Court Opinion

ID: 4089429
Source: CourtListenerOpinion
Date Created: 2016-10-13 18:04:44.393167+00
Date Added: 2024-06-11T14:34:06.679422
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

JOHN R. NORTON, in his capacity as Trustee of the NORTON FAMILY
 LIVING TRUST DATED 2/15/96, and ROGER L. STEVENSON, in his
   capacity as Managing Successor Trustee of the NORTON FAMILY
    LIVING TRUST DATED 2/15/96, individually and on behalf of
 PHONEJOCKEY INVESTORS NO. 2, LLC, a Wyoming limited liability
                    company, Plaintiffs/Appellants,

JOHN R. NORTON, in his capacity as Trustee of the NORTON FAMILY
LIVING TRUST DATED 2/15/96 and individually; PJI-2 COLLECTION,
                      LLC, Cross-Appellees,

                                        v.

PHONEJOCKEY LLC, a Wyoming limited liability company; JUDSON C.
BALL and NANCY SUE BALL, husband and wife; and PHONEJOCKEY
   INVESTORS NO. 2, LLC, a Wyoming limited liability company,
             Defendants/Appellees/Cross-Appellants.

                             No. 1 CA-CV 15-0186
                               FILED 10-13-2016

        Appeal from the Superior Court in Maricopa County
 Nos. CV2011-014515, CV2012-053571, CV2012-053572, CV2013-012882
                          (Consolidated)
              The Honorable Lisa Daniel Flores, Judge
               The Honorable Patricia A. Starr, Judge

               AFFIRMED IN PART; VACATED IN PART
                                  COUNSEL

Gallegher & Kennedy, P.A., Phoenix
By John P. Flynn, Peter J. Moolenaar
Counsel for Plaintiffs/Appellants/Cross-Appellees

Hovore Law, PLLC, Scottsdale
By F. Thomas Hovore
Counsel for Defendants/Appellees/Cross-Appellants

                       MEMORANDUM DECISION

Presiding Judge Peter B. Swann delivered the decision of the court, in
which Judge Lawrence F. Winthrop and Judge Donn Kessler joined.

S W A N N, Judge:

¶1            The superior court entered judgment partially in favor of the
plaintiff and partially in favor of the defendants in this derivative action.
Both the plaintiff and the defendants appeal. We affirm all aspects of the
judgment except its imposition of attorney’s fees under Arizona law.

                 FACTS AND PROCEDURAL HISTORY

¶2             Phonejockey Investors No. 2, LLC (“PJI-2”), is a Wyoming
limited liability company managed by Phonejockey, LLC (“Phonejockey”),
which is owned and controlled by Judson C. Ball. PJI-2 was formed in
2004 to develop and operate executive suites in the Phoenix metropolitan
area. A membership offering agreement identified the first parcel to be
purchased and developed (“the Property”).

¶3            The Norton Family Living Trust Dated 2/15/96 (“the
Norton Trust”) invested in PJI-2, contributing $1,400,000 from 2004 to
2009. During the same period, the Norton Trust also invested in several
similar limited liability companies (collectively, “the ADR Companies”)
managed directly or indirectly by Ball.

¶4             PJI-2 purchased the Property in 2005 and built a commercial
facility (“the Facility”) on it in 2006. PJI-2 paid Ball a $30,183 finder’s fee
related to the Property, and a $626,262 development fee related to the
Facility. The Facility opened for business in the beginning of 2007 and

                                       2
                 NORTON et al. v. PHONEJOCKEY et al.
                       Decision of the Court

over the next five and a half years operated at a cumulative loss of more
than $7,000,000. PJI-2 ultimately lost the Property and the Facility to
foreclosure in mid-2012.

¶5            Meanwhile the Norton Trust had commenced an action in
the superior court asserting direct and derivative claims against
Phonejockey and Ball related to their management of PJI-2. Also, around
the same time, the Norton Trust commenced arbitration proceedings
against Ball, Phonejockey, and another of Ball’s entities with respect to
their management of the ADR Companies. The ADR Companies’
governing documents, unlike PJI-2’s governing documents, required
arbitration. The parties did not agree to arbitrate the claims related to
PJI-2.

