Origami v. Connelly ( 2015 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
ORIGAMI OWL, LLC, an Arizona limited liability company; NINOX
ENTERPRISES, LLC, an Arizona limited liability company,
Plaintiffs/Appellees,
v.
THOMAS M. CONNELLY and JANE DOE CONNELLY, husband and
wife, Defendants/Appellants.
No. 1 CA-CV 14-0075
FILED 6-25-2015
Appeal from the Superior Court in Maricopa County
No. CV2013-007732
The Honorable Katherine M. Cooper, Judge
APPEAL DISMISSED IN PART; AFFIRMED IN PART
COUNSEL
Baugh-Dalton, L.L.C., Phoenix
By David Baugh, Jamie B. Palfai
Counsel for Defendants/Appellants
Davis Miles McGuire Gardner, PLLC, Tempe
By Scott F. Gibson, Marshall R. Hunt
Counsel for Plaintiffs/Appellees
ORIGAMI et al. v. CONNELLY
Decision of the Court
MEMORANDUM DECISION
Judge Maurice Portley delivered the decision of the Court, in which
Presiding Judge Andrew W. Gould and Judge Jon W. Thompson joined.
P O R T L E Y, Judge:
¶1 Thomas Connelly, Esq., appeals the injunction entered by the
superior court prohibiting him from representing Christopher Ellis, a
former officer of Origami Owl, L.L.C., in Ellis’s lawsuit against Origami
Owl. He contends the court erred in determining that his prospective
attorney-client relationship with Origami Owl violated Ethics Rule 1.18,
Arizona Rules of Professional Conduct, in Arizona Rule of the Supreme
Court 42. He also appeals the trial court’s order denying his request that
Origami Owl post a preliminary injunction bond. For the following
reasons, we dismiss the appeal in part and affirm the court’s ruling in part.
FACTUAL AND PROCEDURAL BACKGROUND
¶2 Origami Owl designs and sells costume jewelry. Christian
Weems, the CEO, along with her minor daughter, B.W., own sixty-four
percent of Origami Owl, through their company, Ninox Enterprises, L.L.C.
Origami Owl also has three other members.
¶3 Origami Owl originally hired Ellis as an independent
contractor to help develop its business, but later made him the business’s
Chief Development Officer. Ellis’s compensation package included a five
percent interest in Origami Owl that would vest over three years.
¶4 Business was good and, in 2012, the members of Origami Owl
decided the business needed to have a written operating agreement, and,
with Origami Owl’s lawyer, began negotiating the terms of the agreement.
Weems also met separately with Connelly, an attorney who had experience
with multilevel marketing and network marketing companies, on March
12, 2012. She wanted legal advice, and discussed with Connelly Origami
Owl’s operating agreement, expanding the business into direct marketing,
her desire to protect B.W.’s interest in the business, especially by requiring
a supermajority approval, and how she and B.W. could maintain control of
the creative, artistic, and design aspects of the business. After the meeting,
Weems emailed Connelly a draft of Origami Owl’s operating agreement.
2
ORIGAMI et al. v. CONNELLY
Decision of the Court
¶5 The next day, Weems called Connelly. During the
conversation, they talked about the organization and ownership of Origami
Owl, and Ellis’s ownership interest. Weems also told Connelly about her
agreement with Ellis, and how Ellis did not want to be listed in the
operating agreement because he had problems with the IRS and was
contemplating filing personal bankruptcy. Moreover, Weems told
Connelly how she reserved Ellis’s interest through Ninox. Connelly told
Weems how to structure a supermajority vote in order to allow her and
B.W. to control the company. Connelly also told Weems not to include
Ellis’s ownership interest in the operating agreement or give him any
voting rights. Although Weems wanted to hire Connelly, he did not charge
her a fee for the meeting, for reviewing the operating agreement or for the
ninety-minute telephone conversation, and did not agree to represent her,
Ninox or Origami Owl.
¶6 About a year later, Origami Owl terminated Ellis. Ellis then
retained Connelly, and Connelly sent a letter of representation to Origami
Owl. Connelly also called Origami Owl’s counsel and threatened to file suit
against the business to recover Ellis’s equity interest in the company.
Origami Owl asserted that Connelly had an impermissible conflict of
interest, and refused to communicate or negotiate any settlement with
Connelly. Origami Owl and Ninox then filed this lawsuit seeking an
injunction, a declaratory judgment, and damages for breach of fiduciary
duty. At the same time, Origami Owl sought a preliminary injunction
under Arizona Rule of Civil Procedure 65(a).
¶7 The parties agreed to consolidate the preliminary injunction
hearing and the trial on the merits. After the hearing, the court took the
matter under advisement. Before the ruling, Ellis hired another attorney,
and resolved all of his claims against Origami Owl. The court subsequently
granted the injunction in a comprehensive ruling. Origami Owl filed a form
of permanent injunction; Connelly objected, and requested an injunction
bond. Later, after noting that Ellis had settled all of his claims against
Origami Owl, the court denied the form of permanent injunction because
the matter was moot, and denied Connelly’s request for an injunction bond.
