Valer C. Austin v. Josiah T. Austin ( 2015 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION TWO
VALER C. AUSTIN,
Petitioner/Defendant/Appellee,
VALERIE A. GORDON,
Defendant/Cross-Claimant/Appellee,
ALBERT H. GORDON III,
Defendant/Cross-Claimant/Appellee,
v.
JOSIAH T. AUSTIN,
Respondent/Plaintiff/Cross-Defendant/Appellant.
No. 2 CA-CV 2014-0134
Filed April 30, 2015
Appeal from the Superior Court in Pima County
Nos. D20134007 and C20140235 (Consolidated)
The Honorable Dean Christoffel, Judge Pro Tempore
AFFIRMED
COUNSEL
DePasquale & Schmidt, PLC
By Paul G. Schmidt and Mark DePasquale, Phoenix
The McCarthy Law Firm, P.L.L.C.
By Kathleen A. McCarthy, Tucson
Counsel for Petitioner/Defendant/Appellee Valer C. Austin
AUSTIN v. AUSTIN
Opinion of the Court
Snell & Wilmer L.L.P.
By Kevin J. Parker, Phoenix
Counsel for Defendant/Cross-Claimant/Appellee Valerie A. Gordon
Russell B. Stowers, PLLC
By Russell B. Stowers, Tucson
Counsel for Defendant/Cross-Claimant/Appellee Albert H. Gordon III
Gabroy, Rollman & Bossé, P.C.
By Richard M. Rollman and Richard A. Brown, Tucson
Counsel for Respondent/Plaintiff/Cross-Defendant/Appellant Josiah T.
Austin
OPINION
Presiding Judge Miller authored the decision of the Court, in which
Chief Judge Eckerstrom and Judge Espinosa concurred.
M I L L E R, Judge:
¶1 Josiah Austin appeals from the trial court’s judgment
denying his motion to compel arbitration. For the following reasons,
we affirm.
Factual and Procedural Background
¶2 In reviewing a denial of a motion to compel arbitration,
we must defer to the trial court’s factual findings unless clearly
erroneous. Harrington v. Pulte Home Corp., 211 Ariz. 241, ¶¶ 8, 16,
119 P.3d 1044, 1048, 1049-50 (App. 2005). None of the parties
directly challenges the court’s factual findings under this standard.1
1We note, however, that Josiah, for the first time in his reply
brief, alleges several of the trial court’s factual findings are clearly
erroneous. But “[w]e will not consider arguments made for the first
time in a reply brief.” Dawson v. Withycombe, 216 Ariz. 84, ¶ 91, 163
P.3d 1034, 1061 (App. 2007).
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AUSTIN v. AUSTIN
Opinion of the Court
Given the complex nature of the underlying property transactions in
the case before us, a detailed review of the factual background is
necessary.
¶3 Josiah and Valer Austin were married in 1982. Valer
has two children by a previous marriage (hereinafter “children”).
Valer had inherited substantial property before her marriage to
Josiah. Early in the marriage, Valer agreed to Josiah’s management
of a portion of her assets with the understanding that the majority of
the assets would continue to be managed by third parties and
monitored by Josiah.
¶4 Valer, in her estate planning, wished to ensure that
certain of her property would be transferred to the children at
specific future dates. Accordingly, in November 1987, Valer created
two Grantor Retained Income Trusts (GRITs)2 for the benefit of her
children. The Valer C. Austin Trust I dated November 19, 1987
(Valer GRIT) was created as an irrevocable trust for a period of 15
years, with the children designated as the beneficiaries, and was
funded by Valer’s separate property. The Josiah Austin Trust I
dated December 17, 1987 (Josiah GRIT) was created as an irrevocable
trust for a period of 20 years with the children designated as the
beneficiaries. Although Josiah was shown as the grantor of the
assets in the Josiah GRIT, those assets too were derived from Valer’s
separate property.