¶6            A three-person panel decided the arbitration matter in
March 2013. The Norton Trust was partially successful in the arbitration.
The panel concluded, in relevant part, that Ball was indebted to certain of
the ADR Companies for unauthorized finder’s and development fees. The
panel explained that none of the ADR Companies’ governing documents
authorized Ball to receive finder’s fees for the properties identified as the
subjects of the investment offerings, and that Ball had received a
development fee from one company that did not provide for such a fee in
its governing documents.

¶7            Soon after the arbitration award issued, the Norton Trust
moved for partial summary judgment in the PJI-2 litigation, arguing that
the arbitration award collaterally estopped the defendants from arguing
that there was no obligation to repay finder’s and development fees taken
from PJI-2. The Norton Trust emphasized a substantial similarity between
PJI-2’s and the ADR Companies’ governing documents with respect to
finder’s fees, and noted that the PJI-2 documents do not provide for
development fees. Phonejockey and Ball did not dispute the similarities in
the governing documents. Nor did they dispute that Ball received the
finder’s fee for the Property and the development fee for the Facility.
They argued, however, that the arbitration award did not satisfy the
elements of issue preclusion.

¶8            After the arbitration award was confirmed, the superior
court granted the Norton Trust’s motion and gave preclusive effect to the
arbitration panel’s determination that finder’s and development fees were
inappropriate. The court held that Ball was indebted to PJI-2 for the
finder’s and development fees it had paid.

                                     3
                 NORTON et al. v. PHONEJOCKEY et al.
                       Decision of the Court

¶9            The Norton Trust also filed a motion for summary judgment
requesting PJI-2’s dissolution and liquidation. The Norton Trust argued
that dissolution was statutorily required because the loss of the Facility to
foreclosure rendered PJI-2’s activities no longer reasonably practicable.
The defendants objected on jurisdictional grounds, arguing that only a
Wyoming court may declare dissolution of a Wyoming entity. The court
agreed that it lacked jurisdiction to order PJI-2’s involuntary dissolution,
and it therefore denied the Norton Trust’s motion.

¶10            The litigation ultimately proceeded to a jury trial on claims
of breach of fiduciary duty, breach of contract, and breach of the covenant
of good faith and fair dealing, all related to the defendants’ decision to
construct the Facility (and thereby earn management fees) despite
unexpectedly difficult economic realities. The jury returned a defense
verdict on all of the claims.

¶11           The court entered a final judgment that ordered Ball to pay
$656,445 to PJI-2 for the unauthorized finder’s and development fees, with
pre- and post-judgment interest of 4.25% per annum, and dismissed all
other claims and counterclaims. The court awarded Phonejockey and Ball
$785,484 in attorney’s fees and costs under A.R.S. §§ 12-341 and -341.01(A)
with post-judgment interest of 4.25% per annum, and awarded the Norton
Trust $131,149 in expenses under A.R.S. § 29-833(A).

¶12            The Norton Trust appeals, and Phonejockey and Ball cross-
appeal. The Norton Trust challenges the attorney’s fees award, the
interest rate on the award against Ball, the amount of the expenses award,
the court’s refusal to grant its request to redirect PJI-2’s award to the
Norton Trust’s counsel’s trust fund, and the court’s refusal to order PJI-2’s
dissolution. The defendants challenge the order requiring Ball to repay
the finder’s and development fees, and they contend that the Norton Trust
was not entitled to recover any expenses.

