Phoenix-Tucson v. Deetz ( 2017 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
PHOENIX-TUCSON RANCH, LLC, an Arizona limited liability company,
Plaintiff/Appellant,
v.
ROBERT CHARLES ENGELSTAD AND DOLORES ANN ENGELSTAD
REVOCABLE TRUST; GERALD L. and CAROL A. DEETZ, husband and
wife; MARILYN A. GALLAGHER REVOCABLE TRUST; STERLING
TRUST COMPANY, Custodian fbo Gary Frank Klingl a/c 85739; ROBERT
C. ENGELSTAD, a married man; GARY F. KLINGL, a married man; and
PATRICK E. GALLAGHER, a married man, Defendants/Appellees.
__________________________________________________________________
HIDDEN VALLEY RANCH I, LLC, Plaintiff/Appellant,
v.
ROBERT CHARLES ENGELSTAD and DOLORES ANN ENGELSTAD
REVOCABLE TRUST, et al., Defendants/Appellees.
__________________________________________________________________
GARY KLINGL, as beneficiary of Sterling Trust Co. FBO Gary Frank
Klingl; GERALD L. DEETZ and CAROL A. DEETZ, husband and wife, as
a marital community; ROBERT ENGELSTAD and DOLORES ANN
ENGELSTAD, husband and wife, as trustees of the Robert & Dolores Ann
Engelstad Revocable Trust; PATRICK E. GALLAGHER and MARILYNN
A. GALLAGHER, husband and wife, as trustees of the First Amended &
Restated Patrick E. Gallagher Revocable Trust Agreement and the First
Amended & Restated Marilynn A. Gallagher Revocable Trust Agreement;
and WINSTON C. LISTER and ROSIE LISTER, husband and wife, as
trustees for the Lister Family Revocable Trust, Claimants/Appellees,
v.
HIDDEN VALLEY RANCH I, LLC, an Arizona limited liability company;
HIDDEN VALLEY RANCH II, LLC, an Arizona limited liability company;
PHOENIX-TUCSON RANCH, LLC, an Arizona limited liability company;
and PRIME EARTH DEVELOPMENT COMPANY, LLC, an Arizona
limited liability company, Respondents/Appellants.
Nos. 1 CA-CV 14-0780
1 CA-CV 15-0212
1 CA-CV 16-0075
(Consolidated)
FILED 1-19-2017
Appeal from the Superior Court in Maricopa County
Nos. CV2014-003680
CV2014-003681
CV2015-003361
The Honorable David O. Cunanan, Judge
The Honorable Robert H. Oberbillig, Judge
The Honorable David B. Gass, Judge
AFFIRMED
COUNSEL
Theobald Law, PLC, Phoenix
By Scott M. Theobald, Mark A. Nickel
Counsel for Plaintiffs/Appellants
Polsinelli PC, Phoenix
By Paul J. Roshka, Jr., Craig M. Waugh
Counsel for Defendants/Appellees
MEMORANDUM DECISION
Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Randall M. Howe and Judge Jon W. Thompson joined.
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Decision of the Court
W I N T H R O P, Judge:
¶1 Phoenix-Tucson Ranch, LLC (“PTR”) and Hidden Valley
Ranch I, LLC (“HVRI”) appeal the superior court’s orders compelling
arbitration of their declaratory actions against five of their investor
members (“Five Members”). Additionally, PTR, HVRI, Hidden Valley
Ranch II, LLC (“HVRII”), and Prime Earth Development Company, LLC
(“PEDCO”) appeal the superior court’s confirmation of the arbitrator’s
awards. For the following reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 PTR, HVRI, HVRII, and PEDCO (collectively, “Appellants”)
are limited liability investment companies that purchase unimproved land
for investment purposes. PEDCO manages PTR, HVRI, and HVRII. The
Five Members are a group who, individually or through trusts, collectively
invested approximately $1.4 million in one or more of the Appellant LLCs.
¶3 Several years after investing in the companies, the Five
Members made multiple requests to examine the LLCs’ business records.
Appellants made certain records available, but refused to provide others.
¶4 On June 9, 2014, the Five Members filed a demand for
arbitration before the American Arbitration Association, seeking an award
compelling Appellants to provide certain business records to the Five
Members, in accordance with the LLCs’ relevant operating agreements1 and
Arizona Revised Statute (“A.R.S.”) section 29-607 (2014).2 That same day,
1 The parties’ operating agreements included a clause stating that
“any dispute arising out of this Agreement shall be resolved through
arbitration . . . .”
2 We cite a statute’s current version absent material revisions after the
relevant date. Section 29-607(A) requires a limited liability company to
keep certain records, including financial information, at its place of
business. See A.R.S. § 29-607(A)(5), (6). Members of limited liability
companies may inspect and copy those records and “[i]nspect and copy
other information regarding the affairs of the limited liability company as
is just and reasonable for any purpose reasonably related to the member’s
interest.” A.R.S. § 29-607(B)(1), (2).
