Aow v. Scythian ( 2022 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
AOW MANAGEMENT LLC, et al.,
Plaintiffs/Appellants,
v.
SCYTHIAN SOLUTIONS LLC, et al.,
Defendants/Appellees.
No. 1 CA-CV 20-0699
FILED 7-19-2022
Appeal from the Superior Court in Maricopa County
No. CV2016-013483
The Honorable Christopher Whitten, Judge
AFFIRMED IN PART; VACATED IN PART AND REMANDED
COUNSEL
Greenbriar Law, PLC, Phoenix
By Walid A. Zarifi
Counsel for Plaintiffs/Appellants AOW Management and Yuri Downing
Munger Chadwick & Denker, PLC, Tucson
By John F. Munger, John G. Anderson, Robert J. Metli
Counsel for Plaintiffs/Appellants Demitri and Odelma Downing
May Potenza Baran & Gillespie, Phoenix
By Jesse R. Callahan
Co-Counsel for Defendants/Appellees
Kercsmar Feltus & Collins, PLLC, Scottsdale
By Todd Feltus
Co-Counsel for Defendants/Appellees
MEMORANDUM DECISION
Judge James B. Morse Jr. delivered the decision of the Court, in which
Acting Presiding Judge Randall M. Howe and Chief Judge Kent E. Cattani
joined.
M O R S E, Judge:
¶1 AOW Management, LLC ("AOW"), Demitri Downing,
Odelma Downing, and Yuri Downing (collectively, the "AOW Parties")
appeal from the superior court's grants of summary judgment and award
of attorney fees. Demitri1 additionally appeals the superior court's denial
of his motion to set aside the judgment pursuant to Arizona Rule of Civil
Procedure 60. For the following reasons, we affirm in part, vacate in part,
and remand to the superior court.
FACTS AND PROCEDURAL BACKGROUND
¶2 Non Profit Patient Center, Inc. ("NPPC") was formed in 2011
to own and "operate a non-profit medical marijuana dispensary" and holds
a license to cultivate and dispense medical marijuana. In 2012, after its
articles of incorporation were amended, NPPC's Board of Directors ("the
Board") had two members, David Pieser and Theodore Brinkofski.
¶3 In May 2015, Dimitri was appointed as director and president
of NPPC after Brinkofski resigned his seat. Although Demitri held the
Board seat solely in his name, he claims he verbally agreed to share control
of the seat with Yuri, his brother, and pay him half of any profits or
proceeds resulting from ownership of the Board seat.
1 Because some of the parties share last names, we refer to the parties
by their first names for clarity and convenience.
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¶4 Also in May 2015, Demitri and Yuri founded AOW, a for-
profit management company. Although AOW and NPPC never entered
into a formal written agreement, AOW provided management services for
NPPC on an ad hoc basis during 2015.
¶5 In late 2015, Yuri and Alex Lane entered into an agreement
entitled "100% Transfer of AOW's Membership Right and Percentage
Interest in Dolan Springs/Grasshopper Junction" ("Transfer Agreement")
and Demitri, Yuri, and Alex executed a Transfer and Waiver Agreement.
The particulars of these agreements are not the subject of this appeal but,
generally, they transferred interests in various entities—including two
LLCs incorporated by Alex, Scythian Management LLC and Scythian
Solutions LLC ("Scythian Entities")—between the parties, with Yuri
releasing any interest he had in NPPC, Demitri releasing any interest he
had in AOW, and Scythian paying AOW $100,000.
¶6 Around the same time, Demitri resigned as director and
president of NPPC and, along with Pieser, appointed Alex to replace him
on the Board and serve as NPPC's president and treasurer. According to
Demitri, he resigned from NPPC under Alex's guidance, whom he believed
was acting as his attorney, partner, and agent, to hide the Board seat from
Demitri's wife, Odelma, in their pending divorce. Demitri also claims that,
despite his official resignation, the parties agreed that he would maintain a
fifty-percent interest in the Board seat. However, Alex independently
managed NPPC, denied that Demitri had any interest in NPPC, and did not
provide Demitri accountings regarding operating revenue. Pieser later
resigned from the Board and Alex appointed his mother, Sylvia Lane, as
director and vice-president of NPPC.