¶5 In 1996, Josiah was appointed trustee of the GRITs and,
in 1997, El Coronado Holdings, LLC (ECH) was formed. The 1997
ECH operating agreement shows the initial members as Josiah,
Valer, the Josiah GRIT, and the Valer GRIT. Directly pertinent
provisions of the 1997 operating agreement include:
2“The GRIT is a variation on the inter vivos gift, which has
long been used by taxpayers as an estate-planning strategy designed
to reduce transfer-tax liability.” Mitchell M. Gans, GRIT’s, GRAT’s
and GRUT’s: Planning and Policy, 11 Va. Tax Rev. 761, 763 (1992).
The GRIT was recognized in the 1980s as a particularly attractive
method by which to effect an inter vivos gift and was therefore one
of the most popular estate-planning strategies. See id.3
AUSTIN v. AUSTIN
Opinion of the Court
a. Josiah was designated as the sole
manager with absolute, exclusive
authority, power, and discretion to act
on behalf of ECH, which provided Valer
with no authority or control over the
assets transferred into ECH.
b. Josiah’s removal as manager required
the affirmative vote of members holding
two-thirds of the ownership interests,
which, given the size of holding
attributable to Josiah under the
agreement, made it impossible for Valer
or any other member to remove Josiah
without his consent.
c. Withdrawal by a member constituted a
breach of the 1997 operating agreement,
permitting ECH to recover damages as
an offset against any amount
distributable to the withdrawing
member. The amount of damages was
determined in the Manager’s sole
discretion.
d. Josiah had the sole power to determine
whether distributions would be made to
members and, if so made, whether or
not it would be distributed on a pro-rata
basis.
e. All disputes among members were to be
arbitrated if they could not be resolved
through mediation.
¶6 Josiah and Valer signed the 1997 operating agreement in
August 1997. Valer testified she had signed the 1997 operating
agreement without reading it and without knowing it contained an
arbitration provision. Josiah testified it was possible he only gave
the signature page of the 1997 operating agreement to Valer and told
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Opinion of the Court
her to sign it. Valer testified she had not seen the 1997 operating
agreement before she signed it and it was her practice to trust her
husband as to signing what he put in front of her. Valer was not
advised about the operating agreement, its arbitration clause, or its
effect on her rights or property.
¶7 In January 2000, Valer signed a document creating the
Austin Family Revocable Trust. Valer was not advised that the
family trust document might transmute her sole and separate
property into community property, nor was she advised of the
significant effects of transmuting sole and separate property to
community property in the event of a divorce. The family trust
document did not describe which assets would be transferred into
that trust nor was Valer so advised. As of August 1997, the value of
Valer’s separate property brokerage account, which Josiah had
transferred into ECH, was valued at approximately $58 million.
¶8 In April 2005, Josiah provided Valer with the signature
page for an Amended and Restated Operating Agreement for ECH
effective April 16, 2005 (2005 operating agreement). Valer was not
provided the text of the rest of the 2005 operating agreement and
signed it based on Josiah’s direction. The 2005 operating agreement
amended the members of ECH to include: the Austin Family
Revocable Trust, the Josiah GRIT, and the Valer GRIT. In the 2005
operating agreement, Josiah was once again designated as the sole
manager of ECH, and a vote of ninety percent of the ECH members
was required to remove him as manager.
¶9 In November 2013, Valer filed a petition for dissolution
of marriage from Josiah. Soon after, Valer moved for joinder of the
children as additional parties necessary to resolve disputes
regarding the management of ECH.3 In January 2014, Josiah filed a
3 Valer also moved to join the Chisos Trust and Hanu
Holdings, LLC as members of ECH. In 2010, the Chisos Trust was
funded with assets previously held in the Josiah GRIT and was
created to hold assets in trust for the children’s lifetimes. Chisos
Trust included Chisos 1 and Chisos 2. In December 2010, the
entirety of the membership interest of Chisos 2 in ECH was
transferred to Hanu Holdings, LLC.
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AUSTIN v. AUSTIN
Opinion of the Court
civil complaint against Valer and the children seeking to compel
arbitration of the ECH dispute. The trial court granted Valer’s
motion to join the children as necessary parties as well as her motion
to consolidate Josiah’s civil case with the dissolution proceeding. In
March 2014, the children filed a cross-claim against Josiah. In
response, Josiah moved to compel the children to arbitrate their
cross-claims.
