Court Opinion

ID: 4186981
Source: CourtListenerOpinion
Date Created: 2017-07-18 15:03:04.621385+00
Date Added: 2024-06-11T14:40:00.141450
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

                                In the Matter of:

                        KEVIN O’CONNELL TRUST

               BART V. WHILES, et al., Plaintiffs/Appellants,

                                        v.

        JAMES BRUCE HENDERSON, et al., Defendants/Appellees.

                             No. 1 CA-CV 16-0462
                              FILED 7-18-2017

           Appeal from the Superior Court in Maricopa County
                          No. PB2015-071138
           The Honorable Andrew J. Russell, Judge Pro Tempore

   AFFIRMED IN PART, REVERSED AND REMANDED IN PART,
                    VACATED IN PART

                                   COUNSEL

Kenneth M. Rudisill, Attorney at Law, Peoria
By Kenneth M. Rudisill
Counsel for Plaintiffs/Appellants

Andersen PLLC, Scottsdale
By Mark E. Andersen, Lisa Misner-Skozen, Dean E. Brekke
Counsel for Defendants/Appellees
                      WHILES, et al. v. HENDERSON
                         Decision of the Court

                      MEMORANDUM DECISION

Judge James P. Beene delivered the decision of the Court, in which
Presiding Judge Samuel A. Thumma and Judge Lawrence F. Winthrop
joined.

B E E N E, Judge:

¶1            Bart Whiles and Clark Leuthold (“Appellants”), as trustees of
the Kevin O’Connell Trust (“Trust”), challenge the superior court’s ruling
dismissing by summary judgement each of their claims against former
trustee James Henderson. We reverse and remand on breach of fiduciary
duty, fraud, and conspiracy to commit fraud claims, but affirm dismissal of
the constructive trust claim. We also vacate the superior court’s award of
attorneys’ fees and costs to Henderson.

           FACTUAL AND PROCEDURAL BACKGROUND

¶2             This dispute began in a separate lawsuit between the
beneficiaries of the Trust and its then-trustees, Gordon L. Jones and Gordon
K. Jones. Appellants, who were not trustees at the time, were not parties to
that litigation. The Trust beneficiaries alleged, among other things, that the
Joneses had breached their fiduciary duties by misappropriating various
Trust assets for their own benefit. The beneficiaries sought to remove the
Joneses as trustees and damages for waste and self-dealing. The parties
reached a settlement in November 2014, under which Appellants would
replace the Joneses as trustees.

¶3            Appellants, in their capacity as Trustees, filed this action
against Henderson, the Joneses, and numerous other parties on December
30, 2015. Appellants alleged that Henderson breached his fiduciary duties
by “failing to give notice of his appointment as Trustee, by purchasing a
Trust asset at approximately $3,500.00 less than its then fair market value,
and by conspiring with Gordon L. Jones to avoid sale of the Trust assets
and extend the time of the [Joneses’] control over the Trust assets . . . .”
Appellants also asserted fraud and conspiracy to commit fraud claims
against Henderson and asked the court to “hold $3,500.00 in [a
constructive] trust,” representing the amount Henderson allegedly
underpaid for a Trust asset.

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                     WHILES, et al. v. HENDERSON
                        Decision of the Court

¶4            Henderson moved to dismiss under Arizona Rules of Civil
Procedure (“Rule”) 12(b)(6), arguing that the claims were time-barred.
Henderson submitted a letter in which he resigned as a co-trustee effective
February 1, 2012, and documentation that allegedly showed he had
purchased the challenged Trust asset for a reasonable price. Appellants
opposed the motion, arguing among other things, that Henderson
continued to act as a co-trustee by signing a commercial guaranty for the
Trust on October 23, 2012. Appellants presented the superior court with a
copy of the guaranty they had previously filed with their response to an
earlier unrelated motion.

