Court Opinion

ID: 9375646
Source: CourtListenerOpinion
Date Created: 2023-02-28 16:03:00.936027+00
Date Added: 2024-06-11T17:17:00.817475
License: Public Domain

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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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.

                                    IN THE
             ARIZONA COURT OF APPEALS
                                DIVISION ONE

            METRO AUTO AUCTION, LLC, Plaintiff/Appellee,

                                        v.

         VERDONE MOTORS, LLC, et al., Defendants/Appellants.

                             No. 1 CA-CV 22-0227
                               FILED 2-28-2023

           Appeal from the Superior Court in Maricopa County
                          No. CV2019-052714
                   The Honorable Sara J. Agne, Judge

   AFFIRMED IN PART; VACATED AND REMANDED IN PART

                                   COUNSEL

Munger Chadwick & Denker PLC, Tucson
By Thomas A. Denker, David Ruiz, John G. Anderson
Counsel for Defendants/Appellants

Clark Hill PLC, Scottsdale
By Darrell E. Davis, Christopher Thomas Curran
Counsel for Plaintiff/Appellee
              METRO AUTO v. VERDONE MOTORS, et al.
                      Decision of the Court

                      MEMORANDUM DECISION

Judge Michael J. Brown delivered the decision of the Court, in which
Presiding Judge Paul J. McMurdie and Judge Michael S. Catlett joined.

B R O W N, Judge:

¶1            Verdone Motors, LLC (“VM”), Armand Verdone Jr.
(“Verdone”), and Shiree Verdone (collectively, “Defendants”), appeal the
superior court’s order granting summary judgment in favor of Metro Auto
Auction, LLC, (“Metro”) on Metro’s claims for breach of contract and
violations of the bad check and civil racketeering statutes. We affirm the
court’s ruling on the breach of contract claim and the related damages
award. We vacate, however, the court’s judgment on the statutory claims
and remand for further proceedings.

                             BACKGROUND

¶2             Metro is a licensed automotive auction that permits
authorized brokers to buy and sell cars at its auction facilities. VM is a
licensed wholesale car dealer, with Verdone as its sole member and
manager. In 2016, VM started participating in Metro’s auction. Under
Metro’s terms and conditions (“Contract”), VM agreed that (1) all
transactions must be “paid for on the day of sale;” (2) upon issuance of the
check, or when presented for payment, there would be sufficient funds to
cover it; and (3) any checks returned for insufficient funds “must be settled
and replaced immediately with cash or certified funds to prevent collection
action.” Verdone signed a personal guaranty, agreeing to undertake
personal liability for performance of the Contract.

¶3            Between 2016 and 2019, VM often used Metro’s auction
facility to buy and sell cars. During their business dealings, they often
handled transactions less formally than called for in their contractual
arrangement, partly because Verdone had worked for a Metro affiliate for
years. The informalities between the parties facilitated their dealings and
generated greater profits. For example, when Metro was pressed to meet
required sales targets, Metro’s owners instructed Verdone to buy a certain
number of cars to help meet those targets. Because VM did not have
adequate working capital to cover the purchases on its own, and despite
the Contract, Metro credited VM’s account with the bid amount for each car

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              METRO AUTO v. VERDONE MOTORS, et al.
                      Decision of the Court

and paid the seller directly to facilitate the large volume of transactions.
VM, in turn, reimbursed Metro by writing checks for each car purchase,
often after VM had proceeded to sell the acquired cars through the auction
to other buyers. These checks were often “hold checks,” meaning checks
that Metro agreed not to deposit until it received further authorization from
Verdone. Alternatively, the checks were sometimes replaced with a
cashier’s check or by a wire transfer. This arrangement allowed Metro to
earn double profits because it earned auction fees on VM’s car purchases
and again on VM’s sale of the same cars through its auction.

¶4            Metro supported VM in other ways. For instance, VM hired
several of Metro’s employees as its support staff, paying individuals to
conduct its banking and related business matters. One of the employees
handled VM’s checkbook and had authority to write checks pre-signed by
Verdone as needed to complete transactions throughout the business day.
And despite being aware of VM’s lack of capital, Metro encouraged and
facilitated VM’s transactions at its auction because VM had become Metro’s
largest customer by a substantial margin, buying and selling roughly 4,200
cars through the auction in 2018.