¶10 After a two-day evidentiary hearing the trial court
issued an under advisement ruling and signed order denying
Josiah’s motions to compel arbitration. Josiah timely filed this notice
of appeal, and we have jurisdiction pursuant to A.R.S.
§ 12-2101.01(A)(1).
Valer’s Claims
¶11 Josiah argues the trial court erred when it improperly
applied the heightened standards of In re Harber’s Estate, 104 Ariz.
79, 449 P.2d 7 (1969), instead of ordinary contract principles in its
analysis of the arbitration agreement, as it concerned Valer and him.
Our review of this issue is de novo. Smith v. Pinnamaneni, 227 Ariz.
170, ¶ 7, 254 P.3d 409, 412 (App. 2011).
¶12 Although public policy supports arbitration
agreements, “‘[o]nly when the arbitration provision is enforceable
will the court compel arbitration.’” WB, The Building Company, LLC
v. El Destino, LP, 227 Ariz. 302, ¶ 11, 257 P.3d 1182, 1186 (App. 2011),
quoting Stevens/Leinweber/Sullens, Inc. v. Holm Dev. & Mgmt., Inc., 165
Ariz. 25, 30, 795 P.2d 1308, 1313 (App. 1990) (alteration in WB). An
arbitration provision is not valid or enforceable where “a ground
exists . . . at law or in equity for the revocation of a contract.” A.R.S.
§ 12-3006(A). Generally, “[l]egal or equitable grounds for revoking
any contract include allegations that ‘the contract is void for lack of
mutual consent, consideration or capacity or voidable for fraud,
duress, lack of capacity, mistake or violation of a public purpose.’”
Stevens/Leinweber/Sullens, 165 Ariz. at 28-29, 795 P.2d at 1311-12,
quoting U.S. Insulation v. Hilro Const. Co., 146 Ariz. 250, 253, 705 P.2d
490, 493 (App. 1985).
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AUSTIN v. AUSTIN
Opinion of the Court
¶13 In Harber’s Estate, a husband and wife entered into a
postnuptial agreement, not incident to or in contemplation of
separation or divorce, which provided all property not otherwise
described therein was to become the sole property of husband. See
104 Ariz. at 84, 449 P.2d at 12. Our supreme court concluded that
marital partners may “validly divide their property presently and
prospectively by a post-nuptial agreement” but such an agreement
must include built-in safeguards to ensure the agreement is “free
from any taint of fraud, coercion or undue influence; that the wife
acted with full knowledge of the property involved and her rights
therein, and that the settlement was fair and equitable.” Id. at 88,
449 P.2d at 16. Accordingly, although “all contracts or agreements
between husband and wife in Arizona are [not] presumptively void
or fraudulent,” our supreme court held that spouses may enter a
contract to divide their property outside a divorce or separation, but
that when such a postnuptial agreement is
attacked by a wife on the grounds that the
transaction was fraudulent or coerced, or is
inequitable and unfair, the wife may have a
judicial determination at that time whether
the agreement is invalid as to her, and that
it is the husband’s burden to prove by clear
and convincing evidence that the
agreement was not fraudulent or coerced,
or that it was not unfair or inequitable.[4]
Id.¶14 We therefore examine whether the ECH operating
agreement is a postnuptial agreement governed by the principles
outlined in Harber’s Estate. A postnuptial agreement is defined as
4 Although Harber’s Estate employs antiquated language
indicative of its time, the principle applied therein—that the
relationship between spouses is confidential and fiduciary—is still
applicable today. See 104 Ariz. at 88, 449 P.2d at 16; Gerow v. Covill,
192 Ariz. 9, ¶ 40, 960 P.2d 55, 64 (App. 1998) (holding that fiduciary
relationship exists between spouses).
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Opinion of the Court
“[a]n agreement entered into during marriage to define each
spouse’s property rights in the event of death or divorce.” Black’s
Law Dictionary 1356 (10th ed. 2014).