¶8 Connelly appealed, and the court stayed the claims for
declaratory judgment and damages for breach of fiduciary duty. We have
jurisdiction under Arizona Revised Statutes (“A.R.S.”) section
12-2101(A)(5).1
1 We cite to the current version of the statute unless otherwise noted.
3
ORIGAMI et al. v. CONNELLY
Decision of the Court
DISCUSSION
I. Injunction
¶9 Connelly contends that the trial court abused its discretion by
issuing the injunction and finding that an attorney-client relationship
“likely did arise as to [B.W.] individually.” We, however, do not need to
address the merits of the argument because the issue is moot.
¶10 Unlike federal courts, our state courts do not have a
“constitutional provision constraining it to consider only cases or
controversies.” Fraternal Order of Police Lodge 2 v. Phoenix Emp. Relations Bd.,
133 Ariz. 126, 127, 650 P.2d 428, 429 (1982) (internal quotation marks
omitted). Our supreme court, however, has consistently held that state
courts will “refrain from considering moot or abstract questions.” Id.Therefore, we will not decide a question that is unrelated to an actual
controversy or that is rendered moot by a change in circumstances. See id.;
Contempo–Tempe Mobile Home Owners Ass’n v. Steinert, 144 Ariz. 227, 229,
696 P.2d 1376, 1378 (App. 1985).
¶11 Here, the record shows, and both parties concede, that Ellis
settled all of his claims against Origami Owl. Although Connelly contends
that the matter is not moot because it could affect the outcome of Origami
Owl’s action for damages on breach of a fiduciary duty, the court has not
made a decision on that cause of action, and it is not a part of this appeal.
See Vigil v. Herman, 102 Ariz. 31, 36-37, 424 P.2d 159, 164-65 (1967) (noting
that an appellate court should not decide issues unless it is required to do
so to dispose of the appeal under consideration); see also Progressive Specialty
Ins. Co. v. Farmers Ins. Co. of Ariz., 143 Ariz. 547, 548, 694 P.2d 835, 836 (App.
1985) (“It is not an appellate court’s function to declare principles of law
which cannot have any practical effect in settling the rights of litigants.”).
¶12 We, however, can decide an issue of law despite its mootness
if the matter is of considerable public importance or the principle involved
is a continuing one. State v. Superior Court, 104 Ariz. 440, 441, 454 P.2d 982,
983 (1969). But we do not find that the circumstances of this case fall within
either exception. Although the issue involved in this case, an attorney
pursuing a claim against a prospective client, is capable of repetition, we
cannot say as a matter of law that it will evade review. Further, given that
Ellis has settled all of his claims against Origami Owl, the question involved
does not rise to a sufficient level of “public importance” to be an exception
to the mootness doctrine. See Camerena v. Dep’t of Pub. Welfare, 106 Ariz. 30,
31, 470 P.2d 111, 112 (1970); Cardoso v. Soldo, 230 Ariz. 614, 617, ¶ 6, 277 P.3d
4ORIGAMI et al. v. CONNELLY
Decision of the Court
811, 814 (App. 2012) (noting that an appellate court generally declines to
apply the “public importance” exception where an appellant’s argument is
grounded on events that occurred in the specific case). Therefore, we
dismiss this part of the appeal as moot.
II. Preliminary Injunction Bond
¶13 Connelly also argues that the court erred by denying his
motion for an injunction bond when the court issued an injunction after
consolidating the preliminary injunction hearing with the hearing on the
merits. We disagree.
¶14 “[W]e review de novo any questions involving interpretation
or application of court rules[.]” Haroutunian v. Valueoptions, Inc., 218 Ariz.
541, 549, ¶ 22, 189 P.3d 1114, 1122 (App. 2008). Arizona Rule of Civil
Procedure 65(e) states:
No restraining order or preliminary injunction
shall issue except upon the giving of security by
the applicant, in such sum as the court deems
proper, for the payment of such costs and
damages as may be incurred or suffered by any
party who is found to have been wrongfully
enjoined or restrained. No such security shall be
required of the State or of an officer or agency
thereof.
¶15 Here, Origami Owl requested a preliminary injunction, but
the parties stipulated to consolidate the preliminary injunction hearing
with the hearing on the merits. See Ariz. R. Civ. P. 65(a)(2) (authorizing the
court to consolidate the trial on the merits with the hearing on the
application for preliminary injunction). When the court issued its
decision—after a hearing on the merits—it issued a final, permanent
injunction. See generally 43A C.J.S. Injunctions § 15 (noting that a court
issues a permanent injunction after deciding the merits of the petition).
Therefore, Rule 65(e) does not apply to this case because the court never
issued a preliminary injunction or temporary restraining order. See
generally 43A C.J.S. Injunctions § 317 (noting that rules requiring a
preliminary injunction bond do not apply “to final injunctions which settle
conclusively the rights of the parties”).
¶16 Equally unpersuasive is Connelly’s argument that Origami
Owl created a de facto temporary restraining order by refusing to negotiate
with Connelly. Rule 65(e), however, applies when the court issues a
5
ORIGAMI et al. v. CONNELLY
Decision of the Court
preliminary injunction or temporary restraining order; consequently, it
does not apply when a party refuses to negotiate with the opposing party.
CONCLUSION
¶17 For the foregoing reasons, we dismiss the appeal in part and
affirm the court’s ruling in part.
:ama
6