Pettersen v. Plexus ( 2023 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
ALFRED PETTERSEN,1 Plaintiff/Appellant,
v.
PLEXUS HOLDCO, LLP, et al., Defendants/Appellees.
No. 1 CA-CV 22-0141
FILED 01-24-2023
Appeal from the Superior Court in Maricopa County
No. CV2019-057034
The Honorable Sara J. Agne, Judge
The Honorable Jacki Ireland, Judge Pro Tempore
AFFIRMED AS MODIFIED
COUNSEL
The Nathanson Law Firm, Scottsdale
By Philip J. Nathanson
Counsel for Plaintiff/Appellant
Osborn Maledon, P.A., Phoenix
By Scott W. Rodgers, Joseph N. Roth
Counsel for Defendants/Appellees
1 On the court’s motion, it is ordered amending the caption in this
appeal as reflected in this decision. The above-referenced caption shall be
used on all other documents filed in this appeal.
PETTERSEN v. PLEXUS, et al.
Decision of the Court
MEMORANDUM DECISION
Judge Jennifer B. Campbell delivered the decision of the Court, in which
Presiding Judge Brian Y. Furuya and Judge Paul J. McMurdie joined.
C A M P B E L L, Judge:
¶1 Alfred Pettersen appeals from the judgment of the superior
court following the dismissal of his complaint against Plexus Holdco, LLP,
and other companies (collectively, the defendant companies). For the
following reasons, we affirm the superior court’s judgment as modified.
BACKGROUND
¶2 Pettersen had a business relationship with the defendant
companies. At some point, the parties had a falling out. Litigation ensued,
and their dispute was eventually resolved through a Settlement and
Redemption Agreement (the settlement agreement) that became effective
December 31, 2016.
¶3 Three years later, Pettersen filed a complaint, alleging the
defendant companies failed to reimburse him for income taxes “he became
obligated to pay” in 2016―in contravention of an established “procedure”
predating the settlement agreement. According to Pettersen, the settlement
agreement “w[as] specifically designed to govern [his] relationship with
[the defendant companies] on a ‘going forward’ basis” and did not “deal
with past or retrospective reimbursements” owed to him for taxes he paid
on income earned in 2016. Apart from seeking tax reimbursements (Count
I), Pettersen challenged a K-1 tax form issued by the defendant companies
as “factually and legally incorrect.” He sought a declaratory judgment to
establish “the nature of [his] former and/or current interest” in the
defendant companies and asserted the defendant companies may have
violated a tax code provision by characterizing their payments to him under
the settlement agreement as ordinary income (Count II).
¶4 The defendant companies moved to dismiss the complaint,
asserting they “settle[d] all claims and b[ought] back any ownership
interest [Pettersen] had” in the companies through the settlement
agreement. To support this contention, the defendant companies submitted
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PETTERSEN v. PLEXUS, et al.
Decision of the Court
a copy of the settlement agreement to the superior court, pointing to these
provisions and arguing that they foreclosed both of Pettersen’s claims:
[Pettersen] acknowledges, understands, and agrees that the
Redemption completely terminates [his] interest in Plexus
and the other [defendant companies], and agrees that from
and after the Effective Date: (i) [he] will have no ownership or
other interest in Plexus, the other [defendant companies], or
the tangible or intangible property used or to be used by
Plexus or the other [defendant companies] in their business;
and (ii) [he] will not be entitled to any payments or distributions
from Plexus or the other [defendant companies] other than the
payments set forth [under] this Agreement.
Settlement and Redemption Agreement, Redemption of Partnership
Interest § 2(f) (emphasis added).
The Settlement Payments are payment in full in exchange for
[Pettersen’s] (i) agreement to settle the Action in accordance
with Section 5, (ii) release of any and all Claims in accordance
with Section 6, and (iii) ongoing compliance with the
restrictive covenants set forth in Section 7. The parties intend
that the Settlement Payments will be deductible by Plexus
and treated as ordinary income by [Pettersen]. Plexus will
report the Settlement Payments as guaranteed payments on Form
K-1 with the Internal Revenue Service for each year in which the
Settlement Payments are made.
Settlement and Redemption Agreement, Tax Matters § 4(a) (emphasis
added).