¶15 Both the ECH 1997 operating agreement and the 2005
operating agreement, as well as the arbitration clauses, were made
between Josiah and Valer while husband and wife. ECH was
created to allow the Austins to obtain discounts on the valuation of
the LLC assets and tax savings for the surviving spouse when either
Josiah or Valer died, or for Valer’s children when one or both of
them passed. As the trial court found, the operating agreements
placed “severe and permanent” limitations on Valer’s property
rights and resulted in a significant transfer of authority to Josiah,
such that the operating agreements affected Valer’s property rights
“to the same or greater extent than would a post-nuptial property
settlement agreement.”
¶16 Josiah argues that Harber’s Estate is limited only to
postnuptial property division agreements and “should not be
extended to all business agreements between spouses.” But Josiah’s
attempt to characterize the ECH operating agreements as arm’s-
length business transactions between spouses is unavailing.
Substantial evidence supports the trial court’s finding that the net
effect of the operating agreements was to place permanent and
significant limitations on Valer’s property rights, arguably including
the transformation of separate property to community property. 5
Despite the sophistication of the legal instruments employed, the
impact of the operating agreements was no less severe than a more
traditional postnuptial property division agreement.
5Josiah asserted at oral argument that the documents did not
automatically transform Valer’s separate property to community
property. But he qualified this assertion with the limitation that the
trial court would decide later if some or all of her separate property
was transformed, presumably on the basis of the subject documents.
This distinction in timing does not constitute a meaningful
difference.
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AUSTIN v. AUSTIN
Opinion of the Court
¶17 Josiah correctly observes that all subsequent Arizona
cases applying the requirements outlined in Harber’s Estate have
been applied to marital property division agreements. See Wick v.
Wick, 107 Ariz. 382, 384-85, 489 P.2d 19, 21-22 (1971); Breitbart-Napp
v. Napp, 216 Ariz. 74, 76, 163 P.3d 1024, 1026 (App. 2007); Sharp v.
Sharp, 179 Ariz. 205, 207, 877 P.2d 304, 306 (App. 1994); Keller v.
Keller, 137 Ariz. 447, 448, 671 P.2d 425, 426 (App. 1983). But Josiah
points to no authority, and we are aware of none, that precludes
application of Harber’s Estate to the facts before us. Unlike the
agreements at issue in the cases cited by Josiah, both the postnuptial
agreement in Harber’s Estate and the operating agreements between
Josiah and Valer were made at a time when separation or divorce
was not imminent or contemplated. See Harber’s Estate, 104 Ariz. at
84, 449 P.2d at 12.
¶18 Josiah also relies on Bell-Kilbourn v. Bell-Kilbourn, 216
Ariz. 521, ¶¶ 8-11, 169 P.3d 111, 113-14 (App. 2007), and Bender v.
Bender, 123 Ariz. 90, 94, 597 P.2d 993, 997 (App. 1979), to distinguish
Harber’s Estate. But both cases involved disclaimer deeds and both
are clear that such deeds are not analyzed as postnuptial
agreements. See Bell-Kilbourn, 216 Ariz. 521, ¶¶ 9-10, 169 P.3d at 113-
14; Bender, 123 Ariz. at 93-94, 597 P.3d at 996-97. Moreover, both
Bell-Kilbourn and Bender explicitly noted that the issue of mistake or
fraud had not been raised. See Bell-Kilbourn, 216 Ariz. 521, ¶ 9, 169
P.3d at 114; Bender, 123 Ariz. at 94, 597 P.2d at 997. Therefore, these
cases are inapposite.
¶19 Finally, Josiah contended at oral argument that
application of Harber’s Estate in this context would result in the need
for separate counsel for both spouses before creating trusts or other
complex estate documents, which would burden the delivery of
legal services. To the extent that separate property is transferred to
the community estate, or even significant limitations are placed on
separate property, lawyers have always had to consider whether
joint representation is possible or nonconsentable. See, e.g., ER 1.7,
Ariz. R. Prof’l Conduct, Ariz. R. Sup. Ct. 42. Even if separate
counsel is deemed necessary to ensure the independence and loyalty
of counsel’s advice, it preserves “essential elements in the lawyer’s
relationship to a client.” Id. at cmt. 1. Although we do not see our
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AUSTIN v. AUSTIN
Opinion of the Court
holding as an expansion of Harber’s Estate, if there is an increase in
independent legal advice, it will be for a permissible and laudable
purpose.