¶7 This litigation began in 2016, when Yuri and AOW sued the
Scythian Entities, Alex, and Demitri, alleging, among other things, breach
of contract and fraud relating to the Transfer Agreement. Yuri and AOW
subsequently amended their complaint to include NPPC and Sylvia Lane
as defendants, and dismissed claims against Demitri.
¶8 Before Yuri dismissed the claims against him, Demitri filed a
cross-claim against Alex which, as later amended, alleged breach of
contract, breach of implied covenant of good faith and fair dealing, and
breach of fiduciary duty, among other things. He also filed a third-party
complaint against Sylvia alleging fraudulent transfer and seeking a
constructive trust. After resolving disputes with Dimitri, Odelma entered
the litigation as a real-party-in-interest to Demitri's cross-claim.
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¶9 Eventually, the superior court granted summary judgment to
the Scythian Entities, NPPC, Alex, and Sylvia ("Scythian Parties") on all
claims the AOW Parties asserted and awarded the Scythian Parties attorney
fees.
¶10 The AOW Parties timely appealed the superior court's
judgment but later moved to stay the appeal to file a motion for injunctive
relief and motion to vacate judgment under Rule 60(B), due to changes in
Arizona's marijuana laws. This Court granted the motion and stayed the
appeal. After the superior court denied both the motion for injunctive relief
and motion to vacate judgment, Demitri amended his notice of appeal to
appeal the superior court's denial of the Rule 60 motion. We have
jurisdiction under A.R.S. § 12-2101(A)(1), (2).
DISCUSSION
¶11 The AOW Parties argue that the superior court improperly
granted summary judgment on the claims asserted by Demitri in his third-
amended cross-claim and third-party complaint.2
¶12 "We review de novo a grant of summary judgment, viewing
the evidence and reasonable inferences in the light most favorable to the
party opposing the motion." Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12 (2003).
Summary judgment is appropriate when the moving party "shows that
there is no genuine dispute as to any material fact and the moving party is
entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(a). "We will
affirm a grant of summary judgment if the trial court was correct for any
reason." See Federico v. Maric, 224 Ariz. 34, 36, ¶ 7 (App. 2010).
I. Summary Judgment Regarding Damages.
¶13 In July 2019, the superior court granted Alex and Sylvia
summary judgment on numerous counts in the cross-claim. The court
found that Demitri's claim for damages based on a director's ability to
2 The superior court also granted summary judgment to the Scythian
Parties on all of Yuri's and AOW's claims regarding the Transfer
Agreement. However, Yuri and AOW do not present any arguments on
appeal related to the Transfer Agreement and do not argue that the superior
court erred in its rulings on their claims. Accordingly, we do not address
those rulings. See Schabel v. Deer Valley Unified Sch. Dist. No. 97, 186 Ariz.
161, 167 (App. 1996) ("Issues not clearly raised and argued in a party's
appellate brief are waived.").
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extract profits from the non-profit corporation via payments to a for-profit
management company was a "faulty damages theory" that "would frustrate
the clear intent of the Arizona Medical Marijuana Act" (the "AMMA"). The
court also determined that Demitri timely disclosed his damages claims
"based upon his ownership of the NPPC board seat," but failed to timely
disclose other damages theories or computations. See Ariz. R. Civ. P.
26.1(a)(7) (requiring parties to disclose "a computation and measure of each
category of damages alleged by the disclosing party" and "the documents
and testimony on which such computation and measure are based" in the
time set forth in a scheduling or case management order). Demitri does not
challenge that determination on appeal.
¶14 The parties agree that non-profit medical marijuana
dispensaries can be lucrative enterprises. However, as the superior court
noted, there are "no ownership right[s] in a non-profit corporation."