¶5            Following briefing and oral argument, the superior court
determined that Henderson’s motion relied on matters beyond the pleading
and sua sponte converted it to a motion for summary judgment under Rules
12(d) and 56. The court ruled that Appellants’ breach of fiduciary duty,
fraud, and constructive trust claims were time-barred based on
Henderson’s February 2012 resignation. The court also rejected Appellants’
conspiracy claim, finding that they “produce[d] no evidence to support this
claim.”

¶6            The superior court entered partial final judgment on
Appellants’ claims against Henderson pursuant to Rule 54(b). Appellants
timely appealed from that judgment. The court then granted Henderson
attorneys’ fees and costs in a second Rule 54(b) judgment. Appellants filed
a supplemental notice of appeal challenging both judgments. We have
jurisdiction pursuant to Arizona Revised Statutes (“A.R.S.”) section 12-
2101(A) (2017).1

                              DISCUSSION

¶7            Henderson’s motion to dismiss included multiple exhibits
that went beyond the pleading. Appellants facially treated the motion as a
motion to dismiss, but cited to documents that they previously filed. The
superior court considered evidence from both parties and converted the
motion to dismiss to one for summary judgment; we, therefore, treat the
motion as one for summary judgment . See Coleman v. City of Mesa, 230 Ariz.
352, 356, ¶ 9 (2012) (“If ‘matters outside the pleading’ are considered, the
motion must be treated as one for summary judgment.”).

1     Absent material revisions after the relevant date, we cite a statute’s
current version.

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                      WHILES, et al. v. HENDERSON
                         Decision of the Court

¶8            We review de novo whether summary judgment was
warranted, including whether genuine issues of material fact exist and
whether the superior court properly applied the law.2 Dreamland Villa
Cmty. Club, Inc. v. Raimey, 224 Ariz. 42, 46, ¶ 16 (App. 2010). We view the
evidence and all reasonable inferences in the light most favorable to the
party opposing the motion. Cannon v. Hirsch Law Office, P.C., 222 Ariz. 171,
174, ¶ 7 (App. 2009). We address each of Appellants’ claims against
Henderson in turn.

I.     The Superior Court Erred in Finding Appellants’ Breach of
       Fiduciary Duty Claim Was Time-Barred.

¶9            The superior court dismissed Appellants’ claims under A.R.S.
§§ 14-11005(C) (2017) and 12-542 (2017), both of which require plaintiffs to
bring claims within a two-year period. Coulter v. Grant Thornton, LLP, 241
Ariz. 440, 444, ¶ 9 (App. 2017). Henderson bore the burden to present a
prima facie case that Appellants’ claim was time-barred. Kiley v. Jennings,
Strouss & Salmon, 187 Ariz. 136, 139 (App. 1996).

¶10            The limitations period under § 12-542 does not begin to run
until the plaintiffs discover or by the exercise of reasonable diligence should
have discovered that they were injured by the defendant’s conduct. Coulter,
241 Ariz. at 444, ¶ 10 (quoting Anson v. Am. Motors Corp., 155 Ariz. 420, 423
(App. 1987)). Henderson presented no evidence to show when Appellants,
who did not become co-trustees until at least November 2014, discovered
or should have discovered his alleged breach.

¶11          Henderson argues that Appellants breach of fiduciary duty
claim was barred by A.R.S. § 14-11005, because the lawsuit was not initiated

2              As noted above, the superior court found Henderson’s
motion relied on evidence extrinsic to the petition and converted it to a
motion for summary judgment under Rule 12(d). That Rule obligates the
court to give all parties “reasonable opportunity to present all the material
that is pertinent to the motion.” Ariz. R. Civ. P. 12(d). The court did not
convert the motion until after briefing was completed, but Appellants do
not object to the timing of the conversion. We, therefore, assume the
conversion did not prejudice Appellants and address the merits of
Henderson’s motion. See Crystal E. v. Dep’t of Child Safety, 241 Ariz. 576, 578,
¶ 6 (App. 2017) (court of appeals generally does not sua sponte address
issues not raised by the appellants).

