Tempe v. Graystar ( 2023 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
CITY OF TEMPE, Plaintiff/Appellee,
v.
GRAYSTAR INVESTMENTS, LLC, et al., Defendants/Appellants.
No. 1 CA-CV 22-0039
FILED 4-13-2023
Appeal from the Superior Court in Maricopa County
No. CV2019-005406
The Honorable Daniel G. Martin, Judge
AFFIRMED
COUNSEL
Dickinson Wright PLLC, Phoenix
By D. Samuel Coffman, Bradley A. Burns, Amanda E. Newman
Counsel for Plaintiff/Appellee
Law Office of Dennis A. Sever PLLC, Mesa
By Dennis A. Sever
Counsel for Defendants/Appellants
TEMPE v. GRAYSTAR, et al.
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Jennifer M. Perkins delivered the decision of the Court, in
which Judge Angela K. Paton and Judge D. Steven Williams joined.
P E R K I N S, Judge:
¶1 Graystar Investments, LLC, Graystar Holdings, LLC, Cochise
Investments, LLC, KL-998 Trust, and Kenneth Losch (collectively, “Losch”)
appeal the entry of summary judgment for Tempe on multiple claims
arising from its attempt to collect on a judgment. For the following reasons,
we affirm.
¶2 While this appeal was pending, Kingston Holdings, LLC,
Kingston Capital Co., LLC, DCD-998 Trust, David Dewar, and Susan
Dewar (collectively, “Dewar”) settled with the City of Tempe (“Tempe”)
and voluntarily dismissed their appeal. Thus, we do not address the issues
Dewar raised on appeal, or any arguments about joint and several liability
because they are moot.
FACTS AND PROCEDURAL BACKGROUND
¶3 In 2007, Riverview Apartments, LLC (“Riverview”) owned an
apartment complex located on the south side of Washington Street in
Tempe, Arizona. Mr. Losch and Mr. Dewar operated Riverview through
various business entities.
¶4 As part of the Central Phoenix/East Valley Light Rail Project,
Tempe sought to construct a light rail station adjacent to Riverview. But the
East Valley Light Rail Project did not have funding to build the station. So,
Tempe approached the surrounding property owners to contribute funds
for the station’s construction. In July 2007, Riverview agreed to contribute
$1.3 million to expedite the construction, which could be paid in either ten
installments or a lump sum.
¶5 Later in 2007, Losch sold Riverview and reaped over $16.7
million in net proceeds. Losch and Dewar ordered the proceeds to be
equally distributed to their respective entities. Shortly after closing the sale
of the property, the PFC Corporation, another creditor, sued Riverview to
collect on an earlier debt. The PFC litigation revealed that after the
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Riverview sale proceeds were disbursed, Riverview possessed “some
minor amounts of cash,” but no other assets.
¶6 In June 2009, Tempe forwarded Riverview a statement
requesting payment of either the first installment or the lump sum by July
1, 2009. Riverview made no payment. Four months later, Tempe sent Losch
a follow-up letter requesting payment no later than December 1, 2009.
¶7 On December 6, 2010, Riverview entered an “Installment
Promissory Note,” promising to pay Tempe five annual payments of
$130,000 with the remainder due in the sixth year. These payments were set
to begin on April 1, 2012, giving Riverview more than a year to make its
first payment. Riverview failed to make the payments in 2012, 2013, 2014,
2015, and 2016.
¶8 On June 28, 2016, Tempe sued Riverview for the $1.3 million
due under the note. The superior court awarded Tempe a default judgment
for $1.3 million, with interest to accrue at 1% per month. Shortly after
receiving the default judgment, Tempe sought to collect the debt. During
the resulting debtor’s examination, Mr. Losch testified that the proceeds
were disbursed to the owners shortly after the Riverview sale.
¶9 In 2019, Tempe sued Losch and Dewar alleging liability for
the $1.3 million judgment under the Uniform Fraudulent Transfer Act
(“UFTA”) and raising common law unjust enrichment and trust fund
doctrine claims. The superior court granted Tempe summary judgment.
