Ida v. Leach ( 2016 )

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE
LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
IDA MOORHEAD CORPORATION; SNAPS HOLDING COMPANY,
Appellants,
v.
JAMES LEACH,
Appellee.
No. 1 CA-CV 15-0166
FILED 11-10-2016
Appeal from the Superior Court in Maricopa County
No. CV 2014-000470
The Honorable Michael L. Barth, Judge Pro Tempore
AFFIRMED
COUNSEL
Brown & Associates, PLLC, Chandler
By David L. Brown, Richard N. Crenshaw
Counsel for Appellants
Freeman Law, PLLC, Scottsdale
By Shelton L. Freeman
Counsel for Appellee
IDA et al. v. LEACH
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MEMORANDUM DECISION
Judge Margaret H. Downie delivered the decision of the Court, in which
Presiding Judge Patricia K. Norris and Judge Samuel A. Thumma joined.
D O W N I E, Judge:
¶1 IDA Moorhead Corporation (“IDA”) and SNAPS Holding
Company (“SNAPS”) appeal a judgment by the superior court preventing
enforcement of a North Dakota judgment in Arizona against James Leach.
For the following reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 IDA terminated Reed Danuser’s employment in 2010.
Danuser filed a wrongful termination lawsuit in North Dakota against
IDA, Leach (IDA’s former president), and others. While that action was
pending, SNAPS entered into a Stock Purchase Agreement (“Agreement”)
with IDA and others whereby SNAPS purchased all of IDA’s stock. The
Agreement included the following language:
Reed Danuser Litigation. Buyer is aware of the pending
Reed Danuser litigation, and has had an opportunity to
review the Company’s records and litigation documents
with regard to the pending action, and subject to the
indemnity provisions as hereinafter set forth, the Buyer
agrees to indemnify and pay all expenses and judgments
associated with said lawsuit.1
1 The indemnity clause of the Agreement stated:
Indemnification. Buyer shall hold and indemnify Sellers
harmless from the claims of Reed Danuser up to the sum of
$100,000.00. In the event the amount necessary to resolve
the issues with Reed Danuser exceed $100,000.00 the Seller
shall be responsible for that portion. In the event the
amount is less than $100,000.00, the difference shall be paid
to the Sellers.
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¶3 Danuser obtained a judgment against IDA and Leach in the
wrongful termination action (“Judgment”). The Judgment included an
award against IDA and Leach, jointly and severally, in the sum of
$692,671.78 and included an additional award against IDA only for
$130,727.99. Danuser was also awarded pre- and post-judgment interest
and taxable costs.
¶4 After unsuccessful attempts to collect on the Judgment,
Danuser filed suit in North Dakota against SNAPS, IDA, and Sanjay Patel
— SNAPS’s CEO, sole shareholder, president, vice president, secretary,
treasurer, and chairman. Among other things, Danuser alleged that IDA
had fraudulently transferred all of its assets to SNAPS to prevent him
from collecting on the Judgment.
¶5 In January 2014, the parties to the fraudulent conveyance
action settled. Their settlement agreement acknowledged that Danuser
had partially collected on the Judgment but that approximately $660,000
remained owing. IDA, SNAPS, and Patel agreed to pay Danuser $450,000
in installments. In exchange, Danuser assigned the Judgment to them.
Danuser also agreed to domesticate the Judgment in Arizona “in order
that the Assignee may pursue said [J]udgment against James Leach” — an
Arizona resident.
¶6 Danuser recorded the Judgment in the Maricopa County
Superior Court. Leach sought to stay domestication and execution of the
Judgment on various grounds. After extensive briefing, the superior court
ruled that IDA could not enforce the Judgment against Leach because IDA
and Leach were joint tortfeasors who had committed an intentional tort
against Danuser and, under Arizona and North Dakota law, “a right to
contribution does not exist in favor of any tortfeasor who is found by the
trier of fact to have committed an intentional tort.” The parties thereafter
litigated whether SNAPS could enforce the Judgment or whether, as
Leach contended, enforcement was barred because SNAPS was the alter
ego of IDA.
¶7 After denying Leach’s motion for summary judgment on the
alter ego issue, the superior court held a bench trial. The court thereafter
ruled that SNAPS “was the alter ego of IDA at all material times.” As a
result, SNAPS was precluded from enforcing the Judgment against Leach.
¶8 Appellants timely appealed. We have jurisdiction pursuant
to Arizona Revised Statutes (“A.R.S.”) sections 12-120.21(A)(1) and
-2101(A)(1).