¶20 In sum, the mere use of a limited liability company to
effectuate changes to the property rights of spouses does not
transmute such an agreement into an arm’s-length business
transaction as Josiah suggests. The trial court did not err in applying
the requirements in Harber’s Estate to the facts of the instant case.
Because the operating agreements were made during Valer and
Josiah’s marriage and altered each spouse’s property rights in the
event of death, the ECH operating agreements meet the definition of
a postnuptial agreement. Therefore, the requirements of Harber’s
Estate apply. See 104 Ariz. at 88, 449 P.2d at 16. The court did not err
when it required Josiah to demonstrate by clear and convincing
evidence that Valer was aware of the property subject to the
arbitration provision or advised of the effect of the arbitration
provision, or her rights therein.
¶21 Josiah argues in the alternative that “under ordinary
contract law principles, a party is bound by the terms of an
agreement that she signs without reading it.” Although we agree
with Josiah’s contention as a general legal principle, he does not
provide Arizona authority applying that principle to a postnuptial
agreement. See Jones v. Chiado, 137 Ariz. 298, 298-99, 670 P.2d 403,
403-04 (App. 1983) (dispute between real estate developers);
Harrington, 211 Ariz. 241, ¶ 2, 119 P.3d at 1046 (dispute between
homeowners and homebuilder); Rocz v. Drexel Burnham Lambert, Inc.,
154 Ariz. 462, 463, 743 P.2d 971, 972 (App. 1987) (dispute between
securities brokerage firm and client). Thus, we find the cited cases
unpersuasive in the context of a postnuptial agreement that falls
under Harber’s Estate. To the extent Josiah argues we should
overrule the holding in Harber’s Estate to analyze postnuptial
agreements the same as all commercial agreements under ordinary
contract law, this court is bound by the decisions of our supreme
court and must apply the law it has declared. See Bazzanella v.
Tucson City Court, 195 Ariz. 372, ¶ 8, 988 P.2d 157, 161 (App. 1999).
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Opinion of the Court
The Children’s Claims
¶22 Josiah argues the trial court erred in concluding that the
children were not bound by the arbitration agreement. Although he
concedes the children were not signatories to either the 1997 or 2005
operating agreement, he contends they are intended beneficiaries
and therefore estopped from avoiding arbitration. We review
separately, but de novo, whether the children’s claims are subject to
arbitration. See Estate of Decamacho ex rel. Guthrie v. La Solana Care
and Rehab, Inc., 234 Ariz. 18, ¶ 9, 316 P.3d 607, 609-10 (App. 2014).
We also review a trial court’s decision not to apply estoppel for an
abuse of discretion. Flying Diamond Airpark, LLC v. Meienberg, 215
Ariz. 44, ¶ 27, 156 P.3d 1149, 1155 (App. 2007). “To constitute an
abuse of discretion, the [trial] court’s decision must be either
premised on an application of the law that is erroneous, or on an
assessment of the evidence that is clearly erroneous.” Grigson v.
Creative Artists Agency L.L.C., 210 F.3d 524, 528 (5th Cir. 2000); see also
City of Tucson v. Clear Channel Outdoor, Inc., 218 Ariz. 172, ¶ 65, 181
P.3d 219, 237 (App. 2008).
Third-Party Beneficiary
¶23 With certain exceptions, the general rule is that an
arbitration agreement is binding only on parties to the agreement.
Dueñas v. Life Care Ctrs. of Am., Inc., 236 Ariz. 130, ¶ 26, 336 P.3d 763,
772 (App. 2014). Courts have made clear, however, that a
“nonsignatory party may be bound to an arbitration agreement if so
dictated by the ‘ordinary principles of contract and agency,’”
Thomson-CSF, S.A. v. Amer. Arbitration Ass’n, 64 F.3d 773, 776 (2d.
Cir. 1995), quoting McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d
519, 524 (2d Cir. 1980). Although “there is a dearth of Arizona
precedent” on arbitration-by-estoppel, Crawford Prof’l Drugs, Inc. v.