Compare A.R.S. § 10-701 to -747 (addressing "shareholders" in for-profit
corporations), with A.R.S. § 10-3601 to -3640 (addressing "membership" in a
non-profit corporation); see also Deckard v. Comm'r of Internal Revenue, 155
T.C. 118, 126-27 (2020) (noting "[n]onprofit corporations are not generally
considered to have owners" and "there is no interest in a nonprofit
corporation equivalent to that of a stockholder in a for-profit corporation
who stands to profit from the success of the enterprise"); 1 Fletcher
Cyclopedia Corp. § 68.05 ("One key distinction between nonprofit and for-
profit corporations is that in a nonprofit corporation, shareholders or
members do not have a proprietary interest in the corporation."); Henry B.
Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835, 838 (1980)
("Thus a nonprofit corporation is distinguished from a for-profit (or
'business') corporation primarily by the absence of stock or other indicia of
ownership that give their owners a simultaneous share in both profits and
control.").
¶15 Yet, Demitri argues that his damages claims are not based on
an ownership interest in NPPC but rather an interest in controlling a seat
on the Board. Accordingly, the question is whether Dimitri presented
evidence of a Board seat's value which could result in recoverable damages
based on the wrongful removal of a director. Dimitri asserts the superior
court ignored evidence that control over a Board seat has value that can be
recovered as damages because (1) directors can receive distributions of
profits from a separate for-profit management company that manages the
non-profit dispensary, (2) the Board seat itself has proven market value and
can be transferred, and (3) Board members can be paid directly by NPPC.
As discussed below, because Demitri did not present evidence to support
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his claims for damages, the superior court did not err in granting summary
judgment.
A. Dealings with a For-Profit Management Company.
¶16 The AMMA requires "[a] registered nonprofit medical
marijuana dispensary . . . [to] be operated on a not-for-profit basis" and
include in its bylaws "such provisions relative to the disposition of revenues
and receipts to establish and maintain its nonprofit character." A.R.S. § 36-
2806. Consistent with the statute, NPPC's bylaws provided that it "shall be
operated on a nonprofit basis."
¶17 "[T]he very essence of a nonprofit corporation is its
commitment not to distribute profits to controlling persons." Henry B.
Hansmann, Reforming Nonprofit Corporation Law, 129 U. Pa. L. Rev. 497, 511
(1981). Thus, under the Arizona Nonprofit Corporation Act, a non-profit
corporation and its directors are generally prohibited from making or
receiving distributions, see A.R.S. § 10-11301; Kromko v. Ariz. Bd. of Regents,
149 Ariz. 319, 321 (1986) (stating "no earnings of the nonprofit corporation,
other than reasonable compensation for services, shall be distributed to the
corporation's members, directors or officers"), with distributions including
"a direct or indirect transfer of money or other property or incurrence of
indebtedness by a corporation to or for the benefit of its members in respect
of any of its membership interest," A.R.S. § 10-3140(22). Correspondingly,
NPPC's bylaws declared "[i]n no event shall profits be directly distributed
to, or inure to the benefit of, any individual or entity" and "[a]ny receipts or
profits above and beyond operating expenses and applicable costs shall be
reinvested back into the Corporation or donated to other charitable causes."
¶18 However, the parties generally accept that it is common
practice in the medical marijuana industry for directors of non-profit
dispensaries to own a for-profit management company that contracts with
the dispensary to provide management services at rates which effectively
allow the dispensary's net profits to be diverted indirectly to the directors.
The propriety of these arrangements is not before us.3
3 But see A.R.S. § 10-3830(A) (requiring a director to discharge the
director's duties in "good faith" and in "a manner the director reasonably
believes to be in the best interests of the corporation"); A.R.S. § 10-3833(A)
(imposing personal liability on a director who "votes for or assents to" an
illegal distribution); A.R.S. §§ 10-3860 to -3864 (providing rules for
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¶19 Even if we consider the "faulty damages theory" the superior
court rejected (i.e., the claimed ability to profit indirectly from a position on
the board of directors of a non-profit corporation), Demitri presented no
evidence of the value that could be extracted by a Board member via
influence over the non-profit corporation's contract with a for-profit
management company. NPPC did not enter any formal management
contracts and Demitri presented no evidence of the profits to be gained
from such a contract. Further, entering into a management agreement
would have required "the unanimous consent and approval of the Directors
then serving." But Pieser, the other Board member serving with Demitri,
had refused to enter into the management agreements Yuri and Demitri
proposed, and Demitri did not present evidence that he could have
garnered Pieser's approval to extract any calculable profits. Thus, any value
ascribed to Demitri's ability to enter into management contracts and profit
from those contracts would be speculative and uncertain. See Schuldes v.