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DISCUSSION
I. Contribution
¶9 Appellants challenge the superior court’s determination that,
as joint tortfeasors who committed an intentional tort against Danuser,
they cannot enforce the Judgment against Leach. The parties have not
briefed whether Arizona or North Dakota contribution law applies, but as
the superior court concluded, and as we explain infra, the outcome is the
same under either state’s law.
¶10 According to Appellants, the superior court erred in
determining that Arizona’s version of the Uniform Contribution Among
Tortfeasors Act (“UCATA”), A.R.S. §§ 12-2501 to -2509, bars enforcement
of the Judgment against Leach. Although Arizona has abolished joint and
several liability in most types of cases, “A.R.S. § 12-2501(A) permits a
contribution claim based on an out-of-state joint and several liability
judgment.” Bill Alexander Ford, Lincoln Mercury, Inc. v. Casa Ford, Inc., 187
Ariz. 616, 619 (App. 1996). However, “[t]here is no right of contribution in
favor of any tortfeasor who the trier of fact finds has intentionally . . .
caused or contributed to the injury.” A.R.S. § 12-2501(C).
¶11 In addressing the contribution issue in the superior court,
Appellants conceded “the North Dakota Court found the defendants
jointly and severally liable for the wrongful discharge of Danuser which is
an intentional tort.” Arizona law prohibits intentional tortfeasors from
obtaining contribution from joint tortfeasors. See A.R.S. § 12-2501(C); see
also Bishop v. Pecanic, 193 Ariz. 524, 528, ¶ 14 (App. 1998) (“UCATA did
not grant the intentional tortfeasor the right of contribution.”). The law is
the same in North Dakota. See N.D. Cent. Code Ann. § 32-38-01(3) (“There
is no right of contribution in favor of any tort-feasor who has intentionally
. . . caused or contributed to the injury.”).
¶12 Appellants did not argue in the superior court that, as
assignees, they may enforce the Judgment against Leach irrespective of
UCATA’s prohibition. On the contrary, Appellants urged application of
UCATA principles.2 We decline to address Appellants’ new argument,
2 Appellants argued that: (1) under North Dakota law (citing a statute
addressing joint obligors on a contract), contribution between co-
defendants is permissible; and (2) UCATA supports “the position of
SNAPS and IDA that Leach remains liable for any remaining balance on
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raised for the first time on appeal, that they should prevail irrespective of
UCATA. See In re MH 2008-002659, 224 Ariz. 25, 27, ¶ 9 (App. 2010) (The
court of appeals does not “consider arguments raised for the first time on
appeal except under exceptional circumstances.”). Moreover, Appellants
offer no authority for the proposition that an assignment may be used to
circumvent the statutory prohibition against contribution. Indeed,
Appellants rely on Wright v. Haskins, 260 N.W.2d 536 (Iowa 1977) — albeit
for a different proposition — despite Wright’s holding that a joint
tortfeasor may not, through an assignment from the original plaintiff,
“seek[] to enforce the judgment assigned against a fellow intentional
tortfeasor.” Id. at 542.
¶13 Additionally, Appellants’ reliance on the “single recovery
rule” undermines their new argument that the general law of assignments
should apply. The single recovery rule is a UCATA-based principle that
“mandates a deduction for sums paid by co-tortfeasors to settle a same-
injury tort claim.” Bishop, 193 Ariz. at 527, ¶ 9. The rule’s purpose is to
prevent a plaintiff from receiving “a double recovery.” Id. at 529, ¶ 19.
The single recovery rule addresses the relationship between the tortfeasors
and the plaintiff; contribution, on the other hand, “is concerned with the
rights of co-tortfeasors inter sese” (between or among themselves). Id. at
527, ¶ 12. At issue here are the rights of “co-tortfeasors” as among
themselves.
¶14 The superior court did not err by concluding that IDA could
not enforce the Judgment against Leach.
II. Alter Ego
¶15 After a bench trial, the superior court ruled that SNAPS was
the alter ego of IDA. The legal effect of this determination was that
the judgment not satisfied by IDA.” At oral argument before this Court,
Appellants identified one sentence in a supplemental response filed in the
superior court stating that “SNAPS now stands in the shoes of Danuser
pursuant to the assignment of the [J]udgment.” This brief reference,
without citation to legal authority or accompanying substantive
argument, did not preserve the issue for this Court’s review. Cf. Beaudett
v. City of Hampton, 775 F.2d 1274, 1278 (4th Cir. 1985) (Appellate courts
should not permit “fleeting references to preserve questions on appeal.”).