                              DISCUSSION

I.     THE SUPERIOR COURT DID NOT ERR BY ORDERING BALL TO
       REPAY THE FINDER’S AND DEVELOPMENT FEES.

¶13           We first address the defendants’ contention in the cross-
appeal that the superior court erred by determining Ball’s liability for the
finder’s and development fees based on issue preclusion. We review the
grant of summary judgment de novo, viewing the evidence and
reasonable inferences in the light most favorable to the non-moving party.
Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12 (2003). We review the application

                                     4
                  NORTON et al. v. PHONEJOCKEY et al.
                        Decision of the Court

of issue preclusion de novo. Campbell v. SCZ Props., Ltd., 204 Ariz. 221,
223, ¶ 8 (App. 2003).

¶14            Issue preclusion binds a defendant to an adverse decision on
an issue in a previous lawsuit if:

        (1) the issue was actually litigated in the previous
        proceeding, (2) the parties had a full and fair opportunity
        and motive to litigate the issue, (3) a valid and final decision
        on the merits was entered, (4) resolution of the issue was
        essential to the decision, and (5) there is common identity of
        the parties.

Id. at ¶ 9.

¶15          Subject to the same qualifications and exceptions, issue
preclusion may apply to issues decided in an arbitration proceeding.
Restatement (Second) of Judgments § 84 & cmt. c.1 For issue preclusion to
apply, the arbitration proceedings must have “the elements of
adjudicatory procedure.” Restatement (Second) of Judgments § 84(3)(b).
Only “[w]hen arbitration affords opportunity for presentation of evidence
and argument substantially similar in form and scope to judicial
proceedings [should] the award . . . have the same effect on issues
necessarily determined as a judgment has.” Restatement (Second) of
Judgments § 84 cmt. c.

¶16           Here, the arbitration proceedings were extensive.         In
discovery, the parties produced over 73,000 pages of documents and
deposed 18 witnesses. The panel considered motions for summary
judgment, heard 11 days of testimony from 16 witnesses, and received
opening statements, closing statements, and post-hearing briefs. On this
record, we conclude that the arbitration was sufficiently similar to a
judicial proceeding to permit the application of issue preclusion. Further,

1      We generally follow the Restatement in the absence of controlling
state authority. Dixon v. City of Phoenix, 173 Ariz. 612, 621 (App. 1992).
Under the Restatement, issue preclusion will not attach to an arbitration
decision if it would be inconsistent with a legal policy or contractual
provision authorizing the court to make an independent determination on
the issue, or if the arbitration scheme is summary in nature. Restatement
(Second) of Judgments § 84(3)(a).

                                       5
                 NORTON et al. v. PHONEJOCKEY et al.
                       Decision of the Court

the record reveals no legal policy or contractual provision prohibiting
application of the doctrine.

¶17           The elements of issue preclusion were satisfied. The Norton
Trust asserted derivative claims against Ball, in his capacity as a manager,
in both the arbitration and the litigation. The parties had a full and fair
opportunity and motive in the arbitration proceedings to dispute the
meaning of the finder’s fees provisions and the effect of the absence of a
development fee provision, and they actually did so. The resolution of
those issues was essential to determine liability, and the parties disputed
them at length.

¶18            The defendants argue, however, that they cannot be
precluded from re-litigating issues that they could not appeal. But to
accept this argument would be to render all arbitration decisions
automatically ineligible for issue preclusion. This would eviscerate the
rule that arbitration awards may be given preclusive effect. When parties
voluntarily agree to a process that contains no right of appeal, we
generally recognize arbitration decisions as valid and final on questions of
fact and law. Smitty’s Super-Valu, Inc. v. Pasqualetti, 22 Ariz. App. 178, 180-
81 (1974). The defendants had the opportunity to challenge the award
under A.R.S. §§ 12-3023 or -3024, but they ultimately stipulated to a final
judgment confirming it. The judgment was valid and final for purposes of
the issue preclusion doctrine.

¶19            Defendants also argue that the arbitration decision could not
be used as issue preclusion in the litigation because the panel’s decisions
were limited to the ADR Companies, not PJI-2. But PJI-2 is a nominal
party only, and it is undisputed that all of the companies’ governing
documents share substantially similar provisions regarding management
fees. In these circumstances, we see no barrier to the application of issue
preclusion. We discern no error in the superior court’s decision to
preclude re-litigation of the question whether Ball was indebted to PJI-2
for the finder’s and development fees.