¶5             Between December 4, 2018, and January 29, 2019, VM bought
59 cars through Metro’s auction. Verdone had signed checks for the
purchase price of each car, but each check was returned for insufficient
funds because the corresponding accounts were frozen, blocked, or closed.
The first check returned, because the account was on an uncollectible hold,
was deposited on January 15, 2019. On January 25, Metro received notice
that 16 more checks had been returned for the same reason. Metro received
additional notices that checks had been returned on January 28 and 29.
Between January 30 and February 11, VM paid Metro $536,048 through
“replacement checks or transferred vehicle titles that Metro eventually
sold.” On February 12, Verdone informed Metro that VM would no longer
buy or sell cars through the auction. On the same day, 34 additional checks
totaling $972,854 were deposited and later returned because the account
was closed. The total of the returned checks was $1,779,411.

¶6           On March 1, 2019, Metro gave Defendants written notice
under A.R.S. § 12-671(E) that they had 12 days to make payments on all the
bad checks, notwithstanding VM’s earlier payment of $536,048. Defendants
did not respond to the demand or make additional payments to Metro. On
March 6, Metro filed suit alleging breach of contract against VM and
Verdone, as well as violations of A.R.S. § 12-671 (“bad check statute”) and
A.R.S. § 13-2314.04 (“civil racketeering statute”) against Defendants.
Following Verdone’s deposition, and after the court extended discovery

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              METRO AUTO v. VERDONE MOTORS, et al.
                      Decision of the Court

deadlines several times at the parties’ request, Metro eventually moved for
summary judgment on its three claims.

¶7             In support of its motion, Metro included the Contract, the
personal guaranty, copies of the checks, a ledger summarizing each of the
59 transactions, excerpts from Verdone’s depositions taken as part of this
action and a separate lawsuit in court. Metro also provided a declaration
from its office manager, who oversaw the parties’ accounts. Explaining the
background of each transaction, the manager declared in part that
“[c]onsistent with the parties’ arrangement,” Metro advanced the proceeds
of the car to the seller, and in turn, VM “wrote a check (or authorized his
agent to write a check that [Verdone] signed) to Metro for the vehicle’s
purchase price.”

¶8             After giving credit for to VM’s payments, Metro calculated its
losses to be $1,243,363 for breach of the Contract and an additional
$422,499.56 for unpaid auction fees and resale losses. It also sought double
damages under the bad check statute, which ”entitled [it] to an award of
$2,486,726.” See A.R.S. § 12-671(A). And finally, under the civil
racketeering statute’s provision for treble damages, Metro asserted it was
entitled to an award of $4,997,622. See A.R.S. § 13-2314.04(D)(4).

¶9             Defendants filed a pro per response to the motion, summarily
denying all allegations. They obtained counsel several weeks later, and
with the court’s permission, filed a supplemental response arguing that the
Contract was orally modified. Defendants asserted that Metro had agreed
to hold checks pending Verdone’s authorization to deposit them, as
evidenced in part by Metro’s concession that it extended credit to VM and
paid the sellers of VM’s cars using its funds. As to the statutory claims,
Defendants pointed to the parties’ business dealings to argue such facts
negated any suggestion that they intended to defraud Metro. Defendants
broadly disputed the damages claims, stating they had not been proven
with reasonable certainty because a qualified accounting professional had
not evaluated the calculations, and Metro incorporated unexplained losses
into its calculations.

¶10          After oral argument, the superior court granted Metro’s
motion. As to the violation of the bad check statute, the court found that
Defendants’ “proffered evidence does not defeat the statutory prima facie
evidence of intent to defraud that arises from undisputed facts.” As to
damages, the court held that Defendants’ contention that an accounting
expert was needed to prove damages with reasonable certainty was
unsupported. Defendants’ motion for reconsideration was denied.

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               METRO AUTO v. VERDONE MOTORS, et al.
                       Decision of the Court

¶11           The court issued a final judgment awarding damages to
Metro against Defendants for $2,486,726. Although not clearly stated in the
judgment, consistent with Metro’s summary judgment motion, half of the
award was based on unpaid debt (the bad checks) for breach of the
Contract, and the other half was the statutory doubling of damages under
the bad check statute; no damages were awarded under the civil
racketeering statute. The court also awarded Metro $422,499.56 on the
breach of contract claim (for auction fees and resale losses) against VM and
Verdone. The court then awarded Metro $75,889.65 in attorneys’ fees and
$4,127.58 in costs. Defendants timely appealed, and we have jurisdiction
under A.R.S. § 12–2101(A)(1).