“Claims” means all claims and rights from the beginning of time
through and including the date of execution of this Agreement,
including but not limited to any and all claims, damages,
demands, liabilities, losses, obligations, causes, and causes of
action of whatever kind or nature based on any cause,
circumstance, fact, matter, thing, event, act, or failure to act
whatsoever, whether arising at law or in equity, whether
based on tort, contract, statutory, or common law principles,
and whether known, unknown, foreseen, or unforeseen, but
does not mean any ongoing contractual rights expressly set
forth in this Agreement.
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Settlement and Redemption Agreement, Mutual Waivers and Releases of
Claims § 6(a)(iii) (emphasis added).
Plaintiff’s Waiver and Release. [Pettersen], on behalf of
himself and his affiliates and his marital community, if any,
covenants not to sue for, and waives and releases, to the
maximum extent permitted by law, all Claims against the
[defendant companies], including, without limitation, all
such Claims: (a) asserted in the Action or that could have been
asserted in the Action; (b) arising out of statements, actions, or
omissions of the [defendant companies], including, without
limitation, any misstatements, misrepresentations, or
omissions in any documents provided to [Pettersen] or his
attorneys; (c) for the payment of money, property, other
compensation or amounts, distributions, compensatory
damages, liquidated damages, punitive damages, costs,
expenses, expense reimbursements, disbursements, attorneys’
fees, and benefits; . . . (f) based on any federal, state, or local
laws, statutes, regulations, and ordinances, including without
limitation laws and regulations relating to tax implications and
securities transactions[.]
Settlement and Redemption Agreement, Mutual Waivers and Releases of
Claims § 6(c) (emphasis added).
[Pettersen] and [the defendant companies] acknowledge and
agree that other than as expressly set forth in this Agreement,
they have no contractual or other obligations whatsoever to
each other going forward with respect to any matter or issue.
Settlement and Redemption Agreement, No Other Obligations § 12.
Apart from asking the superior court to enforce the settlement agreement
and dismiss both claims as barred, the defendant companies also contended
the claim for declaratory judgment was not ripe and amounted to “a request
for an advisory decision to resolve a difference of opinion.”
¶5 In response, Pettersen argued that the superior court could
not consider the terms of the settlement agreement in ruling on the motion
to dismiss without converting the motion to one for summary judgment
because he did not attach a copy of the settlement agreement to his
complaint. Addressing the ripeness argument, Pettersen asserted that
“prematurity” was not a basis to dismiss a claim with prejudice and
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PETTERSEN v. PLEXUS, et al.
Decision of the Court
expressed his “inten[t]” to ask the superior court for leave to amend Count
II.
¶6 After briefing, the superior court dismissed the complaint
with prejudice, finding the settlement agreement: (1) “comprehensive in
nature and clear and unambiguous in its language,” (2) “resolved all
financial issues” between the parties, and (3) “completely terminate[d]”
Pettersen’s interest in the defendant companies. Noting the defendant
companies complied with all obligations under the settlement agreement
and citing its “inherent authority to summarily enforce settlement
agreements,” the superior court dismissed: (1) Count I as foreclosed and (2)
Count II for failure to present a “concrete, justiciable controversy.”
¶7 Pettersen later moved for a new trial and to alter, amend, and
vacate the judgment. Finding no cognizable grounds for relief, the superior
court denied Pettersen’s motions. The superior court entered final
judgment, and Pettersen timely appealed.
DISCUSSION
¶8 We review the dismissal of a complaint de novo. Coleman v.
City of Mesa, 230 Ariz. 352, 355, ¶ 7 (2012). We accept as true all well-pled
factual allegations and reasonable inferences therefrom, Cullen v.
Auto-Owners Ins. Co., 218 Ariz. 417, 419, ¶ 7 (2008), and will affirm only if,
as a matter of law, Appellants “would not be entitled to relief under any
interpretation of the facts[,]” Coleman, 230 Ariz. at 356, ¶ 8 (quoting Fid. Sec.
Life Ins. Co. v. State Dep’t of Ins., 191 Ariz. 222, 224, ¶ 4 (1998)). Likewise, we
review de novo contract interpretation and the superior court’s legal
conclusions. Dreamland Villa Cmty. Club, Inc. v. Raimey, 224 Ariz. 42, 46, ¶ 17
(App. 2010).