Nat'l Sur. Corp., 27 Ariz. App. 611, 617 (App. 1976) (affirming summary
judgment where "the damages sought in this suit do not have the requisite
certainty of existence in order to allow their recovery"); see also Coury Bros.
Ranches, Inc. v. Ellsworth, 103 Ariz. 515, 521 (1968) (stating "[d]amages that
are speculative, remote or uncertain may not form the basis of a judgment");
Gilmore v. Cohen, 95 Ariz. 34, 36-37 (1963) (recognizing a plaintiff must
"supply some reasonable basis for computing the amount of damage and
must do so with such precision as, from the nature of his claim and the
available evidence, is possible"); cf. also Matthews v. Tele-Systems, Inc., 525
S.E.2d 413, 415-16 (Ga. Ct. App. 1999) (affirming summary judgment
against director who was allegedly deceived into resigning because he
could show no damages when other board members who engaged in the
deception could have voted to oust him); Ellens v. Chi. Area Office Fed. Credit
Union, 576 N.E.2d 263, 267 (Ill. App. Ct. 1991) (affirming summary
judgment against plaintiff who was removed from a board of directors but
provided no evidence to support claims of $50,000 in damages because
"damages cannot be awarded on the basis of speculation or conjecture").
transactions involving director's conflicts of interest); Ariz. Admin. Code
R9-17-310(A)(13)(e) (providing that "[a] dispensary shall . . . not engage in
any other transaction that results in a substantial diversion of the
dispensary's income or property"); State v. Matlock, 237 Ariz. 331, 336, ¶ 21
(App. 2015) (noting "the AMMA evinces a spirit of permitting patients to
acquire the medicine they need, not creating a profitable medical marijuana
industry").
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B. Market Value of a Board Seat.
¶20 Demitri introduced some evidence of the market value of
NPPC and an NPPC Board seat. But NPPC's bylaws provided that Board
seats must be filled by the unanimous consent and approval of the Board of
Directors. Accord A.R.S. § 10-3804 (noting directors are "elected, appointed
or designated"). And Demitri did not demonstrate that he would be able to
recover any value of a hypothetical sale of a seat on the Board because he
did not present evidence that he would have been able to receive the
unanimous consent and approval from the other Board member. See supra
¶ 19; Schuldes, 27 Ariz. App. at 616 ("[N]o damages can be allowed for the
loss of profits which is determined to be uncertain, contingent, conjectural,
or speculative."); see also Sec. & Exch. Comm'n v. Ins. Sec., Inc., 254 F.2d 642,
649 (9th Cir. 1958) ("It is a general principle of equity that a personal trustee
cannot sell his office . . . [n]or may this be done by a corporate officer or
director."); Mitchell v. Am. Sav. & Loan Ass'n, 122 Ariz. 138, 140 (App. 1979)
(approving statement that "an agreement for a corporate officer to resign
his office for a pecuniary benefit to himself would be void" (quoting Cox v.
Berry, 431 P.2d 575, 577-78 (Utah 1967))).
C. Salary.
¶21 Demitri also argues that there is value in controlling a seat on
NPPC's Board because directors could pay themselves a salary.
¶22 A non-profit corporation may fix the compensation of
directors. See A.R.S. § 10-3812 ("Unless the articles of incorporation or
bylaws provide otherwise, the board of directors may fix the compensation
of directors."). But see Ariz. Admin. Code R9-17-310(13)(c) (prohibiting
medical marijuana dispensaries from paying "compensation for salaries or
other compensation for personal services that is in excess of a reasonable
allowance"). NPPC's bylaws provided that "Directors and Principal
Officers of the Corporation may be entitled to receive reasonable
compensation from the Corporation, as good and valuable consideration by
reason of serving on the Board of Directors, or as a Principal Officer, and
for the services which the Directors and Principal Officers perform on
behalf of the Corporation."