                               DISCUSSION

¶12            Defendants argue the court erred in granting summary
judgment for Metro on the bad check and civil racketeering claims. They
do not dispute the court’s judgment finding them liable for breach of
contract, but they contest the corresponding damages award. Thus, the two
issues we address are whether the court erred by (1) granting summary
judgment on the alleged violations of the bad check statute and the civil
racketeering statute, and (2) accepting Metro’s damages calculation on the
breach of contract claim.

¶13            Summary judgment is appropriate when no genuine issues of
material fact exist, and the moving party is entitled to judgment as a matter
of law. Ariz. R. Civ. P. 56(a). We review the court’s ruling de novo, viewing
the evidence and reasonable inferences in the light most favorable to the
party opposing the motion. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12 (2003).
We will affirm the court’s ruling if it is correct for any reason supported by
the record. KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 236 Ariz. 326,
329, ¶ 14 (App. 2014).

       A.     Intent To Defraud

¶14            Defendants argue the superior court erred by concluding
there were no genuine issues of material fact on whether they acted with
fraudulent intent when tendering bad checks. Arizona law provides that a
person who, with the intent to defraud, delivers a check knowing that he
lacks sufficient funds to cover the check is liable to the holder of such check.
A.R.S. § 12-671(A). “Proof that, at the time of presentment, the maker, issuer
or drawer did not have sufficient funds with the bank or depositary, and
that he failed within twelve days after receiving notice of nonpayment or

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              METRO AUTO v. VERDONE MOTORS, et al.
                      Decision of the Court

dishonor to pay the check or draft is prima facie evidence of intent to
defraud.” A.R.S. § 12-671(C) (emphasis added).

¶15             It is undisputed Defendants wrote or authorized 59 checks
payable to Metro, and there were insufficient funds for each check. It is also
undisputed Metro complied with the provisions of the bad check statute by
providing notice to Defendants of their bad checks and of their obligation
to remedy the non-payment within 12 days. Metro therefore established a
prima facie case that Defendants intended to defraud Metro “at the time of
presentment.” Id. A prima facie showing is made where there is sufficient
evidence to “establish a fact or raise a presumption unless disproved or
rebutted . . . .” Prima Facie, Black’s Law Dictionary (11th ed. 2019).

¶16            Defendants outline various reasons why there was more than
enough evidence to refute or disprove the statutory presumption made
against them. First, they cite this court’s decision in Morrison v. Shanwick
Int’l Corp., 167 Ariz. 39, 44–45 (App. 1990), asserting that the presumption
of fraudulent intent under § 12-671(C) can be negated by showing that the
plaintiff accepted a post-dated check as an extension of credit to the
defendant. Id. at 44. In Morrison, the plaintiff had loaned a sum of money
to the defendant. Id. at 40–41. The plaintiff then accepted two post-dated
checks from the defendant as its repayment. Id. at 41. Plaintiffs filed suit
and sought statutory relief under the bad check statute after both checks
were returned for insufficient funds, and they had made several demands
for repayment. Id. at 41. In reviewing the judgment ordered against the
defendant, we held that post-dated checks, which are “fully negotiable
instruments upon which the demand date is fixed at some latter time,” are
included under the protections of § 12-671(C). Id. at 44–45. However,
because such checks may constitute an extension of credit, accepting post-
dated checks “coupled with other factors may overcome the presumption of
intent contained in A.R.S. § 12-671(C).” Id. at 44–45 (emphasis added).

¶17           Here, the record shows that Metro and VM engaged in a
course of dealing whereby Metro encouraged VM to buy cars through its
auction on credit, and that for years Metro accepted “hold checks” and
agreed to wait to deposit them until the cars were resold. Thus, Metro often
extended its credit to assist VM in buying and selling many cars. Given this
evidence, together with the other evidence in this record showing the
various components of the parties’ business relationship, Defendants have
shown there are triable issues of fact on whether they rebutted the
presumption of fraudulent intent.