Losch timely appealed, and we have jurisdiction. A.R.S. § 12-2101(A)(1).
DISCUSSION
¶10 We review the superior court’s grant of summary judgment
de novo, affirming if there are no genuine disputes of material fact and the
moving party is entitled to judgment as a matter of law. See Ariz. R. Civ. P.
56(a); Williamson v. PVOrbit, Inc., 228 Ariz. 69, 71, ¶ 11 (App. 2011). We may
affirm the grant of summary judgment on any grounds raised in the
superior court. See Zuck v. State, 159 Ariz. 37, 42 (App. 1988).
I. Doctrine of Laches and Statute of Repose
¶11 Losch argues that Tempe’s claims are time-barred under the
doctrine of laches. We disagree. The doctrine of laches does not apply
against government entities “in matters affecting the public interest absent
a statute expressly allowing such a defense.” State ex rel. Darwin v. Arnett,
235 Ariz. 239, 245, ¶ 33 (App. 2014); see also Mohave Cnty. v. Mohave-Kingman
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Est., Inc., 120 Ariz. 417, 421 (1978) (“In general, equitable defenses . . . will
not lie against the state, its agencies or subdivisions in matters affecting
governmental or sovereign functions.”). Because Losch points to no such
statute, the laches defense is unavailable.
¶12 Losch’s citation to State v. Garcia is unpersuasive. In Garcia, we
applied laches against the state, noting that while “equitable defenses may
not be asserted against the state when exercising its governmental or
sovereign functions” laches was appropriate because the state brought a
“derivative or third-party claim.” 187 Ariz. 527, 529 (App. 1996). Garcia is
inapplicable here because Tempe did not assert a “derivative or third-party
claim,” but sued to recover money due to the general fund. And collecting
money due to the general fund is an exercise of “governmental or sovereign
functions.” See City of Bisbee v. Cochise Cnty., 52 Ariz. 1, 18 (1938) (allowing
the city to recover penalties and fees owed on past due taxes). Thus, the
doctrine of laches does not apply to Tempe’s claims.
¶13 Losch next argues that Tempe’s claims are time-barred.
Generally, time bars do not prevent government entities from pursuing
their claims. Id. at 8; City of Phoenix v. Glenayre Elec., Inc., 242 Ariz. 139, 143,
¶ 10 (2017). But the legislature can impose a time bar on the government’s
claims by “expressly and definitely” stating that the limitation applies to
the government. Glenayre Elec., Inc., 242 Ariz. at 143, ¶ 14.
¶14 Losch argues that despite being repealed in 2020, Section 29-
706(D) bars Tempe’s claims. Tempe does not dispute that the statute has
effect despite being repealed, but Tempe argues that Section 29-706(D)
applies only to wrongful distribution claims and Tempe made no claim for
wrongful distribution. We agree. Under Section 29-706(D), “[a member] is
liable to the limited liability company for a period of six years thereafter for
the amount of the wrongful distribution.” A.R.S. § 29-706(D) (repealed
effective Sep. 1, 2020). Tempe did not bring a “wrongful distribution” claim,
so Section 29-706(D)’s statute of repose does not provide an applicable time
bar here.
¶15 We are not persuaded by Losch’s argument that Section
29-706 preempted the common law trust fund doctrine claim, imposing the
statute of repose on that claim. “We will not interpret a law to deny,
preempt or abrogate common-law damages actions” when it does not
contain such text. Hayes v. Cont’l Ins. Co., 178 Ariz. 264, 273 (1994); see also S.
AZ Home Builders Assoc. v. Town of Marana, --- Ariz. ---, ¶ 31, 522 P.3d 671,
676 (2023) (“Statutory interpretation requires us to determine the meaning
of the words the legislature chose to use. We do so neither narrowly nor
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liberally, but rather according to the plain meaning of the words in their
broader statutory context, unless the legislature directs us to do
otherwise.”). The statutory text here contains no express preemption of the
common-law trust fund doctrine.