II.    THE SUPERIOR COURT SHOULD HAVE APPLIED WYOMING
       LAW TO DETERMINE ATTORNEY’S FEES, BUT PROPERLY
       APPLIED ARIZONA LAW TO CALCULATE JUDGMENT
       INTEREST.

¶20          We next address the Norton Trust’s contention that the
superior court erroneously applied Arizona instead of Wyoming law to
determine whether to award attorney’s fees and to calculate interest. We

                                      6
                 NORTON et al. v. PHONEJOCKEY et al.
                       Decision of the Court

review choice-of-law questions de novo. Swanson v. The Image Bank, Inc.,
206 Ariz. 264, 266, ¶ 6 (2003). We apply Arizona law to determine choice-
of-law issues. Pounders v. Enserch E&C, Inc., 232 Ariz. 352, 354, ¶ 8 (2013).

¶21           PJI-2’s governing documents contain inconsistent choice-of-
law provisions: the subscription agreement (between PJI-2 and the Norton
Trust) and the management agreement (between PJI-2 and Phonejockey)
invoke Arizona law, but the operating agreement (between PJI-2 and the
Norton Trust) provides that Wyoming law governs. Further, consistent
with the operating agreement, PJI-2’s articles of organization provide that
the operating agreement may not govern PJI-2’s internal affairs in a
manner inconsistent with Wyoming law. Both the operating agreement
and the management agreement define the scope of the manager’s
authority and compensation. The operating agreement contains no
provision addressing attorney’s fees, but the management agreement
specifies that the prevailing party in any litigation arising out of the
management agreement shall be entitled to reasonable attorney’s fees.
The operating agreement provides that the management agreement shall
apply in the event of any conflict with respect to compensation.

      A.     Wyoming Law Governs Attorney’s Fees.

¶22            Though the choice-of-law provisions of the various
agreements conflict, we conclude that application of Wyoming law is
necessary with respect to attorney’s fees — even as a matter of Arizona
law. Had the parties clearly chosen Wyoming law, no further analysis
would be necessary. And had the parties clearly chosen Arizona law,
A.R.S. § 29-801(A) would require the application of Wyoming law. That
statute provides: “the laws of the state or another jurisdiction under which
a foreign limited liability company is organized govern its organization
and internal affairs and the liability of its members.” A.R.S. § 29-801(A).
The rule, known as the “internal affairs doctrine,” is “a conflict of laws
principle which recognizes that only one State should have the authority
to regulate a corporation’s [or other business entity’s] internal affairs—
matters peculiar to the relationships among or between the [entity] and its
current officers, directors, and shareholders—because otherwise a[n
entity] could be faced with conflicting demands.” Edgar v. MITE Corp.,
457 U.S. 624, 645 (1982); see also CTS Corp. v. Dynamics Corp. of Am., 481
U.S. 69, 90 (1987) (“Th[e] beneficial free market system depends at its core
upon the fact that a corporation—except in the rarest situations—is
organized under, and governed by, the law of a single jurisdiction,
traditionally the corporate law of the State of its incorporation.”).
Accordingly, whether the Arizona or Wyoming choice-of-law provision

                                     7
                 NORTON et al. v. PHONEJOCKEY et al.
                       Decision of the Court

controls, the result is the same — directly (through a contractual
provision) or indirectly (by operation of § 29-801(A)), Wyoming law
governs disputes between members and managers of PJI-2.

¶23           The derivative claims at issue here, which concern
management fees and decisions, fall within the scope of PJI-2’s internal
affairs. See Edgar, 457 U.S. at 645; see also AMERCO v. Shoen, 184 Ariz. 150,
152 n.1 (App. 1995) (relying on the Restatement (Second) of Conflict of
Laws §§ 302 and 309 to conclude that “because this lawsuit concerns
fiduciary relations between shareholders and management, where there is
a choice of law to be made, the law of Nevada, the place of incorporation,
should apply”). So does the question of attorney’s fees.

