ammar 2 and the district court found her credible on this point.

Further, Appellants have not shown Appellees were responsible for any

malfunction of the video-conference equipment or loss of the data

connection during Sh. Ammar’s deposition. Because Appellants cannot

show Appellees engaged in the conduct of which they are accused, the

district court did not abuse its discretion in refusing to dismiss Appellees’

claims as a sanction.

      3. Prior to trial, Appellants sought to exclude evidence of three

separate instances in which Cains was accused of business improprieties,

      2
            Appellants’ Motion to Transmit to the Court a Flashdrive of Sh.
Ammar’s Deposition is denied. According to Appellants, the video
recording shows Sh. Ammar repeatedly monitoring his cell phone during the
deposition. Even if true, the video would not provide the necessary
evidence to support Appellants’ assertion that Sh. Ammar was receiving text
messages from Grassi.

                                       4
including failing to disclose reserved breeding rights and fabricating a

contract to conceal the nondisclosure; selling a horse he did not own at the

time of the sale; and filing paperwork with the American Horse Association

falsely representing Stonewall was the owner of a horse at the time embryos

were extracted. The district court denied Appellants’ pre-trial motion,

concluding the evidence of prior bad acts was probative of lack of mistake

and the probative value was outweighed by any prejudice. See Fed. R. Evid.

404(b)(2). Appellants’ opening brief attacks this ruling generally, but

contains only one citation to the record 3 and no citations to caselaw, making

it impossible for this court to conduct any meaningful review of the alleged

errors in the district court’s analysis. Further, Appellants have wholly

failed to show they were “substantially prejudiced” by the introduction of

the evidence, a necessary component of their appellate challenge to the

district court’s evidentiary ruling. Harper v. City of L.A., 533 F.3d 1010,

1030 (9th Cir. 2008). Accordingly, we affirm the district court’s ruling on

the introduction of Cains’s prior bad acts.

      4. The district court granted Appellees’ pretrial motion to exclude

evidence underlying a civil lawsuit Cains, Bailey, and Stonewall filed

      3
             Appellants’ argument does not even contain a record citation to
the district court’s ruling on their motion.

                                       5
against Grassi and Frank Spönle in Arizona state court (the “Cains/Grassi

suit”). The court ruled, inter alia, that permitting the introduction of the

proposed evidence would confuse the trier of fact because the evidence

touched on unresolved issues in a completely separate transaction. The

district court’s ruling comports with Fed. R. Evid. 403 which provides that

even relevant evidence may be excluded “if its probative value is

substantially outweighed by a danger of . . . unfair prejudice, confusing the

issues, misleading the jury, undue delay, wasting time, or needlessly

presenting cumulative.” Appellants have not shown the district court

clearly erred in finding that confusion would result from the introduction of

disputed evidence 4 involving an unrelated transaction that occurred two

years after the Mare was purchased by Ajman Stud. Thus, the district court

did not abuse its discretion in excluding the evidence.

      5. We next conclude the district court did not err in ruling that Bailey

was liable for any judgment in favor of Appellees under an alter ego theory.

Under Arizona law, the proponent of the alter ego theory of liability must

show (1) unity of interest and (2) that observance of the corporate form

would sanction a fraud or promote injustice. Dietel v. Day, 492 P.2d 455,

      4
           Judgment was entered in favor of the defendants in the
Cains/Grassi suit, but no findings of fact were made.

                                       6
457 (Ariz. Ct. App. 1972). The district court concluded Cains and Bailey

“had a unity of interests in Stonewall Farms making them indistinguishable

from the corporation.” In support of this conclusion, the district court

referenced ample evidence showing Stonewall’s assets were intermingled

with Cain’s and Bailey’s personal assets.

      According to Appellants, however, there is no evidence showing

Stonewall was formed to perpetrate a fraud or was used for fraudulent

purposes. Arizona law does not require such evidence to support alter ego

liability. The law requires that observance of the corporate form would

either “sanction a fraud” or “promote injustice.” Id. at 457-58. Here, the

same evidence that shows unity of interest also supports the conclusion that

observance of the corporate form would promote injustice. In addition to

evidence showing Appellants’ assets were intermingled, there was evidence

that Stonewall paid approximately $200,000 to repair and maintain real

property owned by Bailey. 5 Because this evidence shows Stonewall’s assets

were used to enrich Bailey—leaving fewer assets in Stonewall’s coffers to

satisfy the judgment in favor of Appellees—it would promote injustice to

observe corporate formalities.

      5
           Bailey testified he could not recall what, if anything, he did to
reimburse Stonewall for these payments.

                                      7
      6. Appellants challenge the judgments entered against them on four of

Appellees’ claims: (1) fraud, (2) breach of the covenant of good faith and

fair dealing, (3) breach of bailment agreement, and (4) breach of a fiduciary

duty. We conclude Appellants are only entitled to relief from the judgment

in favor of Appellees on the breach of fiduciary duty claim.