I. Consideration of the Settlement Agreement and Dismissal of
Count I
¶9 Pettersen challenges the superior court’s consideration of the
settlement agreement when ruling on the defendant companies’ motion to
dismiss. Because he did not append the settlement agreement to his
complaint, Pettersen argues the court could not consider the document’s
contents without converting the motion to dismiss to one for summary
judgment. Indeed, characterizing the settlement agreement as merely
documenting the defendant companies’ purchase of his ownership
interests, Pettersen seemingly asserts that the settlement agreement was
irrelevant to the matters alleged in the complaint because he did not seek
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Decision of the Court
to “enforce any [of its] terms” or otherwise rely on it to substantiate his
claims.
¶10 When evidence extrinsic to the pleadings is offered and relied
upon by the superior court in making its ruling, a motion to dismiss is
generally treated as a motion for summary judgment. Ariz. R. Civ. P. 12(d)
(“If, on a motion [asserting failure to state a claim upon which relief can be
granted], matters outside the pleadings are presented to, and not excluded
by, the court, the motion must be treated as one for summary judgment
under Rule 56. All parties must be given a reasonable opportunity to
present all the material that is pertinent to the motion.”). An exception to
this general rule applies, however, when extrinsic evidence “is integral to,
and referenced within” the complaint. Dunn v. FastMed Urgent Care PC, 245
Ariz. 35, 38, ¶ 12 (App. 2018); see also ELM Ret. Ctr., LP v. Callaway, 226 Ariz.
287, 289, ¶ 7 (App. 2010) (“[E]ven if a document is not attached to the
complaint, if it is central to the claim, the court may consider it without
converting a motion to dismiss to a motion for summary judgment.”).
Because a “plaintiff obviously is on notice of the contents of [a] document”
cited and discussed in the complaint, the “rationale underlying the
conversion rule”—that a plaintiff must be allowed to respond to extraneous
material—does not apply. Strategic Dev. & Constr., Inc. v. 7th & Roosevelt
Partners, LLC, 224 Ariz. 60, 64, ¶ 14 (App. 2010). In other words, the need to
provide the plaintiff an opportunity to refute the extraneous evidence “is
greatly diminished.” Id.¶11 In this case, Pettersen’s complaint repeatedly cited the
settlement agreement. More importantly, the complaint construed the
settlement agreement, contending that it was “designed to govern”
Pettersen’s relationship with the defendant companies on a “‘going
forward’ basis” only, not to “deal with past or retrospective
disbursements.” While the superior court must accept a complaint’s
well-pled factual allegations as true when considering a motion to dismiss,
it need not accept the complaint’s legal conclusions. In re ABB Tr., 251 Ariz.
313, 317, ¶ 19 (App. 2021) (when considering motion to dismiss, court does
not accept as true allegations amounting to conclusions of law). Given the
centrality of the extraneous evidence to the complaint, the superior court
properly considered the settlement agreement when ruling on the
defendant companies’ motion to dismiss without treating the motion as one
for summary judgment.
¶12 To the extent Pettersen also challenges the superior court’s
finding that the settlement agreement foreclosed his claim for tax
reimbursement, we find his objection without merit. The plain,
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PETTERSEN v. PLEXUS, et al.
Decision of the Court
unambiguous language of the settlement agreement clearly states that
Pettersen, upon signing the document, released “any and all claims” from
“the beginning of time through and including the date” the parties executed
the settlement agreement, to payment or monies “of whatever kind or
nature,” including reimbursements or disbursements “relating to tax
implications,” except for those specifically provided for in the settlement
agreement. Settlement and Redemption Agreement, §§ 2(f), 4(a), 6(a)(iii),
6(c), 12. Without question, the settlement agreement does not require the
defendant companies to reimburse Pettersen for his 2016 income tax
obligations. As a result, and contrary to Pettersen’s argument, the
settlement agreement bars his claim for tax reimbursements and
distributions. The superior court properly dismissed Count I with
prejudice.
II. Dismissal of Count II
¶13 Pettersen next challenges the superior court’s dismissal of his
declaratory judgment claim, arguing a dismissal with prejudice on ripeness
or prematurity grounds was improper. This argument mischaracterizes the
superior court’s ruling.
¶14 In dismissing the complaint, the superior court explained that
the settlement agreement’s “plain language ma[de] clear that [Pettersen]
has no legal or financial interest in [the defendant companies] as of the
effective date[.]” We agree. The settlement agreement’s unambiguous
language permits no other construction: “[Pettersen] acknowledges,
understands, and agrees that the Redemption completely terminates [his]
interest in Plexus and the other [defendant companies.]” Settlement and
Redemption Agreement, § 2(f). As a result, the settlement agreement
forecloses Pettersen’s petition for a declaratory judgment about the scope
of his interest in the defendant companies. Likewise, Pettersen’s petition for
a judgment declaring that the defendant companies’ payments to him
under the settlement agreement were improperly characterized as ordinary
income is also foreclosed: “The parties intend that the Settlement Payments
will be deductible by Plexus and treated as ordinary income by [Pettersen].”