¶23 But the mere potential to vote oneself a salary does not have
identifiable value when Demitri does not allege or provide any evidence of
what his salary would have been and acknowledges he did not receive a
salary for the approximately seven months he served as a director. Instead,
Demitri notes only that Alex received roughly $85,000 and Sylvia around
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$30,000 in salary in 2018. Additionally, NPPC's bylaws required that "[t]he
compensation of any Director and/or Principal Officer of the Corporation
shall be unanimously determined and approved by the Board of Directors."
Because Demitri did not receive a salary, NPPC's bylaws did not set a
director salary, and any potential salary depended on further Board action,
see supra ¶ 19, no evidence supports this damages theory. See Gilmore, 95
Ariz. at 36-37 (noting the burden is on the plaintiffs "to show the amount of
their damages with reasonable certainty"); see also Murray v. Conseco, Inc.,
795 N.E.2d 454, 461-62 (Ind. 2003) (holding former director failed "to allege
compensable damages" for loss of stock options, deferred compensation,
and director compensation based on alleged improper removal from the
board because there was "no implied contract" that a director would remain
on the board).
II. Summary Judgment on Accounting and Rescission/Avoidance.
¶24 The superior court also granted summary judgment against
Demitri and Odelma on their requests for the remedies of rescission and
avoidance as well as accounting. Although we affirm the grant of summary
judgment on accounting, we vacate the grant of summary judgment as to
the availability of rescission and avoidance.
A. Accounting.
¶25 The superior court properly granted summary judgment on
Demitri's request for an accounting. See Dooley v. O'Brien, 226 Ariz. 149,
155, ¶ 21 (App. 2010) ("Parties to a fiduciary relationship have a right to an
accounting. To be subject to court-ordered accounting, a defendant must
appear to have been [e]ntrusted with property of the plaintiff and, in
consequence to have become bound to reveal his dealings with it." (cleaned
up)). Demitri acknowledges that he is not claiming any ownership interest
in NPPC. And, because neither Demitri nor Odelma hold a position or
ownership interest in NPPC, they are not entitled to an accounting of its
operating revenue. See King Realty, Inc. v. Grantwood Cemeteries, Inc., 4 Ariz.
App. 76, 81 (1966) (concluding a former director had no right to an
accounting when no agency contract existed during the time for which an
accounting was sought); see also A.R.S. § 10-11602 (providing a right to
inspect and copy records of the non-profit corporation to a "member who
has been a member of record [for] at least six months").
¶26 Demitri also argues that he is entitled to an accounting under
Arizona's Revised Uniform Partnership Act. See A.R.S. § 29-1033(B)
(providing "[a] partnership shall provide partners and their agents and
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attorneys access to its books and records"). However, "a general
partnership is the residual form of for profit business association, existing
only if another form does not." Vortex Corp. v. Denkewicz, 235 Ariz. 551, 557,
¶ 19 (App. 2014) (quoting Revised Unif. P'ship Act § 202 cmt. 2) (emphasis
omitted). Both NPPC and the Scythian Entities exist under other business
forms. Therefore, a right to an accounting of these entities cannot be based
in partnership law and the superior court did not err in granting summary
judgment on the request for accounting.
B. Rescission and Avoidance.
¶27 Without addressing the merits of Demitri's claims, the
superior court granted summary judgment on the requests for rescission
and avoidance because (1) neither Demitri nor Odelma had a property
interest in the Board seat and, alternatively, (2) Demitri had "unclean
hands," and (3) rescission would be impracticable or impossible under the
circumstances. The superior court erred in granting summary judgment for
Alex and Sylvia on these grounds.4
¶28 Rescission is a remedy which may be sought based on various
theories, including fraud and breach of contract. See Jennings v. Lee, 105
Ariz. 167, 171-73 (1969) (action for rescission based on fraud); Earven v.