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                      WHILES, et al. v. HENDERSON
                         Decision of the Court

within two years of the date he resigned as co-trustee. Even if Appellants’
claim was limited by § 14-11005, Appellants presented evidence
demonstrating that Henderson’s resignation was not effective, including
the guaranty Henderson signed on the Trust’s behalf eight months after his
purported resignation. Appellees also argue that Gordon L. Jones, who
Henderson asserts received his resignation letter, is the one who asked
Henderson to sign the guaranty, indicating that Jones may not have
considered the resignation to be effective.3 Henderson testified that Jones
told him he “was still the only Co-Trustee ‘of record’ with the bank” when
he signed the guaranty. Finally, Appellants presented affidavit testimony
that they did not find the resignation letter in the Trust’s records when they
took over as co-trustees.

¶12           Viewing this evidence in the light most favorable to
Appellants, and granting them all reasonable inferences, we find genuine
issues of disputed material fact remain as to when Appellants’ breach of
fiduciary duty claim accrued, and whether Henderson’s February 1, 2012
resignation letter was effective. Summary judgment was thus improper.

II.    The Superior Court Erred in Finding Appellants’ Fraud Claim Was
       Time-Barred.

¶13           The limitations period for a fraud claim is three years. A.R.S.
§ 12-543(3) (2017). Henderson argued before the superior court that
Appellants’ fraud claim was time-barred because it must have accrued by
February 1, 2012, when Henderson resigned. But the limitations period did
not begin to run when Henderson purportedly resigned; it began to run
when Appellants, could have “by exercise of reasonable diligence,”
discovered the facts constituting the fraud. Transamerica Ins. Co. v. Trout,
145 Ariz. 355, 358 (App. 1985); A.R.S. § 12-543(3).

¶14          Again, Henderson presented no evidence to show when
Appellants discovered the alleged fraud. Henderson instead cited
Appellants’ counsel’s representation of the Trust beneficiaries in the earlier
lawsuit against the Joneses, arguing that counsel’s knowledge should be
imputed to Appellants. Appellants were not parties to that lawsuit and

3            The superior court discounted this evidence, finding that
Henderson’s signing of the guaranty was merely “ministerial.” The record
does not support this finding. Although it is unclear from the record what
the guaranty was for, it potentially obligated the Trust to pay nearly $2.7
million.

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                       WHILES, et al. v. HENDERSON
                          Decision of the Court

were not trustees at that time. Moreover, Henderson cites no authority
suggesting that the knowledge an attorney gains in one lawsuit while
representing one client should be, or properly could be, consistent with
privilege, work product and confidentiality obligations, imputed to a
different, future client in another lawsuit. We, therefore, do not consider
this argument further. ARCAP 13(a)(7); Brown v. U.S. Fid. & Guar. Co., 194
Ariz. 85, 93, ¶ 50 (App. 1998).

¶15            Henderson also argues that Appellants failed to plead their
fraud claim with specificity as required by Rule 9(b). Even if Henderson is
correct in that argument, he has not shown any authority for how that
would entitle him to summary judgment dismissing the claim with
prejudice. Cf. Spudnuts, Inc. v. Lane, 131 Ariz. 424, 426 (App. 1982) (“[T]he
courts should be liberal in allowing amendments to the pleading when
[Rule 9(b)] is violated.”); Parks v. Macro-Dynamics, Inc., 121 Ariz. 517, 520
(App. 1979) (“It is an abuse of discretion to deny a motion for leave to
amend without reason. This is especially true when Rule 9(b) is violated.”)
(internal citations omitted). We, therefore, find summary judgment on
Appellants’ fraud claim was improper.

III.   The Court Erred in Granting Summary Judgment on Appellants’
       Conspiracy Claim.

¶16          It is the party moving for summary judgment who bears the
“burden of persuasion[,]” and we will affirm summary judgment only if we
find undisputed admissible evidence showing Henderson was entitled to
judgment. Wells Fargo Bank, N.A. v. Allen, 231 Ariz. 209, 213, ¶ 17 (App.
2012).