¶16 Losch also contends the UFTA provides a time bar in its
statute of repose, which reads, “A claim for relief . . . under this article is
extinguished unless an action is brought . . . within four years after the
transfer was made or the obligation was incurred.” A.R.S. § 44-1009. Losch
argues that the legislature sought to apply this limitation to the government
because it defines “creditor” as a “person,” and defines “person” to include
“government or [a] governmental subdivision or agency.” A.R.S. § 44-
1001(7). But “such an attenuated connection” neither “expressly” nor
“definitively” shows that the limitation statute applies to the state. State
Dept. of Env’t Prot. v. Caldeira, 794 A.2d 156, 164 (N.J. 2002) (interpreting
UFTA). And “reliance on the definition of person is problematic because
that word is not even present in the UFTA limitation clause.” Id. Unlike the
statute at issue in Glenayre Elec., there is nothing in this statute of repose
that expressly and definitely shows it applies to government entities. And
we are unwilling to do by implication what the legislature did not do
directly. Cf. Hayes, 178 Ariz. at 273. Thus, Tempe’s claims are not barred
under the doctrine of laches or either statute of repose.
II. Genuine Disputes of Material Fact
¶17 Losch argues that genuine disputes of material fact remain,
precluding summary judgment. As an initial matter, we need not address
whether there is a material dispute over when Tempe discovered the basis
for its UFTA claim because we already concluded that Section 44-1009 does
not apply here.
¶18 We view “the evidence in the light most favorable to the
nonmoving party,” Comerica Bank v. Mahmoodi, 224 Ariz. 289, 292, ¶ 19
(App. 2010), but Losch must have introduced sufficient evidence to counter
the award of summary judgment. Orme Sch. v. Reeves, 166 Ariz. 301, 307
(1990). Losch argues three genuine disputes preclude summary judgment.
¶19 First, Losch argues that a material dispute exists about
whether Tempe was a creditor and Riverview was insolvent. We disagree.
Tempe became a creditor and Riverview became a debtor when they
entered the memorandum of understanding, and Losch became a debtor
two months later when Mr. Losch transferred all Riverview’s sale proceeds
to his separate business entities. See A.R.S. § 44-1004(A) (“A transfer made
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or obligation incurred by a debtor is fraudulent as to a creditor, whether the
creditor’s claim arose before or after the transfer was made or the obligation
was incurred.”); A.R.S. § 44-1001(2) (defining “Claim” to include “a right to
payment, whether or not the right is reduced to judgment,” “matured” or
“unmatured.”). And after payment on the memorandum of understanding
became due, Mr. Losch negotiated with Tempe to enter the promissory note
and forgo payment for more than a year, knowing that Riverview was
insolvent because it had sold its sole asset and distributed all the proceeds
to its members. Thus, there was no dispute of material fact about whether
Tempe was a creditor or whether Riverview was insolvent.
¶20 Second, Losch argues that Tempe failed to introduce evidence
showing that Mr. Losch, individually, the KL-998 Trust, or Cochise
Investments, LLC received proceeds from the sale of Riverview. Losch
misconstrues Tempe’s burden. Tempe need not show that specific funds
from Riverview’s sale were transferred to other entities, only generally that
the funds were transferred under the criteria outlined in the UFTA. See
A.R.S. § 44-1004; see also Nwokedi v. Unlimited Restoration Specialists, Inc., 428
S.W.3d 191, 209 (Tex. App. 2014); United States v. Braxtonbrown-Smith, 278
F.3d 1348, 1353 (D.C. Cir. 2002) (reasoning that strict tracing would be
impossible given the fungible nature of money, and requiring such tracing
would amount to no less than “a mathematical impossibility”). Tempe
introduced evidence showing the funds were transferred from Riverview
to the other entities. Losch’s evidence merely showing other sources of
income to the entities is insufficient to create a dispute of material fact
defeating summary judgment. See Orme Sch., 166 Ariz. at 307; see also United
States v. Abbell, 271 F.3d 1286, 1295 n.5 (11th Cir. 2001) (reasoning that only
a small amount of tainted money needed to be commingled to taint even
the legitimate money).