      There was no clear error in the district court’s finding that Appellants

engaged in fraud. The supporting evidence is fully set out in the court’s

Order and includes testimony showing that material misrepresentations were

made by Appellants in their efforts to sell the Mare. Appellants point to

controverting evidence, but conflicting evidence is common in civil trials

and its existence does not show the district court’s judgment is unsupported

by clear and convincing evidence. See Ridgeway v. Walmart Inc., 946 F.3d

1066, 1083 (9th Cir. 2020).

      There was, likewise, no error in the district court’s finding that

Appellants breached the implied covenant of good faith and fair dealing.

Appellants allege, generally, there was no evidence supporting the court’s

finding on this claim. The district court’s Order, however, cites ample

evidence, none of which Appellants even reference in their opening brief.

      As to Appellees’ bailment claim, Appellants argue there was no

bailment because Ajman Stud never delivered the Mare to Stonewall.

                                       8
Instead, they assert, Stonewall had possession of the Mare at the time of the

sale and she simply remained on Stonewall’s property until she was

delivered to Gallun Farms. We reject this argument because Appellants

have cited no Arizona precedent for the proposition that a bailment cannot

exist unless the bailor takes physical possession of an item after purchasing

it from the bailee. Here, the district court found Appellants agreed to board

and transport the Mare after ownership transferred to Ajman Stud. This

evidence is sufficient to support the court’s conclusion that a bailment

existed.

      In contrast to the other issues raised by Appellants, their challenge to

the district court’s judgment in favor of Appellees on the breach of fiduciary

duty claim is well-taken. The district court’s finding that a fiduciary

relationship existed between the parties is not supported by the record.

Under Arizona law, whether a fiduciary relationship exists as a matter of

fact is governed by an analysis of multiple factors, including health, age,

relative sophistication of the parties, the length and nature of the

relationship between the parties, and the degree of influence by one party

over the other. See, e.g., Eagerton v. Fleming, 700 P.2d 1389, 1392 (Ariz.

Ct. App. 1985). The evidence on which the district court relied showed

only that Appellants and Appellees had a long-standing relationship that

                                       9
was a mix of personal and professional. There was no evidence one party

had any degree of influence over the other; or evidence that Appellants were

more sophisticated than Appellees; or evidence showing “any of the

hallmarks of a fiduciary association: intimacy, secrets, or the entrusting of

power.” Cook v. Orkin Exterminating Co., 258 P.3d 149, 152 (Ariz. Ct.

App. 2011). Accordingly, we reverse the judgment against Appellants on

the breach of fiduciary duty claim. 6

      7. The district court awarded Appellees $975,000 in compensatory

damages and $100,000 in punitive damages. A significant portion of the

compensatory damages award was based on the district court’s finding that

Appellants’ wrongful conduct deprived Appellees of the opportunity to

breed the Mare in April and May 2012. Appellants argue that damages are

generally not recoverable for the value of unborn livestock because such

damages are speculative. They further argue the district court’s finding that

four viable embryos could have been flushed from the Mare in April and

May is not supported by the evidence. The record, however, shows the

      6
            Reversal of this portion of the district court’s judgment has no
effect on the award of compensatory or punitive damages in favor of
Appellees.

                                        10
compensatory damages are not speculative and supports the amount of the

award. 7

      Grassi testified that Ajman Stud purchased the Mare for a specific

purpose—to breed her to a stallion it owned named Vervaldee. Grassi

further testified she told Cains that Ajman Stud wanted the Mare transported

to Gallun Farms as soon as Stonewall received payment. According to

Grassi, “[t]here was never a moment where [Appellees] said we are not in a

hurry in bringing [the Mare]” to Gallun Farms. This testimony supports the

proposition that Appellees had a concrete, specific intention to breed the

Mare to Vervaldee at Gallun Farms as soon as possible. Their intention was

not uncertain or equivocal.

      Appellees’ expert, Nancy Gallun, testified that if the Mare had been

bred with Vervaldee in April and May of 2012, four embryos could have

been extracted. Appellants challenge this testimony, contending that

Vervaldee had “impotent semen” and any attempt at breeding him with the

Mare in April or May would not have been successful. Appellants,

however, do not direct this court to any finding—let alone any evidence—

      7
             Appellants’ briefs are riddled with assertions unaccompanied by
citations to the record. Their argument on compensatory damages is no
exception.

                                      11
that Vervaldee was impotent or that his semen was not available for

artificial insemination procedures at Gallun Farms in April or May 2012.

Instead, the evidence undermines Appellants’ contention.

