Court Opinion

ID: 9408727
Source: CourtListenerOpinion
Date Created: 2023-07-13 16:04:46.219628+00
Date Added: 2024-06-11T17:20:45.809607
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

                  PRAVATI SPV II LLC, Plaintiff/Appellee,

                                        v.

           JUSTIN G. RANDOLPH, et al., Defendants/Appellants.

                             No. 1 CA-CV 22-0340
                              FILED 7-13-2023

           Appeal from the Superior Court in Maricopa County
                          No. CV2019-014865
           The Honorable Margaret R. Mahoney, Judge Retired

                                  AFFIRMED

                                   COUNSEL

Greenberg Traurig LLP, Phoenix
By Nicole M. Goodwin, Adrianna Griego Gorton
Counsel for Plaintiff/Appellee

Justin G. Randolph, Chicago, IL
Defendant/Appellant

Stephanie Sylverne, Chicago, IL
Defendant/Appellant
                    PRAVATI v. RANDOLPH, et al.
                        Decision of the Court

                     MEMORANDUM DECISION

Judge David D. Weinzweig delivered the decision of the Court, in which
Presiding Judge Cynthia J. Bailey and Judge Jennifer B. Campbell joined.

W E I N Z W E I G, Judge:

¶1           Justin Randolph and Stephanie Sylverne (“Defendants”)
appeal from the superior court’s confirmation of an arbitration award in
favor of Pravati Capital, LLC (“Lender”). We affirm.

            FACTS AND PROCEDURAL BACKGROUND

¶2           Randolph owned his own law firm (“Law Firm”) in Chicago.
He operated the Law Firm as a sole proprietorship in 2017, when the Law
Firm borrowed $183,960 from Lender “to fund the working capital needs of
the Firm.” The Law Firm and Lender entered into a Law Firm Funding
Contract & Security Agreement (“Agreement”) which required the Law
Firm to repay the loan, plus interest and fees. Randolph signed the
Agreement as the Law Firm’s sole owner. He also signed an attached
Limited Guarantee Agreement (“Guarantee”) as a guarantor.

¶3            The Agreement contained a broad arbitration clause that
required arbitration of “any dispute, controversy or claim that may arise
between or among [the parties] in connection with, arising out of, or
otherwise relating to this Agreement or the application, implementation,
validity or breach of this Agreement or any provision of this Agreement.”

¶4           Sometime in 2019, the Law Firm breached the Agreement.
Lender noticed default in April 2019. The same day, Randolph dissolved
the Law Firm and opened a new firm, Randolph & Holloway LLC.

                             The Arbitration

¶5           Lender filed a demand for arbitration with the American
Arbitration Association against “Justin G. Randolph and Stephanie A.
Sylverne, husband and wife, d/b/a Law Office of Justin G. Randolph,”
seeking nearly $180,000 in damages for breach of contract, unjust
enrichment, and breach of the implied warranty of good faith and fair
dealing.

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                      PRAVATI v. RANDOLPH, et al.
                          Decision of the Court

¶6            Defendants moved to dismiss the action, arguing that
Randolph did not personally guarantee the loan, and, even if he did,
Sylverne was not a proper party because she never signed the Guarantee.
See A.R.S. § 25-214(C)(2).

¶7            The arbitrator conducted a telephonic hearing on the motion
to dismiss, during which “Randolph conceded that at the time the contract
was executed, his law practice was a sole proprietorship.” The arbitrator
then denied the motion, finding the Guarantee was “superfluous” because
Randolph, as the sole proprietor, was an actual party to the Agreement, and
noting that Arizona law required both spouses be named to obtain relief
against the marital community.

¶8            Lender moved to amend its complaint in conjunction with its
prehearing brief, increasing the amount of damages and adding fraud and
conversion claims. Lender argued Randolph misrepresented facts to
induce the loan. Defendants waived their presence at the hearing.

¶9             The arbitrator found Randolph and the marital community
liable for the Law Firm’s debts because Randolph signed the Agreement as
the owner of the Law Firm. The arbitrator also found Randolph
individually liable for all debts under the Guarantee. Lender was awarded
$183,960 in damages “for breach of contract, fraud, and conversion,” as well
as interest and attorney fees.

¶10          Lender moved the superior court to confirm the arbitration
award and petitioned for judgment. Defendants moved to vacate,
parroting the arguments made before the arbitrator, but adding that the
arbitrator improperly considered Lender’s fraud and conversion claims
because they were not included in Lender’s original demand.

¶11            The court found the arbitrator did not exceed his authority
and rejected the bulk of Defendants’ arguments, but it agreed that the
arbitrator’s final award should not have included damages for “issues and
claims” not raised in Lender’s original demand. The court thus remanded
the action to arbitration, directing the arbitrator to clarify “whether any, and
if so how much, of the total award made to [Lender] in the Final Award is
attributable to any claims that were not included in the original Demand,
such as fraud, conversion or otherwise.”