¶24            At oral argument before this court, the defendants argued
that Wyoming law would actually require application of Arizona law on
attorney’s fees, citing Smithco Engineering, Inc. v. International Fabricators,
Inc., 775 P.2d 1011 (Wyo. 1989). But Smithco was based on the Wyoming
court’s determination that Oklahoma law treats attorney’s fees as
procedural. Id. at 1018. In Arizona, by contrast, A.R.S. § 12-341.01 is
considered substantive. Bouldin v. Turek, 125 Ariz. 77, 78 (1979).
Attorney’s fees in this case are governed by A.R.S. § 29-801(A), which
dictates that Wyoming law shall apply. See Cardon v. Cotton Lane Holdings,
Inc., 173 Ariz. 203, 206 (1992) (“[S]ubstantive matters are governed by ‘the
law of the jurisdiction to which the court is referred by the choice-of-law
rules of the forum.’” (citation omitted)).

¶25           Under Wyoming law, “each party [is] responsible for its own
fees unless an award is permitted by contract or statute.” Dishman v. First
Interstate Bank, 362 P.3d 360, 365, ¶ 14 (Wyo. 2015). The parties agree that
Wyoming has no statutory counterpart to A.R.S. § 12-341.01. And though
the management agreement included a provision authorizing attorney’s
fees awards, the Norton Trust was not a party to that agreement and
therefore could not be ordered to pay fees under it. The court’s
assessment of attorney’s fees against the Norton Trust was therefore error,
and we vacate it.

       B.     Arizona Law Governs Interest on the Judgment.

¶26          The court applied an annual interest rate of 4.25% pre- and
post-judgment to the awards in favor of the Norton Trust based on issue
preclusion because the same rate was used in the arbitration decision. The
Norton Trust challenges this decision.

                                      8
                 NORTON et al. v. PHONEJOCKEY et al.
                       Decision of the Court

¶27            For issue preclusion to apply, the issue must have been
actually raised and submitted for determination in the previous
proceedings. Campbell, 204 Ariz. at 223, ¶ 9; Chaney Bldg. Co. v. City of
Tucson, 148 Ariz. 571, 573 (1986). Though the defendants contend that the
Norton Trust moved unsuccessfully to modify the interest rate in the
arbitration proceedings, they do not support that assertion with any
citations to the record. Nonetheless, the court properly calculated interest
under A.R.S. § 44-1201. The right to interest is procedural, Dos Picos Land
Lt’d P’ship v. Pima County, 225 Ariz. 458, 465, ¶ 23 (App. 2010), and was
therefore governed by Arizona law. Cardon, 173 Ariz. at 206. The court’s
imposition of a 4.25% interest rate complied with A.R.S. § 44-1201(B).

III.   THE SUPERIOR COURT APPROPRIATELY ALLOWED THE
       NORTON TRUST TO RECOVER A PORTION OF ITS EXPENSES
       FROM PJI-2’S AWARD.

¶28           The parties next dispute the propriety of the superior court’s
award of expenses, including attorney’s fees, to the Norton Trust under
A.R.S. § 29-833(A).

¶29           Though the court should have applied Wyoming law for the
reasons set forth above, we need not automatically vacate the award
because the relevant portions of the Wyoming and Arizona statutes are
functionally identical (and mirrored by Uniform Limited Liability
Company Act § 806 (2006)). Under either W.S. § 17-29-906(b) or A.R.S.
§ 29-833(A), the court may award a wholly or partially successful
derivative plaintiff its reasonable expenses, including reasonable
attorney’s fees, to be paid from the entity’s recovery. W.S. § 17-29-906(b);
A.R.S. § 29-833(A); Cal X-Tra v. W.V.S.V. Holdings, L.L.C., 229 Ariz. 377,
401, ¶ 82 (App. 2012).