CVS Caremark Corp., 748 F.3d 249, 261 (5th Cir. 2014) (applying
Arizona law), the third-party beneficiary doctrine is one of the
established grounds upon which a party to an arbitration agreement
can require a nonsignatory to arbitrate, see Bridas S.A.P.I.C. v. Gov’t of
Turkmenistan, 345 F.3d 347, 356, 362 (5th Cir. 2003).
¶24 Under the third-party beneficiary exception, a non-
signatory party may be barred from avoiding arbitration if he has
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Opinion of the Court
received a direct benefit from the arbitration agreement.
Schoneberger v. Oelze, 208 Ariz. 591, ¶ 14, 96 P.3d 1078, 1081 (App.
2004). “Arbitration rests on an exchange of promises,” and
“[p]arties to a contract may decide to exchange promises to
substitute an arbitral for a judicial forum.” Id. ¶ 20. In evaluating
whether the third-party beneficiary theory applies to a particular
arbitration agreement, “a court must look to the intentions of the
parties at the time the contract was executed.” Id. n. 6, quoting Bridas
S.A.P.I.C., 345 F.3d at 362.
¶25 The trial court found “that the children did not receive
benefits directly from ECH that they were not already entitled to
receive as beneficiaries of the GRITs.” Additionally, the court found
that the children’s “interests in the GRITs were detrimentally
impacted by Josiah putting the GRIT assets into ECH without their
knowledge or consent.” Therefore, it concluded the ECH operating
agreement was not enforceable against the children.
¶26 Josiah contends the trial court erred in finding the
children did not receive a direct benefit from the ECH operating
agreement because the children were “intended to benefit from ECH
as the ultimate heirs of the ECH assets, which would be
substantially discounted in value for estate tax purposes.” This
argument lacks support in the record. For instance, the children
would not receive any additional estate tax benefit for the GRIT
assets by being included in ECH, at least as long as the children are
alive, as acknowledged at the hearing by the Austins’ attorney. To
the extent Josiah also claims the children would receive a federal
estate tax discount on the non-GRIT assets in ECH, the evidence at
the hearing demonstrated that the ECH structure, combined with
another family trust created by Josiah, was a vehicle that would
allow Josiah to take all of these assets for himself, to the exclusion of
the children, should Valer predecease Josiah. Thus, even assuming
arguendo the third-party beneficiary doctrine can be applied in
circumstances in which the benefit has not yet been received, the
benefits Josiah alleges the children will enjoy are entirely contingent
on whether Valer predeceases Josiah, an outcome that is by no
means assured. Accordingly, any tax benefits the children might
enjoy are speculative in nature.
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Opinion of the Court
¶27 Josiah also argues the children were intended to benefit
from “the asset protection features of ECH.” To the contrary,
however, any judgment creditor of the children could obtain a
charging order against ECH, and thereby “intercept” any ECH
assets that might otherwise be paid to the children. See A.R.S.
§ 29-655(A) (upon court order, judgment creditor “may charge the
member’s interest in the limited liability company with payment of
the unsatisfied amount of the judgment plus interest”). In addition,
by placing the GRIT assets into ECH, the children may have those
assets exposed to ECH’s creditors.
¶28 In sum, the record discloses no evidence of a benefit or
exchange of promises between Josiah and the children. Here, the
children do not seek any benefits under the arbitration agreement; in
fact, they claim “that ECH and/or its Operating Agreement were
invalid from inception.” In addition, as this court pointed out in
Schoneberger, a non-party to an arbitration agreement must receive a
direct benefit from the agreement if they are going to be required to
abide by the arbitration. See 208 Ariz. 591, ¶¶ 13-14, 96 P.3d at 1081;
see also E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin
Intermediates, S.A.S., 269 F.3d 187, 196-97 (3d Cir. 2001) (“[I]f it was
not the promisee’s intention to confer direct benefits upon a third
party, but rather such third party happens to benefit from the
performance of the promise either coincidentally or indirectly, then
the third party will have no enforceable rights under the contract.”).
No such direct benefit is present here.