¶12          The arbitrator held a second evidentiary hearing and issued
his Second Amended Final Award (“Final Award”), which clarified that
$183,960 was awarded as “compensatory damages for breach of contract,”
and $8,000 was awarded as “additional compensatory contractual

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                      PRAVATI v. RANDOLPH, et al.
                          Decision of the Court

damages.” The arbitrator seemed to consider Lender’s tort claims, but
dismissed the fraud claim and declined to award damages for conversion
because such an award would be “duplicative of the damages for breach of
contract,” and any prejudgment interest on the conversion claim would be
subsumed “under the breach of contract claim.”

¶13           Lender moved the superior court to confirm the newly
amended Final Award, and Defendants again moved to vacate. This time,
the court confirmed the award and entered judgment. Lender noticed but
never pursued its cross-appeal. Defendants timely appealed. We have
jurisdiction. See A.R.S. § 12-2101(A)(1), (6).

                               DISCUSSION

¶14           Defendants argue the superior court erroneously confirmed
the Final Award because the arbitrator exceeded his powers by (1)
“rewriting the contract between the parties to find personal liability”
against Randolph and the marital estate, and (2) “granting tort relief and
other damages.” We review the superior court’s confirmation of an
arbitration award for abuse of discretion. The Spaulding LLC v. Miller, 250
Ariz. 383, 387, ¶ 16 (App. 2020).

¶15           A written arbitration agreement is valid and enforceable
under Arizona law. A.R.S. § 12-1501 (“A written agreement to submit any
existing controversy to arbitration or a provision in a written contract to
submit to arbitration any controversy thereafter arising between the parties
is valid, enforceable and irrevocable.”). And the law “strictly limits the
superior court’s options after the arbitration process is complete.” Hamblen
v. Hatch, 242 Ariz. 483, 490, ¶ 31 (2017). The superior court cannot modify
an arbitration award absent a “statutorily enumerated ground to modify,
correct, or vacate the award.” Gregory G. McGill, P.C. v. Ball, 254 Ariz. 144,
149, ¶ 16 (App. 2022). The court may, however, modify or vacate an
arbitration award if an arbitrator has exceeded his power. A.R.S. § 12-
3023(A)(4).

¶16           Arbitrators exceed their powers when they decide issues
outside of the scope of the arbitration agreement. See Smitty’s Super-Valu,
Inc. v. Pasqualetti, 22 Ariz. App. 178, 180 (1974) (“The boundaries of the
arbitrators’ powers are defined by the agreement of the parties.”).

¶17           The arbitrator did not exceed his powers here. The
Agreement included a broad arbitration clause, which captured “any
dispute, controversy or claim that may arise between or among [the parties]
in connection with, arising out of, or otherwise relating to this Agreement

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                      PRAVATI v. RANDOLPH, et al.
                          Decision of the Court

or the application, implementation, validity or breach of this Agreement or
any provision of this Agreement.” This dispute fell squarely under that
clause.

¶18          Defendants next insist the arbitrator erroneously found the
marital community was personally liable under the Guarantee. But
Defendants “made and lost the same arguments in the arbitration
proceeding,” The Spaulding LLC, 250 Ariz. at 387, ¶ 15, and this court cannot
reconsider them on appeal, see RS Indus., Inc. v. Candrian, 240 Ariz. 132, 136,
¶ 11 (App. 2016).

¶19            On top of that, we need not interpret the scope of the
Guarantee because it did not matter—Randolph owned and operated the
Law Firm as a sole proprietorship. And, as the sole proprietor, he was
personally responsible for its debts. See Mail Boxes v. Indus. Comm’n of
Arizona, 181 Ariz. 119, 121 (1995) (“[A] sole proprietor and the business are
one legal entity.”); Miller v. Hehlen, 209 Ariz. 462, 468, ¶¶ 17–18 (App. 2005)
(explaining, “a sole proprietorship using a fictitious name does not have a
separate legal existence from the individual business owner,” which
“protects parties who interact with a sole proprietorship by ensuring that
the individual business owner does not obtain a de facto form of limited
liability or a benefit to which he or she would not otherwise be entitled”)
(citations omitted).

¶20            The marital community was liable for the debt under Arizona
law. See A.R.S. § 25-215(D) (“spouses shall be sued jointly” in an action on
a debt contracted “for the benefit of the community”). Arizona law
presumes that debts incurred during marriage are community debts unless
clear and convincing evidence shows one spouse did not intend to benefit
the community when he or she incurred the debt. See Cardinal & Stachel,
P.C. v. Curtiss, 225 Ariz. 381, 383–84, ¶¶ 6–7 (App. 2010). Randolph never
rebutted that presumption; indeed, he presented no evidence on the point.

¶21          For their last argument, Defendants contend the arbitrator
exceeded his powers when he held them liable for tort damages because the
Guarantee expressly excluded tort damages. But again, we need not reach
this argument and interpret the Guarantee because the arbitrator awarded
no tort damages. See Walter v. F.J. Simmons & Others, 169 Ariz. 229, 237 n.3
(App. 1991) (no prejudice when appellant was found not liable for the
alleged damages).

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                    PRAVATI v. RANDOLPH, et al.
                        Decision of the Court

                             CONCLUSION

¶22          We affirm. We also grant Lender’s request for attorney fees
and costs on appeal, see A.R.S. § 12-341.01, contingent upon compliance
with ARCAP 21.

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

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