¶30            We first consider the defendants’ argument on cross-appeal
that the Norton Trust was not entitled to recover expenses from PJI-2’s
recovery. We assume that the defendants assert this argument on PJI-2’s
behalf in their managerial roles. We reject their contention that the
arbitration award’s failure to grant such expenses precluded imposition of
the award in the litigation. Because there is no evidence in the record that
expense-sharing was actually litigated in the arbitration proceedings,
issue preclusion does not apply. See Campbell, 204 Ariz. at 223, ¶ 9; Chaney
Building Co., 148 Ariz. at 573.

¶31         We also reject the defendants’ contention that expense-
sharing was inappropriate because the Norton Trust was only partially

                                     9
                 NORTON et al. v. PHONEJOCKEY et al.
                       Decision of the Court

successful. Wyoming law authorizes an award if a derivative action is
successful “in whole or in part.” W.S. § 17-29-906(b) (emphasis added).
The Norton Trust prevailed on its claims that the defendants received
unauthorized finder’s and development fees. The Norton Trust’s failure
to prevail on other claims did not disqualify it from defraying its expenses
by sharing in PJI-2’s recovery. See Wallop Canyon Ranch, LLC v. Goodwyn,
351 P.3d 943, 950-51, ¶¶ 25-32 (Wyo. 2015) (construing analogous statute
governing limited partnerships).

¶32           For its part, the Norton Trust contends that the amount of
the award was insufficient. The expense-sharing statute is “an application
of the equitable common fund doctrine.” See Steer v. Eggleston, 202 Ariz.
523, 526, ¶ 11 (App. 2002) (construing analogous Arizona statute
governing limited partnerships). Aimed at promoting equity and
encouraging legitimate claims, it spreads the expense of litigation among
the members of the benefited entity. See Cal X-Tra, 229 Ariz. at 401, ¶¶ 81-
82. Common fund awards may be calculated by a flat-percentage,
lodestar, or hybrid approach. See, e.g., Gottlieb v. Barry, 43 F.3d 474, 482-83
(10th Cir. 1994).

¶33           Here, the court apparently utilized a flat-percentage method,
awarding the Norton Trust approximately 20% of the principal amount
that Ball was ordered to repay PJI-2. We cannot say that the court’s
method was unreasonable. Nothing in W.S. § 17-29-906(b) prohibits use
of a flat-percentage calculation. Further, nothing in the statute requires
the court to use a certain percentage or to include pre-judgment interest in
the base amount. Though “[t]he benchmark percentage in awarding fees
in a common-fund case is 25%, [the percentage is] to be adjusted in
accordance with the individual circumstances of each case.” John
Bourdeau et al., Federal Procedure § 20:439 (2016). Here, in view of the
Norton Trust’s failure to prevail on several of its claims, we discern no
reversible error in the court’s chosen calculation.

IV.    THE SUPERIOR COURT DID NOT ERR BY REFUSING TO
       REDIRECT PJI-2’S AWARD.

¶34            The Norton Trust next contends that the superior court erred
by rejecting its request that PJI-2’s recovery be paid into its counsel’s trust
account. The Norton Trust argues that the court’s judgment erroneously
left “the wrongdoers” in control of PJI-2’s award and its distribution.

¶35          The Norton Trust relies on Lynch v. Patterson, 701 P.2d 1126
(Wyo. 1985). In Lynch, the trial court awarded judgment on a derivative

                                      10
                 NORTON et al. v. PHONEJOCKEY et al.
                       Decision of the Court

claim to the individual shareholder-plaintiff rather than the corporation,
and the Wyoming Supreme Court affirmed. Id. at 1129-31. The Court
held that “[a]s a general rule, recovery in [derivative] actions inures to the
corporation rather than to the stockholders as individuals,” but
“[n]everthless, courts sometimes permit pro-rata recovery by individual
shareholders to prevent an award from reverting to the wrongdoers who
remain in control of the corporation.” Id. at 1130 (emphasis added).
Noting that the director-defendants managed the corporation, that two of
them held 70% of the voting stock, and that the family orientation and
small number of shareholders made a change in control unlikely, the
Court concluded that direct recovery was warranted to avoid the risk that
the plaintiff would have to bring a second action to compel the directors
to declare a dividend or apply the award to legitimate corporate purposes.
Id. at 1130-31.