¶17            There is no such evidence here; indeed, Henderson’s motion
offered no evidence at all to refute Appellants’ conspiracy allegations. The
only evidence relevant to this claim in the record is Henderson’s affidavit,
filed with his reply, in which he deemed the conspiracy allegations
“preposterous.” These denials, offered for the first time in reply, do not by
themselves entitle Henderson to summary judgment. See Comerica Bank v.
Mahmoodi, 224 Ariz. 289, 293, ¶ 20 (App. 2010) (“[A] plaintiff may only
obtain summary judgment if it submits undisputed admissible evidence
that would compel any reasonable juror to find in its favor on every element
of its claim”); cf. Sitton v. Deutsche Bank Nat. Tr. Co., 233 Ariz. 215, 220, ¶ 26
(App. 2013) (finding no abuse of discretion in superior court’s consideration
of declaration submitted in reply, but only because the nonmoving party
suffered no prejudice). Moreover, the sua sponte conversion of Henderson’s
motion to dismiss to a motion for summary judgment precluded Appellants

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                      WHILES, et al. v. HENDERSON
                         Decision of the Court

from properly providing evidence in response to Henderson’s motion. On
this record, the grant of summary judgment cannot stand.

IV.    Summary Judgment Was Warranted on Appellants’ Request for a
       Constructive Trust.

¶18           Finally, Appellants challenge the superior court’s ruling on
their request for a constructive trust over “the $3,500 by which Henderson
failed to pay fair market value for a Trust asset.” A constructive trust is a
remedy, not a separate claim. Cal X-Tra v. W.V.S.V. Holdings, L.L.C., 229
Ariz. 377, 409, ¶ 108 (App. 2012). Moreover, a general claim for money
damages cannot give rise to a constructive trust. Burch & Cracchiolo, P.A. v.
Pugliani, 144 Ariz. 281, 286 (1985). We, therefore, affirm the superior court’s
ruling as to this claim.4 See Hill v. Safford Unified Sch. Dist., 191 Ariz. 110,
112 (App. 1997) (stating that the Court of Appeals may affirm a summary
judgment ruling “if it is correct for any reason, even if that reason was not
considered by the trial court.”).

V.     Attorneys’ Fees and Costs on Appeal

¶19            Appellants request their attorneys’ fees incurred in this
appeal pursuant to A.R.S. § 12-341.01(A), but do not show how their claims
arose out of contract. We, therefore, decline to award fees. In re Matter of
Wilcox Revocable Tr., 192 Ariz. 337, 341, ¶ 21 (App. 1998). Appellants
succeeded in the majority of their claims in opposition to summary
judgment, and as the prevailing party on appeal, they may recover costs
incurred in this appeal upon compliance with ARCAP 21. See Henry v. Cook,
189 Ariz. 42, 43 (App. 1996) (“[A] party who succeeds on less than all claims
is sufficiently successful to recover costs under the statute.”).

                               CONCLUSION

¶20           We reverse and remand for further proceedings on
Appellants’ breach of fiduciary duty, fraud, and conspiracy claims, but
affirm as to Appellants’ constructive trust claim. Because we vacate the
majority of the superior court’s dismissal of claims by summary judgment,

4            Henderson also argues that claim preclusion bars Appellants’
claims. Henderson did not raise claim preclusion in briefing before the
superior court; we will not consider it for the first time on appeal. See Sobol
v. Marsh, 212 Ariz. 301, 303 n.4, ¶ 6 (App. 2006) (“[A]bsent exceptional
circumstances, we will not consider arguments raised for the first time on
appeal.”).

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                    WHILES, et al. v. HENDERSON
                       Decision of the Court

we also vacate the superior court’s attorneys’ fees and costs awards to
Henderson.

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

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