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SNAPS could not enforce the Judgment against Leach for the same reason
IDA could not enforce it.
¶16 As Appellants acknowledge, we view the evidence in the
light most favorable to sustaining the superior court’s decision. See Castro
v. Ballesteros-Suarez, 222 Ariz. 48, 51–52, ¶¶ 11–12 (App. 2009). We will not
set aside that court’s factual findings “unless they are clearly erroneous or
unsupported by any credible evidence.” Federoff v. Pioneer Title & Tr. Co.
of Ariz., 166 Ariz. 383, 388 (1990). Appellate courts do not reweigh the
evidence presented in the trial court. Brown v. U.S. Fid. & Guar. Co., 194
Ariz. 85, 92, ¶ 36 (App. 1998).
¶17 The proponent of an alter ego theory must prove unity of
control and also establish that observation of the corporate form “would
sanction a fraud or promote injustice.” Gatecliff v. Great Republic Life Ins.
Co., 170 Ariz. 34, 37 (1991). Factors demonstrating unity of control
include:
[S]tock ownership by the parent; common officers or
directors; financing of subsidiary by the parent; payment of
salaries and other expenses of subsidiary by the parent;
failure of subsidiary to maintain formalities of separate
corporate existence; similarity of logo; and plaintiff’s lack of
knowledge of subsidiary’s separate corporate existence.
Id.¶18 The superior court found unity of control between IDA and
SNAPS based on evidence that:
 SNAPS is IDA’s sole shareholder;
 The Boards of Directors of IDA and SNAPS are the same,
consisting of Patel and his brothers;
 SNAPS pledged IDA’s assets to a SNAPS lender;
 Patel acted on behalf of SNAPS “to thwart Danuser’s efforts
to collect on his judgment against IDA,” including asking
one of IDA’s largest customers “to re-enter/issue invoices in
[SNAPS’s] name instead of IDA’s name;”
 Employees at IDA’s facility are directly employed and paid
by SNAPS;
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 SNAPS made the payment on IDA’s behalf to secure
assignment of the Danuser judgment;
 SNAPS “collected IDA’s accounts receivables and deposited
them in a bank account established and controlled by”
SNAPS; and
 SNAPS operates IDA as SNAPS d/b/a IDA.
¶19 Substantial evidence supports the superior court’s findings,
which establish the requisite unity of control. Although Appellants
suggest the court should have reached a different conclusion based on
other factors urged at trial, the superior court found Leach’s evidence
“more credible and persuasive than the evidence presented by [SNAPS].”3
See State v. Gallagher, 169 Ariz. 202, 203 (App. 1991) (appellate courts
affords great weight to a trial court’s assessment of credibility).
¶20 Regarding the second prong of the alter ego analysis —
whether observing the corporate form would sanction a fraud or promote
an injustice — the superior court ruled:
Observance of separate corporate existences of IDA and
[SNAPS] instead of disregarding corporate form and treating
IDA and [SNAPS] as the same corporation (IDA), would
allow IDA to, in essence, domesticate and execute on the
foreign judgment, through its alter ego, [SNAPS], which it
would, otherwise, be precluded from doing by the laws of
Arizona and North Dakota. . . . Observing corporate form,
would allow IDA to obtain contribution, in the form of an
assignment, from its co-intentional joint tortfeasor (Leach).
The superior court did not err in making this finding. The Arizona
Legislature has decreed that intentional tortfeasors may not obtain
3 At oral argument before this Court, Appellants argued that the
superior court adopted all of Leach’s proposed findings of fact without
considering or addressing SNAPS’s evidence. The record does not
support this assertion. The superior court’s detailed ruling neither parrots
Leach’s proposed findings nor ignores SNAPS’s evidence. On the
contrary, the court explains that Leach’s evidence was more credible in
various respects and that SNAPS failed to present persuasive evidence
supporting its unity of control argument.
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contribution from joint tortfeasors. A.R.S. § 12-2501(C). Circumvention of
this pronouncement through a common law exception would work an
injustice in a broad sense because it would violate established Arizona
public policy.