¶36           The result in Lynch, as Lynch itself recognizes, reflects the
exception rather than the rule. “Direct recovery cases are rare . . . and
those that exist have been criticized on the grounds that individual
recovery impairs the rights of creditors and other shareholders.” Daniel S.
Kleinberger & Imanta Bergmanis, Direct vs. Derivative, or “What’s a Lawsuit
Between Friends in an ‘Incorporated Partnership?’”, 22 Wm. Mitchell L. Rev.
1203, 1224 (1996); see also Individual Pro Rata Recovery in Stockholders’
Derivative Suits, 69 Harv. L. Rev. 1314 (1956). Here, we perceive no
exceptional circumstances that would require diversion of PJI-2’s award.
Ball is a minority shareholder in PJI-2. The mere fact that he is PJI-2’s
manager and the person liable for the award cannot, by itself, compel
divesting PJI-2 of the award. The superior court did not err by declining
the Norton Trust’s request to order that the award be paid into its
counsel’s trust account.

V.     THE SUPERIOR COURT DID NOT ERR BY CONCLUDING THAT
       IT LACKED JURISDICTION TO DISSOLVE PJI-2.

¶37          The Norton Trust finally contends that the superior court
erred by concluding that it lacked jurisdiction to dissolve PJI-2.

¶38           In Spurlock v. Santa Fe Pac. R. Co., we held:

       The respective supremacies of the state and national
       governments in their particular spheres must be observed in
       regard to their power to create and destroy corporations.
       Neither may terminate the existence of a corporation of the
       other. Therefore, no court can declare a forfeiture of

                                      11
                  NORTON et al. v. PHONEJOCKEY et al.
                        Decision of the Court

       franchise or dissolution of a corporation except the courts of
       the jurisdiction which created it.

143 Ariz. 469, 482 (App. 1984) (internal quotation marks omitted); accord
MHS Venture Mgmt. Corp. v. Utilisave, LLC, 63 A.D.3d 840, 841 (N.Y. Apr.
Div. 2009).

¶39           The Norton Trust argues that we should now adopt what it
terms the “modern view,” as set forth in the Restatement (Second) of
Conflict of Laws. The Norton Trust cites § 313, comment c, of the
Restatement, which provides that “when the corporation is only
technically a foreign corporation, since all, or the great majority, of its
contacts, other than the place of its incorporation, are in the state of the
forum, the courts will even entertain actions which call for relief affecting
the corporation’s organic structure or internal administration.” The
balance of that comment gives as examples “action[s] which question[ ]
the validity of a stock issue or of a dividend or which seek[ ] to enjoin a
proposed reorganization of the corporation or to require the calling of a
shareholders’ meeting.”

¶40            Nothing in comment c to § 313, or in § 313 itself, specifically
addresses the question of jurisdiction to order a foreign company’s
dissolution. Moreover, comment c to § 299 specifically provides: “While a
state may not terminate or suspend the existence of a foreign corporation, it may,
in the absence of constitutional prohibition, forbid a foreign corporation to
do business within its territory and may wind up the corporation’s affairs
there.” (Emphasis added.) The Restatement therefore actually contradicts
the Norton Trust’s arguments, and we are unpersuaded by the Norton
Trust’s citation to cases from other jurisdictions. The superior court did
not err by determining that it lacked jurisdiction to dissolve PJI-2.

                                CONCLUSION

¶41           We vacate the portion of the judgment awarding attorney’s
fees to the defendants. We otherwise affirm. We deny the defendants’
request for attorney’s fees on appeal.

                            AMY M. WOOD • Clerk of the Court
                            FILED: AA
                                         12