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              METRO AUTO v. VERDONE MOTORS, et al.
                      Decision of the Court

¶18              We reject Metro’s assertion that Defendants’ check-holding
theory fails because Verdone needed to provide verbal authorization within
six months of the issue date. See A.R.S. § 47-4404 (“A bank is under no
obligation to a customer having a checking account to pay a check, other
than a certified check, which is presented more than six months after its
date . . . .”). Metro does not direct us to any evidence in the record showing
Verdone waited anywhere near six months to provide verbal authorization
for depositing a check. For the 59 checks at issue, Metro presumably takes
the position that Verdone authorized those deposits; otherwise, it would
have no basis to claim that Defendants intended to defraud Metro.
Moreover, under the bad check statute, the relevant time frame to consider
intent to defraud is “at the time of presentment.”

¶19           The superior court erred in finding no genuine issues of
material fact as to whether Defendants acted with fraudulent intent under
the bad check statute and civil racketeering statute. Thus, we vacate the
court’s grant of summary judgment against Defendants for violations of
§ 12-671 and § 13-2314.04.

       B.     Damages

¶20           Defendants also assert the superior court erred in awarding
Metro its claimed contract damages. The plaintiff in a breach of contract
action has the burden of proving “the existence of the contract, its breach
and resulting damages.” Graham v. Asbury, 112 Ariz. 184, 185 (1975). The
amount of damages must be proven with reasonable certainty. Gilmore v.
Cohen, 95 Ariz. 34, 36 (1963). In seeking summary judgment on breach of
contract and breach of the personal guaranty, Metro offered copies of the
dishonored checks, its accounting ledger, and a sworn declaration from
their office manager stating the amount of the unpaid debt. In contrast,
Defendants did not provide any financial or business records, controverting
figures, affidavits, or other competent evidence to show that Metro’s
damages were not sufficiently proven. The court therefore concluded that
Defendants’ contentions were unsupported, particularly in light of
Verdone’s concession in a deposition that Metro was never paid as agreed
and that he owed some amount of money for the dishonored checks.

¶21          Defendants argue nonetheless that Metro failed to prove its
damages with sufficient certainty, particularly because the claim was not
evaluated by a qualified accounting professional, was based on
unmitigated losses, and incorporated two undocumented and unexplained
figures. Metro, however, made a prima facie showing of the damages it
incurred, and the burden then shifted to Defendants to respond with proof

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               METRO AUTO v. VERDONE MOTORS, et al.
                       Decision of the Court

of specific facts showing there was a genuine issue for trial. See Kelly v.
NationsBanc Mortg. Corp., 199 Ariz. 284, 287, ¶¶ 14–15 (App. 2000).

¶22           As noted, Defendants failed to provide any specific
controverting evidence. They also failed to cite legal authority to support
their contention that an evaluation by a qualified accounting professional
was necessary to show damages with reasonable certainty. Instead, they
simply assert that Metro’s accounting is unreliable, which is insufficient
when contesting a summary judgment motion. See id. at 287, ¶ 15. (“[A]
party opposing a motion for summary judgment may not rest on the
pleadings; it must respond with specific facts . . . .”). The superior court did
not err in granting summary judgment on Metro’s damages claim for
breach of contract.

       C.     Attorneys’ Fees and Costs

¶23            Both parties request attorneys’ fees under A.R.S. § 12-341.01,
which authorizes a discretionary fee award to the prevailing party in cases
arising out of contract. Defendants have not prevailed on the breach of
contract claim, so we deny their request. Metro is the prevailing party on
its breach of contract claim. In our discretion, we award Metro a portion of
its reasonable attorneys’ fees incurred on appeal subject to compliance with
ARCAP 21. Metro’s fee application, as well as any response from
Defendants, must address what percentage of fees should be awarded,
given that Metro has achieved only partial success on appeal. We decline
to award taxable costs to either party.

                               CONCLUSION

¶24            We affirm the superior court’s grant of summary judgment on
Metro’s breach of contract claim and the damages awards of $1,243,363 and
$422,499.56. We vacate the court’s grant of summary judgments on Metro’s
claims for an intent to defraud based on the bad check statute (§ 12-671) and
civil racketeering (§ 13-2314.04) and the corresponding damages award.
Thus, we remand for further proceedings consistent with this decision.

                             AMY M. WOOD • Clerk of the Court
                             FILED: AA

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