¶21 The superior court also considered the injustice prong as it
relates to Leach personally, stating:
[E]ven if the second prong can only be satisfied by
demonstrating that observance of the corporate form would
promote an injustice to the party seeking relief under the
alter ego theory, then this court finds that Leach has also met
his burden of proof. Although this court finds that Leach
failed to sufficiently explain the mechanism by which
observance of the corporate form would allow [SNAPS] to
avoid paying Leach the remainder of the purchase price
purportedly due under the Stock Purchase Agreement, this
court agrees with Leach’s argument that allowing [SNAPS]
to assert IDA’s separate existence to avoid the consequences
of its decision to purchase and take an assignment of the
Judgment from Danuser would promote an injustice to
Leach.
The superior court could reasonably make this finding based on the
evidence before it. See Ize Nantan Bagowa, Ltd. v. Scalia, 118 Ariz. 439, 443
(App. 1978) (Proponent of alter ego theory must “show by a
preponderance of the evidence that the financial setup of the corporation
is only a sham and causes injustice.”). By statute, Leach is protected
against a contribution claim by IDA. A reasonable trier of fact could
conclude it would be unjust to permit SNAPS — an entity “exercising
substantially total control over IDA” in an attempt to avoid the Judgment
through “financial maneuvering” — to vitiate Leach’s statutory
protection. See Keg Rests. Ariz., Inc. v. Jones, 240 Ariz. 64, 75, ¶ 38 (App.
2016) (“A fraud or injustice arises if observance of the corporate form
would confuse the opposing parties and frustrate their efforts to protect
their rights, while allowing the party responsible to evade liability.”).
¶22 We affirm the superior court’s alter ego determination,
which precludes SNAPS from enforcing the Judgment against Leach.
III. Motion for Reconsideration
¶23 More than five months after the superior court ruled that
IDA was a joint tortfeasor who had committed an intentional tort against
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Danuser, Appellants filed a motion for reconsideration pursuant to
Arizona Rule of Civil Procedure 7.1(e), seeking to overturn that
determination. Appellants argued for the first time that, in the wrongful
termination action, the North Dakota court “issued a Memorandum
Opinion and Order of Judgment” that was sent to all parties, but that
Appellants’ counsel in the domestication action “did not have a copy of”
when the superior court made its ruling. Appellants argued their earlier
admission that IDA and Leach committed an intentional tort against
Danuser was “based upon SNAPS and IDA’s counsel reading of the North
Dakota Court’s final order in this case.”
¶24 The superior court denied Appellants’ motion for
reconsideration. We review that decision for an abuse of discretion. Tilley
v. Delci, 220 Ariz. 233, 238, ¶ 16 (App. 2009).
¶25 A motion for reconsideration under Rule 7.1(e) is not
appropriate for raising new arguments or evidence. See, e.g., Brookover v.
Roberts Enters., Inc., 215 Ariz. 52, 57 n.2, ¶ 17 (App. 2007). And even if we
were to liberally construe Appellants’ Rule 7.1(e) motion as a request for
relief under Rule 59(a)(4) (newly discovered evidence), the superior court
did not abuse its discretion.
¶26 To obtain relief based on newly discovered evidence, the
movant must, among other things, demonstrate that the evidence “could
not have been discovered before trial by the exercise of due diligence.”
Waltner v. JPMorgan Chase Bank, N.A., 231 Ariz. 484, 490, ¶ 24 (App. 2013).
Appellants made no such showing.
¶27 The North Dakota ruling was issued in October 2012 —
almost two years before the superior court ruled that IDA was a joint
tortfeasor who had committed an intentional tort against Danuser.
Appellants repeatedly cited the Judgment in their superior court briefing,
and the Judgment expressly referred to “the Memorandum Opinion and
Order for Judgment dated October 11, 2012.” Moreover, attached to
Appellants’ motion for reconsideration is the “Memorandum Opinion and
Order for Judgment,” preceded by a letter from IDA’s counsel to IDA
specifically referencing the Opinion and Order. Under these
circumstances, the superior court did not abuse its discretion by denying
Appellants’ motion for reconsideration.
IV. Supersedeas Bond
¶28 Appellants challenge the superior court’s refusal to require
Leach to post a supersedeas bond. Rulings on supersedeas bonds are
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appropriate for special action review. See City Ctr. Exec. Plaza, LLC v.
Jantzen, 237 Ariz. 37 (App. 2015). And the bond issue is moot, as we have
affirmed the judgment in favor of Leach.
CONCLUSION
¶29 For the foregoing reasons, we affirm the judgment of the
superior court. Leach is entitled to recover his taxable costs on appeal
upon compliance with Arizona Rule of Civil Appellate Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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