Smith, 127 Ariz. 354, 356 (App. 1980) (breach of contract). Rescission is not
a measure of damages. Standard Chartered PLC v. Price Waterhouse, 190 Ariz.
6, 34 (App. 1996). In general, rescission serves to "annul the contract and
restore the parties . . . to the status quo before entering into the contract,"
Hall v. Read Dev., Inc., 229 Ariz. 277, 285, ¶ 30 (App. 2012) (quoting Reed v.
McLaws, 56 Ariz. 556, 562-63 (1941)), and "contemplates the 'undoing of the
transaction,' whereby each party gives back to the other what it parted with
in the original transaction," Standard Chartered, 190 Ariz. at 34. But
"rescission is a flexible remedy in equity," Strategic Diversity, Inc. v. Alchemix
Corp., 666 F.3d 1197, 1207 (9th Cir. 2012), and "equitable considerations
[may] obviate the need for [return to] the status quo relationship," Grand v.
Nacchio, 214 Ariz. 9, 27, ¶ 64 (App. 2006) (citation omitted). Thus,
"[a]bsolute and literal restoration is not required. Restoration that is
reasonably possible and demanded by the equities of the case is enough."
Id. (quoting Webb v. Webb, 431 S.E.2d 55, 62 (Va. Ct. App. 1993)). And where
4 Because we only engage the three specific grounds discussed by the
superior court and the parties, we do not address other potential defenses
to rescission.
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full status-quo restoration is not practical, rescissory damages may be
appropriate. Id. at 27-28, ¶ 65; see also Jennings, 105 Ariz. at 172-73.
1. Right to a Board Seat.
¶29 Appellants have not cited, and we have not found, any
authority regarding rescission of an agreement for the transfer of a board
seat of a non-profit corporation. The superior court found that "a board seat
in the nonprofit corporation NPPC is not something [Demitri and Odelma]
ever had a property interest in possessing." But regardless of whether
Demitri had a property interest in his Board seat, Dimitri once had a legal
right to sit on the Board, having been appointed as a director and
apparently entitled to hold his seat "until such time as [he] resigns or is
removed pursuant to the[] Bylaws." If Demitri can establish that he
surrendered his seat on the Board because of Alex's fraud, then rescission
or avoidance may be an appropriate remedy. See Stevens/Leinweber/Sullens,
Inc. v. Holm Dev. & Mgmt., Inc., 165 Ariz. 25, 28-29 (App. 1990) (noting a
contract may be "voidable for fraud, duress, lack of capacity, mistake, or
violation of public purpose" (quoting U.S. Insulation, Inc. v. Hilro Const. Co.,
146 Ariz. 250, 253 (App. 1985))); see also Jennings, 105 Ariz. at 172-73(approving rescission as remedy for defrauded party to a contract);
Restatement (Third) of Restitution and Unjust Enrichment § 54 ("A person
who has transferred money or other property is entitled to recover it by
rescission and restitution if the transaction is invalid . . . ."); Hyde v. Woods,
94 U.S. 523, 524-25 (1876) (finding that membership on the San Francisco
Stock and Exchange Board was property); Skinner v. Northrop Grumman Ret.
Plan B, 673 F.3d 1162, 1167 (9th Cir. 2012) ("A trustee (or a fiduciary) who
gains a benefit by breaching his or her duty must return that benefit to the
beneficiary." (emphasis added)).
2. Unclean Hands.
¶30 The superior court also erred in granting summary judgment
based upon unclean hands. "The doctrine of 'unclean hands' is an equitable
defense to a claim seeking equitable relief," Tripati v. State, 199 Ariz. 222,
225, ¶ 8 (App. 2000) (emphasis omitted), and is based on the rule that one
who seeks "equitable relief must come with clean hands," MacRae v. MacRae,
57 Ariz. 157, 161 (1941). For unclean hands to bar relief, the plaintiff's bad
acts "must relate to the same activity that is the basis for [the] claim." Ezell
v. Quon, 224 Ariz. 532, 538, ¶ 26 (App. 2010) (citation omitted) (alteration in
original).