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Appellants PTR, HVRI, and HVRII filed declaratory actions against the Five
Members, requesting, among other things, that the superior court limit the
Five Members’ access to the records. PEDCO did not file its declaratory
action until several days later, however, after purporting to modify its
operating agreement to preclude arbitration for matters involving
declaratory relief.3
¶5 The Five Members then moved to compel arbitration of the
declaratory actions. The superior court granted the motions to compel
arbitration in each of the four separate declaratory actions. Final orders
were entered in the PTR and HVRI actions, and Appellants appealed those
orders to this court.4
¶6 Arbitration was conducted in October 2014, with all four cases
addressed in a single arbitration hearing before a single arbitrator. The
arbitrator issued an interim award in November 2014, finding that
PEDCO’s attempted amendment to its operating agreement was null and
void; that the Five Members were permitted to amend their pleadings to
indicate which parties were serving in their capacities as trustees, rather
than individuals;5 that the matters presented were arbitrable and
enforceable in accordance with the LLCs’ operating agreements; and that
Appellants were required to make available for inspection and copying
certain business records for the three years prior to the date of the original
written request of any one of the Five Members.6 Three months later, the
3 PEDCO’s original operating agreement stated, “The parties agree
that any dispute arising out of this Agreement shall be resolved through
arbitration . . . .” As amended, the clause provided, “Except for actions or
proceedings filed in federal or state courts seeking declaratory relief, any
dispute arising out of this Agreement shall be resolved through
arbitration . . . .”
4 The superior court did not enter final orders in the declaratory
actions filed by HVRII and PEDCO.
5 At the conclusion of the hearing, the Five Members amended their
pleadings and Appellants did not object to the accuracy of the amended
caption. The arbitrator consequently deemed that issue moot.
6 The interim award directed Appellants to make available financial
statements, complete tax returns and reports, and basic supporting
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arbitrator issued a final award, granting the Five Members costs and
attorneys’ fees.
¶7 In March 2015, the Five Members moved the superior court to
confirm the arbitration awards, alleging Appellants had refused to comply
with the awards. In response, Appellants moved to vacate the arbitration
awards, and the court heard oral argument on both parties’ motions.
¶8 In July 2015, the superior court issued a detailed ruling
denying Appellants’ challenges to the arbitrator’s awards, and later issued
an order granting the Five Members’ motion to confirm the arbitration
awards and denying Appellants’ motion to vacate the awards. The court
also awarded the Five Members attorneys’ fees and costs.
¶9 In January 2016, the superior court entered a final judgment
confirming the arbitration awards. Appellants timely appealed, and this
court consolidated that appeal with the PTR and HVRI appeals, staying the
portion of the superior court’s judgment requiring Appellants to disclose
the requested business records. We have jurisdiction pursuant to Article 6,
Section 9, of the Arizona Constitution and A.R.S. sections 12-2101(A)(1)
(2016) and 12-120.21(A)(1) (2016).
ANALYSIS
I. The Superior Court Did Not Err in Compelling Arbitration in the
HVRI and PTR Actions
¶10 “The trial court’s review on a motion to compel arbitration is
limited to the determination as to whether an arbitration agreement exists.”
Nat’l Bank of Ariz. v. Schwartz, 230 Ariz. 310, 311, ¶ 4, 283 P.3d 41, 42 (App.
2012); see also A.R.S. § 12-3006(B) (2016) (“The court shall decide whether an
agreement to arbitrate exists or a controversy is subject to an agreement to
arbitrate.”). “[T]he fundamental prerequisite to arbitration is the existence
of an actual agreement or contract to arbitrate.” Schoneberger v. Oelze, 208
Ariz. 591, 595, ¶ 17, 96 P.3d 1078, 1082 (App. 2004), superseded by statute,
2008 Ariz. Sess. Laws, ch. 247, § 16 (2d Reg. Sess.) (current version at A.R.S.
§ 14-10205 (2012)). Such an agreement is valid and enforceable “except on
a ground that exists at law or in equity for the revocation of a contract.”
A.R.S. § 12-3006(A).
documentation, including the entities’ general subsidiary ledgers and
journals.
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PHOENIX-TUCSON v. DEETZ et al.
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¶11 Absent clear error, we defer to the factual findings upon
which the trial court’s conclusions are based. Estate of Decamacho ex rel.
Guthrie v. La Solana Care & Rehab, Inc., 234 Ariz. 18, 20, ¶ 8, 316 P.3d 607, 609
(App. 2014). But we review the trial court’s conclusions of law de novo. Id.