Settlement and Redemption Agreement, § 4(a). Given the settlement
agreement’s clear and unambiguous terms, the superior court did not err
by dismissing these facets of Pettersen’s declaratory judgment claim with
prejudice.
¶15 The remaining question is whether the superior court
properly dismissed with prejudice Pettersen’s challenge to the K-1 tax form
issued by the defendant companies. The superior court found Pettersen’s
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Decision of the Court
“request[]” that the court “declare what is ‘factually and legally incorrect’
on the K-1 tax form” failed to present a “concrete, justiciable controversy.”
¶16 “For a court to grant declaratory judgment, a justiciable
controversy must exist.” Hunt v. Richardson, 216 Ariz. 114, 125, ¶ 37 (App.
2007). “A justiciable controversy exists if there is an assertion of a right,
status, or legal relation in which the plaintiff has a definite interest and a
denial of it by the opposing party.” Id. (internal quotation omitted). “The
controversy, however, must be real, not merely theoretical.” Id.; see also
Rogers v. Bd. of Regents of Univ. of Ariz., 233 Ariz. 262, 268, ¶ 17 (App. 2013)
(“When a complaint asserts a claim for declaratory relief, the court looks for
affirmative conduct by a party that removes the claim from the realm of
mere possibility and creates an actual controversy.” (internal quotation
omitted)). “Courts will not hear cases that seek declaratory judgments that
are advisory or answer moot or abstract questions.” Thomas v. City of
Phoenix, 171 Ariz. 69, 74 (App. 1991) (explaining “[d]eclaratory relief should
be based on an existing state of facts, not facts that may or may not arise in
the future”).
¶17 Consistent with the superior court’s finding, we conclude
Pettersen’s allegations about the K-1 tax form failed to assert a concrete and
definite right or interest. Pettersen alleged that the defendant companies’
K-1 tax form “potentially violated a tax code provision” and “may cause”
him to pay additional taxes. (Emphasis added.) These allegations are
speculative, not actual, cognizable claims. See Planned Parenthood Ctr. of
Tucson, Inc. v. Marks, 17 Ariz. App. 308, 310 (1972) (explaining a justiciable
controversy arises when “adverse claims are asserted upon present existing
facts”). Although Pettersen stated his “intent” to seek leave and amend his
complaint in response to the motion to dismiss, he failed to do so, either
before the superior court’s dismissal ruling or in his later motions for a new
trial and to alter, amend, or vacate the ruling.
¶18 That said, while the superior court properly dismissed with
prejudice Pettersen’s requests for a declaratory judgment to establish the
nature and scope of his relationship with the defendant companies and
declare that the defendant companies improperly characterized their
payments to him under the settlement agreement as ordinary income, the
court improperly dismissed with prejudice Pettersen’s allegation that the
K-1 tax form issued by the defendant companies is “factually and legally
incorrect.” Indeed, the defendant companies concede that a dismissal
predicated solely on non-justiciability should be without prejudice. Therefore,
we modify the superior court’s dismissal order accordingly. If an actual,
cognizable claim for declaratory relief based on the defendant companies’
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K-1 tax form arises in the future, Pettersen is not foreclosed from reasserting
the claim.2
CONCLUSION
¶19 For these reasons, we affirm the superior court’s dismissal
order but modify the dismissal of Pettersen’s claim for declaratory relief
concerning the factual and legal correctness of the defendant companies’
K-1 tax form to a dismissal without prejudice. The defendant companies
request an award of their attorneys’ fees and costs on appeal under A.R.S.
§ 12-341.01, which permits a discretionary award to the successful party in
an action arising out of a contract. This dispute arises from the settlement
agreement, and the defendant companies are the successful parties on
appeal. Therefore, the defendant companies may recover their reasonable
attorneys’ fees and taxable costs incurred in this appeal upon compliance
with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: HB
2 To the extent Pettersen otherwise argues the superior court
improperly denied his motion for new trial or to alter, amend, or vacate the
judgment, we find his contention without merit.
9