     Grassi testified that the breeding program for Vervaldee was managed

by Gallun Farms. Gregory Gallun, who operated Gallun Farms with his

wife Nancy Gallun, testified that the quality of Vervaldee’s sperm

“fluctuate[d].” But, he further testified that Gallun Farms got Vervaldee “to

a fairly reliable 1eve1 where we were able to at least breed mares on

premises” even though it was more difficult to “create a pregnancy” with his

frozen semen. Nancy Gallun testified that Vervaldee’s semen was not

amenable to being frozen so all breedings had to occur at Gallun Farms.

Grassi testified that because of Vervaldee’s medical condition, Gallun

Farms could not collect his semen every day but it was never more than a

week between collections. All of this testimony supports the proposition

that Vervaldee could be successfully bred with mares, like the Mare,

physically located at Gallun Farms—not the proposition advanced by

Appellants that his semen was not viable during April and May of 2012.

     Having reviewed the record, we conclude the district court’s finding

that breedings between the Mare and Vervaldee at Gallun Farms in April

and May 2012 would have produced four viable embryos is amply

                                     12
supported. The compensatory damages awarded by the district court were

not based on speculation.

      The district court’s award of punitive damages to Appellees was based

on the court’s finding that Appellants acted with the requisite “evil mind”

required under Arizona law. See Rawlings v. Apodaca, 726 P.2d 565, 578

(Ariz. 1986) (en banc). This finding is not clearly erroneous in light of the

evidence referenced by the district court showing Appellants “purposely

created an after-the-fact false contract,” filed documents with the American

Horse Association falsely claiming they owned the Mare, and engaged in

prior acts similar to those involving the Mare.

      8. Appellants raise two issues we do not consider. The first involves

Appellants’ assertion that Appellees’ conversion claim is barred by the

applicable statute of limitations. The district court ruled this affirmative

defense was waived because it was not adequately raised in Appellants’

Answer or in their motion for summary judgment. Appellate review of this

issue has been waived by Appellants’ inadequate briefing. See United

States v. Alonso, 48 F.3d 1536, 1544 (9th Cir. 1995).

      Appellants also seek review of the district court’s denial of their

request for a jury trial. Appellants raised this issue for the first time in their

corrected opening brief—a brief they were ordered to file by this court

                                        13
because their original opening brief did not comply with Ninth Circuit Rule

28-2.8. Because this issue was not set out in Appellants’ original

nonconforming brief, it was not properly included in the corrected brief.

Accordingly, we grant Appellees’ motion to strike the argument.

                            Appeal No. 20-16648

      In Appeal No. 20-16648, Appellants challenge the award of attorneys’

fees to Appellees. Under Arizona law, a court may award attorneys’ fees to

“the successful party” in “any contested action arising out of a contract,

express or implied.” Ariz. Rev. Stat. § 12-341.01. Appellants argue

attorneys’ fees are not permissible here as a matter of law because

Appellees did not prevail on their breach of contract claim. In Marcus v.

Fox, 723 P.2d 682, 684-85 (Ariz. 1986) (en banc), the Arizona Supreme

Court framed the appropriate test as whether a cause of action for tort could

not have existed but for the existence of a contract. Under that test, the

award of attorneys’ fees in this matter was legally appropriate because

Appellees’ claims arose from the parties’ contractual relationship even

though Appellants did not breach the terms of the written contract. We

further conclude there was no abuse of discretion in the district court’s

decision to award fees in this matter because there was no reversible error in

the court’s analysis of the relevant factors. See Associated Indem. Corp. v.

                                      14
Warner, 694 P.2d 1181, 1184 (Ariz. 1985) (en banc). Nor have Appellants

shown any reversible error in the amount of fees awarded except as

discussed below.

      According to Appellants, a portion of the attorneys’ fee award

included fees sought by Appellees’ attorney Michael Carroll for work he

performed in the Cains/Grassi suit. 8 Appellees do not dispute this assertion

despite the presence of the following statement in the written declaration

Mr. Carroll filed with the district court: “Those hours, fees and costs

itemized and sought in this action do not include any fees (or costs) incurred

in [the Cains/Grassi suit].” (emphasis in original). We remand this issue to

the district court for a determination of whether there is any basis to award

fees to Appellees for work performed by Mr. Carroll, or any other person, in

the Cains/Grassi suit.

                                 Conclusion

      The judgment in favor of Appellees in No. 19-16779 is affirmed with

the exception of the judgment against Appellants for breach of fiduciary

duty which is reversed. The award of compensatory and punitive damages

to Appellees is affirmed. The award of attorneys’ fees in No. 20-16648 is

      8
           Appellants’ Motion to take Judicial Notice of the docket in the
Cains/Grassi suit is granted.

                                      15
affirmed with the exception of fees awarded for work performed by any

person in the Cains/Grassi suit. As to those fees, the matter is remanded

for further proceedings. Appellees shall recover their costs in both appeals.

                                     16