¶12 Appellants challenge the trial court’s orders compelling
arbitration on a number of grounds. First, Appellants argue the trial court
in the PEDCO action erred by declining to consider PEDCO’s amendment
to the operating agreement, which purported to preclude arbitration of
actions for declaratory relief. However, the trial court in that action did not
issue a signed order or final judgment from which any appeal has been
taken. We therefore lack jurisdiction to review this argument. See Ghadimi
v. Soraya, 230 Ariz. 621, 622, ¶¶ 7-8, 285 P.3d 969, 970 (App. 2012) (stating
that, “[a]s a general rule, only final judgments are appealable”); Wendling v.
Sw. Sav. & Loan Ass’n, 143 Ariz. 599, 601, 694 P.2d 1213, 1215 (App. 1984)
(“This court lacks jurisdiction to review matters not contained in the Notice
of Appeal.”).
¶13 Next, Appellants contend the trial court erred in compelling
arbitration because the pleadings incorrectly identified certain people as
members of the LLCs in their individual capacities instead of identifying
them as members of the LLCs in their capacities as trustees of trusts.
Appellants maintain that the incorrectly identified individuals were not
proper parties and therefore no agreement to arbitrate existed between
Appellants and those individuals. Before the issuance of the arbitrator’s
interim award, however, the Five Members amended their pleadings to
reflect, where necessary, which individuals were serving in their capacity
as trustees of trusts. Appellants did not object to the accuracy of the
amended pleadings, and do not do so now. Rather, they argue they were
“harmed” by having to proceed with arbitration despite the error in the
pleadings. But “[f]ailure to formally amend [] pleadings will not affect a
judgment based upon competent evidence.” Elec. Advert., Inc. v. Sakato, 94
Ariz. 68, 71, 381 P.2d 755, 756-57 (1963). We reject this argument as moot.
As already noted, the pleading error was corrected before the interim
award was issued. Further, Appellants do not explain how the presentation
of the matter to the arbitrator would have been different without the
technical pleading error. Most importantly, the arbitrator found that
competent evidence supported an award in favor of the Five Members.
Accordingly, Appellants’ argument is moot.
¶14 Finally, Appellants argue the trial court erred by compelling
arbitration because, at the time the declaratory actions were filed, there was
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no “dispute” between the parties.7 Appellants claim that declaratory
actions constitute insufficient evidence of a “dispute,” and, by filing the
declaratory actions here, they merely intended to seek guidance from the
superior court as to whether the LLCs’ operating agreements entitled the
Five Members to the records they requested.
¶15 As support for their argument, Appellants cite cases from the
Seventh and Ninth Circuit Appellant Courts.8 The cases Appellants rely
on, however, are inapposite. In those cases, one party was attempting to
impute an interpretation of a contract to another party for the purpose of
creating an issue for arbitration. See Chicago Typographical Union No. 16 v.
Chicago Sun-Times, Inc., 860 F.2d 1420, 1425 (7th Cir. 1988) (stating that one
party’s “unsupported suspicions” about how the other party might
interpret a contract was insufficient evidence of a dispute); Alpha Beta Co. v.
Retail Store Emps. Union, Local 428, 671 F.2d 1247 (9th Cir. 1982) (holding no
dispute existed where an employer merely suspected that a union would
adopt a different interpretation of a clause in a contract between the
parties).
¶16 Here, however, neither party was imputing an interpretation
of the LLCs’ operating agreements to the other party. Rather, at the time
Appellants filed the declaratory actions, both parties had already espoused
contradictory interpretations of the operating agreements in letters to each
other and through counsel. Further, in their requests for declaratory relief,
Appellants confirmed the existence of a dispute by stating, “Defendants are
not entitled to inspect or copy . . . Plaintiff’s financial records. . . .
Notwithstanding the foregoing, Defendants continue to claim that they are
entitled to inspect and copy Plaintiff[‘]s financial records . . . .” Thus, the
record clearly demonstrates the existence of a dispute.
¶17 Moreover, in Arizona, courts generally resolve doubts about
the arbitrability of disputes in favor of arbitration. See Sun Valley Ranch 308
Ltd. P’ship ex rel. Englewood Properties, Inc. v. Robson, 231 Ariz. 287, 292, ¶ 13,
294 P.3d 125, 130 (App. 2012). And, as the trial court in the HVRI action
7 The parties’ operating agreements specify that “any dispute arising
out of this Agreement shall be resolved through arbitration . . . .” (emphasis
added).
8 If on point, federal precedent may be instructive, but is not binding
on this court. See, e.g., State v. Mitchell, 234 Ariz. 410, 418, ¶ 29, 323 P.3d 69,
77 (App. 2014) (“[D]ecisions of the Ninth Circuit, although persuasive, are
not binding on Arizona courts.”).
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PHOENIX-TUCSON v. DEETZ et al.