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¶31 The superior court did not specify in its order the basis for its
unclean hands finding. However, Alex and Sylvia only urged unclean
hands as a defense based on Demitri's alleged intent to improperly sell
NPPC or the Board seat, or otherwise wrongfully profit from Board
membership. Because Alex does not assert Demitri acted unconscionably
or inequitably towards him, he cannot assert an unclean hands defense. See
Ezell, 224 Ariz. at 538, ¶ 26 (noting for the doctrine of unclean hands to
apply, there must be evidence that the party seeking relief, acted with "bad
faith" or "unconscionable conduct" toward the party asserting the defense).
Accordingly, the superior court erred in granting summary judgment on
this basis. See also Dollar Sys., Inc. v. Avcar Leasing Sys., Inc., 890 F.2d 165,
173 (9th Cir. 1989) ("The application of the unclean hands doctrine raises
primarily a question of fact.").
3. Impracticality.
¶32 The court also granted summary judgment on the requests for
rescission and avoidance because rescission would be impractical or
impossible under the circumstances. But, as noted above, rescission is an
equitable remedy and rescissory damages may be appropriate when true
rescission is "impossible or infeasible." Grand, 214 Ariz. at 27, ¶¶ 64-65
(quoting Standard Chartered, 190 Ariz. at 34).5
¶33 NPPC continues to operate as a non-profit corporation and its
board of directors is intact. Cf. Strategic Diversity, 666 F.3d at 1207-08
(finding true rescission "neither feasible or practical" when a former
member of a corporation's board of directors sought his seat returned but
there was no longer an existing board). Further, the parties dispute whether
rescission would require the complete unwinding of NPPC's operations
since 2016 and whether such relief is practical. We express no opinion on
the merits of Demitri's claims or whether rescission of any or all of the
agreements and transactions Demitri challenges may be appropriate. But
because the "decision whether to fashion an equitable remedy lies within
the trial court's discretion," the trial court must determine the extent to
5 We do not suggest that Demitri is entitled to rescissory damages and
the court's determination that Demitri failed to timely disclose other
damages theories or computations may preclude such damages. However,
in ruling as a matter of law that Demitri is not entitled to the remedy of
rescission, the court did not properly evaluate and determine the extent to
which rescission could be reasonably possible under the facts and equities
of the case or whether damages may be appropriate to the extent rescission
is impossible.
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which rescission could be reasonable and possible under the facts and
equities of the case. Cal X-Tra v. W.V.S.V. Holdings, LLC, 229 Ariz. 377, 409,
¶ 106 (App. 2012). And, in this case, neither party has yet established that
such determinations may be resolved via summary judgment. See Santiago
v. Phx. Newspapers, Inc., 164 Ariz. 505, 508 (1990) ("The court may grant
summary judgment only if no dispute exists as to any material facts, if only
one inference can be drawn from those facts, and if the moving party is
entitled to judgment as a matter of law."); Eans-Snoderly v. Snoderly, 249
Ariz. 552, 559, ¶ 26 (App. 2020) (finding the superior court erred in granting
summary judgment based on the equitable defense of laches).
III. Rule 60 Motion.
¶34 Demitri argues the superior court erred in denying his Rule
60 motion because "the passage of Proposition 207 suddenly and
fundamentally changed the rights of the litigants" and "[i]t would be
inequitable, and unjust, to allow the trial court's judgment to stand." We
review the denial of a Rule 60 motion for an abuse of discretion, State ex rel.
Brnovich v. Culver, 240 Ariz. 18, 19-20, ¶ 4 (App. 2016), which occurs when
"no evidence . . . supports the superior court's conclusion, or the reasons
given by the superior court [are] clearly untenable, legally incorrect, or
amount to a denial of justice," In re Estate of Long, 229 Ariz. 458, 464, ¶ 22
(App. 2012) (as amended) (cleaned up).