Direct Benefits Estoppel
¶29 Josiah next argues the children are compelled to
arbitrate under the direct benefits estoppel theory because their
cross-claims must be determined by reference to the arbitration
agreement. Under direct benefits estoppel, a nonsignatory may be
compelled to arbitrate only when the nonsignatory (1) knowingly
exploits the benefits of an agreement containing an arbitration
clause, or (2) seeks to enforce terms of that agreement or asserts
claims that must be determined by reference to the agreement. See
Reid v. Doe Run Res. Corp., 701 F.3d 840, 846 (8th Cir. 2012).
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Opinion of the Court
¶30 As noted above, the children do not benefit from the
ECH operating agreement; instead their interests “were
detrimentally impacted by Josiah putting the GRIT assets into ECH
without their knowledge or consent.” Thus, the children cannot be
said to have knowingly exploited the benefits of the ECH operating
agreement. We therefore next examine whether the children seek to
enforce terms of the ECH operating agreement or assert claims that
must be determined by reference to the agreement.
¶31 In making this determination, we must “‘look past the
labels the parties attach to their claims to the underlying factual
allegations.’” Id. at 848, quoting 3M Co. v. Amtex Sec., Inc., 542 F.3d
1193, 1199 (8th Cir. 2008). Although it is true that one or more of the
children’s alternative cross-claims may require reference to the ECH
operating agreement, the principal factual allegation underlying the
children’s cross-claims is that the GRITs should never have been
transferred into ECH and that they are involuntary members of
ECH. As the trial court concluded, the alternative relief sought by
the children in their cross-claim applies only if the court deems the
ECH structure to be binding on them. Such a contingency, to which
they object, is not sufficient to create estoppel that requires the
children to arbitrate their claims. Thus, the children are not
estopped from avoiding arbitration, and the trial court did not err by
finding the arbitration provision unenforceable against them.
Scope of Trial Court’s Findings
¶32 Josiah argues the “trial court failed to limit itself to the
questions of whether an arbitration agreement exists and whether
the parties were bound by it.” He cites A.R.S. § 12-3006 and National
Bank of Arizona v. Schwartz, 230 Ariz. 310, ¶ 4, 283 P.3d 41, 42 (App.
2012), for the proposition that a reviewing court is limited in its
review to the determination of whether an arbitration agreement
exists and whether the parties are bound by that agreement. But to
the extent the court made findings such as the source of the
securities that funded the GRITs and ECH was Valer’s sole and
separate property, such findings were necessary to determine
whether the operating agreement was fraudulent or coerced, or
whether it was unfair or inequitable. See Harber’s Estate, 104 Ariz. at
88, 449 P.2d at 16. Accordingly, the court did not err in the scope of
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Opinion of the Court
its findings in determining whether the arbitration agreement was
enforceable as to Valer and the children.6
Language of Arbitration Agreement
¶33 Josiah raises several arguments related to the trial
court’s determination that the plain language of the arbitration
clause did not permit Josiah, as manager of ECH, to enforce the
arbitration agreement. Because we affirm the court’s denial of
Josiah’s motions to compel arbitration on other grounds, we need
not address them.
Attorney Fees
¶34 The parties request attorney fees pursuant to A.R.S.
§ 12-341.01, under which a court may award reasonable fees to the
successful party in an action arising out of contract. But we have
interpreted § 12-341.01 to mean that the ultimate prevailing party in
an underlying action arising out of contract may be awarded
attorney fees. See U.S. Insulation, 146 Ariz. at 259, 70 P.2d at 499.
Because a decision on the merits has not yet been made in this case,
we deny the attorney fees requests. See id.; Esmark, Inc. v. McKee, 118
Ariz. 511, 514, 578 P.2d 190, 193 (App. 1978).
Disposition
¶35 For the foregoing reasons, we affirm the trial court’s
ruling denying Josiah’s motions to compel arbitration.
6We also note that Josiah, for the first time in his reply brief,
asserts that we should “establish the proper procedures for findings
on a motion to compel arbitration and direct that the case be
reassigned.” But again, we do not consider arguments made for the
first time in a reply brief. Dawson, 216 Ariz. 84, ¶ 91, 163 P.3d at
1061. Accordingly, we deny as moot Valer and the children’s joint
motion to strike portions of the reply brief in which they request we
strike those arguments made for the first time therein.
15