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recognized, the arbitration clause in the parties’ operating agreements in
this case “is broad and applies to any dispute.”
¶18 Accordingly, the record supports the trial court’s orders
compelling arbitration.
II. The Superior Court Did Not Err in Confirming the Arbitrator’s
Awards
¶19 Pursuant to A.R.S. § 12-3023(A)(4) (2016), an arbitrator’s
award may be vacated where the arbitrator exceeded his powers. “[The]
party attacking the award has the burden of showing that the arbitrator[]
exceeded [his] powers under the [agreement].” Smitty’s Super-Valu, Inc. v.
Pasqualetti, 22 Ariz. App. 178, 182, 525 P.2d 309, 313 (App. 1974). “We
review the superior court’s decision to confirm an arbitration award in the
light most favorable to upholding the decision and will affirm unless the
superior court abused its discretion.” RS Industries, Inc. v. Candrian, 240
Ariz. 132, 135, ¶ 7, 377 P.3d 329, 332 (App. 2016).
¶20 Here, Appellants argue the superior court erred in confirming
the arbitrator’s awards because the arbitrator exceeded his powers by (1)
finding that PEDCO’s amendment to its operating agreement was null and
void and (2) requiring Appellants to produce their business information to
the Five Members without protecting its confidentiality.9 Appellants,
9 The Five Members contend that Appellants are statutorily barred
from challenging the arbitrator’s interim award because they did not file a
motion to vacate, modify, or correct the award within ninety days of
receiving notice of the award. See A.R.S. §§ 12-3023(B), 12-3024(A) (2016).
Although the arbitrator stated the interim award was a “full settlement of
all claims and counterclaims,” he did not indicate the award was
immediately appealable. Further, the award’s designation as an “interim
award” suggested that a final, appealable award would follow. See A.R.S.
§ 12-3008(B)(1) (2016) (“The arbitrator may issue such orders for interim
remedies, including interim awards, as the arbitrator finds necessary to
protect the effectiveness of the arbitration proceeding and to promote the
fair and expeditious resolution of the controversy, to the same extent and
under the same conditions as if the controversy were the subject of a civil
action.”). Appellants’ failure to appeal the interim award within ninety
days therefore does not constitute waiver. Accordingly, we address
Appellants’ arguments challenging the interim award on their merits. Cf.
Adams v. Valley Nat’l Bank of Ariz., 139 Ariz. 340, 342, 678 P.2d 525, 527 (App.
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PHOENIX-TUCSON v. DEETZ et al.
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therefore, do not argue that the arbitrator exceeded his powers because he
lacked the power to rule on the issues presented for review. Instead, they
argue the arbitrator exceeded his powers by ruling incorrectly. However,
“the arbitrator’s decisions are final and binding as to both issues of fact and
law, regardless of the correctness of the decision,” Atreus Cmties. Grp. of
Ariz. v. Stardust Dev., Inc., 229 Ariz. 503, 506, ¶ 13, 277 P.3d 208, 211 (App.
2012), and we will not review the merits of an arbitrator’s factual findings
or legal conclusions.
¶21 Accordingly, because Appellants have failed to show that the
arbitrator exceeded his powers under the law and the parties’ operating
agreements, the superior court did not abuse its discretion in confirming
the awards.
III. Attorneys’ Fees
¶22 The LLCs’ operating agreements provide that “[t]he
prevailing party shall be entitled to all costs incurred in connection with the
arbitration proceeding, including the fees of the arbitrator, its reasonable
attorneys’ fees, witness fees and other costs as determined by the
arbitrator.” Because this appeal results from the superior court’s orders
compelling arbitration and confirming the arbitrator’s awards, we conclude
the appeal was taken “in connection with the arbitration proceeding.”
Accordingly, we award the Five Members their costs and reasonable
attorneys’ fees on appeal, subject to compliance with ARCAP 21.10 See also
A.R.S. § 12-341.01(A) (2016) (“In any contested action arising out of a
contract, express or implied, the court may award the successful party
reasonable attorney fees.”); A.R.S. § 12-341 (2016) (“The successful party to
a civil action shall recover from his adversary all costs expended or incurred
therein unless otherwise provided by law.”).
1984) (stating courts prefer to decide cases upon their merits rather than to
dismiss summarily on procedural grounds).
10 The Five Members also seek fees pursuant to A.R.S. § 12-349 (2016),
contending Appellants’ appeal lacks substantial justification. However,
based on our interpretation of the parties’ operating agreements, we need
not reach that issue.
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CONCLUSION
¶23 The superior court’s orders compelling arbitration and
confirming the arbitration awards are affirmed, and the interim stay
previously entered by this court relative to the production of documents is
hereby lifted. We further award the Five Members their costs and
reasonable attorneys’ fees incurred on appeal.
AMY M. WOOD • Clerk of the Court
FILED: AA
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