¶35 In November 2020, Arizona voters passed Proposition 207,
codified at A.R.S. §§ 36-2850 to -2865, which legalized adult use of
recreational marijuana and allows entities with a marijuana establishment
license to dispense marijuana to individuals over twenty-one years of age.
See A.R.S. §§ 36-2854, -2858. It also allows non-profit medical marijuana
dispensaries to become dual licensees, holding a marijuana establishment
license in addition to their non-profit medical marijuana dispensary
registration. See A.R.S. § 36-2850(9), (10). And, as a dual licensee, a non-
profit marijuana dispensary "[m]ay operate on a for-profit basis if the dual
licensee promptly notifies the department and department of revenue and
takes any actions necessary to enable its for-profit operation, including
converting its corporate form and amending its organizational and
operating documents." A.R.S. § 36-2858(D).
¶36 Rule 60 allows the superior court to set aside a judgment
when "applying it prospectively is no longer equitable," Ariz. R. Civ. P.
60(b)(5), or for "any other reason justifying relief," Ariz. R. Civ. P. 60(b)(6).
Rules 60(b)(5) and (6) have been used "liberally in reopening otherwise final
court orders where there has been a change in the law affecting substantial
13
AOW, et al. v. SCYTHIAN, et al.
Decision of the Court
rights of a litigant." Edsall v. Superior Court, 143 Ariz. 240, 243 (1984).
However, in deciding whether Rule 60 relief is warranted, the superior
court must consider the "totality of facts and circumstances," and, therefore,
is afforded "extensive discretion" in deciding whether relief is appropriate.
Gonzalez v. Nguyen, 243 Ariz. 531, 533, 534, ¶¶ 8, 11 (2018); Aloia v. Gore, 252
Ariz. 548, 551, ¶ 11 (App. 2022) (noting "[a] trial court enjoys broad
discretion whether to grant relief from a judgment or order under Rule
60(b)").
¶37 The allegations regarding Alex's conduct, as well as Demitri's
resignation from the Board, occurred nearly five years before the passage
of Proposition 207. The new law does not require medical marijuana
dispensaries to operate as for-profit entities. See A.R.S. § 36-2858(D). And
since the law passed, NPPC applied for and received a recreational
marijuana license but has continued to operate as a non-profit corporation
and, according to Alex, has no intention of converting to a for-profit entity.
Further, to convert, NPPC would have to adhere to the requirements set
forth in A.R.S. § 36-2858(D) and the Arizona Entity Restructuring Act. See
A.R.S. §§ 29-2401, -2102(17)(a). Therefore, we agree with the superior court
that the passage of Proposition 207 in 2020 did "not affect the value of
Demitri's board seat" or create a property interest in a Board seat in 2015
and did not alter the parties' substantive rights such that Rule 60 relief
would be required. See Aloia, 248 Ariz. at 253, ¶ 22 (finding the superior
court erred in granting relief under Rule 60(b) when parties' circumstances
not "extraordinary").
IV. Attorney Fees & Costs.
¶38 Demitri argues that the superior court improperly awarded
attorney fees as it "failed to address any of the relevant factors it should
have considered when determining if attorneys' fees were proper" and
"made zero effort to determine whether the fees requested were
reasonable." And Odelma argues that NPPC "cannot be considered the
'successful' party as to its cross-claim" and the superior court acted
inequitably in awarding fees jointly and severally because of her minimal
involvement in the suit. Because we remand this case for further
proceedings, we vacate the attorney fee award and do not address the
merits of these arguments.
¶39 The parties also all request an award of fees and costs on
appeal pursuant to A.R.S. § 12-341 and -341.01. In our discretion, we deny
the requests for fees and, because neither party substantially prevailed, we
decline to award costs.
14
AOW, et al. v. SCYTHIAN, et al.
Decision of the Court
CONCLUSION
¶40 For the foregoing reasons, we affirm in part, vacate in part,
and remand to the superior court for further proceedings consistent with
this decision.
AMY M. WOOD • Clerk of the Court
FILED: JT
15