¶21 Third, Losch argues that Tempe failed to introduce sufficient
evidence to meet the elements of liability under the alter-ego theory. To
prove liability under the alter-ego theory, Tempe must show “that unity of
control exists and that observance of the corporate form would sanction a
fraud or promote injustice.” Keg Rest. Ariz., Inc. v. Jones, 240 Ariz. 64, 73, ¶
31 (App. 2016). “Unity of control exists when the parent corporation
exercises ‘substantially total control over the management and activities of
the subsidiary.’” Id. at ¶ 32 (quoting Taeger v. Catholic Fam. & Cmty. Servs.,
196 Ariz. 285, 297, ¶ 45 (App. 1999)). Courts look to factors showing
“substantial total control,” including “common officers or directors, the
parent’s financing of the subsidiary, the parent’s payment of the
subsidiary’s salaries and other expenses, the subsidiary’s failure to
maintain formalities of separate corporate existence, the similarity of the
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parent’s and the subsidiary’s logos, and the opposing parties’ lack of
knowledge of the subsidiary’s separate corporate existence.” Id. at ¶ 32.
¶22 There is no dispute that Losch and Dewar managed and
operated all the other business entities at issue. There is no dispute that
Losch and Dewar bypassed Riverview’s parent company to distribute
proceeds to Graystar and Kingston. There is no dispute that the entities
owned the homes Losch lived in, the planes Losch flew in, or the cars Losch
drove in. There is no dispute that Riverview’s owners transferred monies
between the entities to pay expenses as they became due, and that they
retained sole control over the transfer of those monies. There is no dispute
that observing the corporate form would sanction a fraud or promote an
injustice by allowing Losch to retain funds that he twice assured Tempe
would be paid in exchange for building the light rail station. Thus, there are
no genuine disputes of material fact and summary judgment on the
alter-ego theory was appropriate.
¶23 In addition to Tempe’s declaratory alter ego claim, the
superior court granted summary judgment on its claims for fraudulent
transfer, trust fund doctrine, and unjust enrichment. Aside from the factual
disputes dealt with above, Losch does not argue that genuine disputes of
material fact preclude summary judgment on these remaining claims. We
affirm the superior court’s remaining summary judgment conclusions.
III. Attorneys’ Fees and Costs
¶24 We review whether the superior court can award attorneys’
fees de novo. ABCDW LLC v. Banning, 241 Ariz. 427, 440, ¶ 60 (App. 2016).
The superior court must award attorneys’ fees under the contract if there is
a contractual provision requiring a fee award. McDowell Mountain Ranch
Cmty. Ass’n v. Simons, 216 Ariz. 266, 269, ¶ 14 (App. 2007).
¶25 The promissory note Mr. Losch signed contained a provision
agreeing “to pay the holder hereof upon demand any and all costs,
expenses and fees (including reasonable attorneys[‘] fees) incurred in
enforcing or attempting to recover payment of the amounts due under this
Note.” But Losch argues that this language is inapplicable because the
promissory note was merged into the judgment. We disagree.
¶26 When a “claim is reduced to judgment, the original claim is
merged in the judgment, and the judgment becomes a new debt.” Nelson v.
Nelson, 91 Ariz. 215, 218 (1962). But “the doctrine of merger will not be
carried to an extreme.” Id. And where the agreement “provides special
rights or exemption[s]” they “will be preserved and recognized.” Id.; see also
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Accubid Excavation, Inc. v. Kennedy Contractors, Inc., 981 A.3d 727, 740 (Md.
App. 2009) (“[T]he rights of a party to attorney’s fees pursuant to a contract
incurred in a claim originating from a breach of that contract may extend
beyond judgment, despite merger of the contract.”).
¶27 The promissory note’s expansive language contemplated
recovering attorneys’ fees and costs at any stage of litigation, including
those “incurred in enforcing or attempting to recover payment of the
amounts due under this Note.” The merger doctrine does not apply here
because the parties created this “special right or exemption” permitting the
recovery of attorneys’ fees and costs, and we must continue to recognize
and apply this provision of the promissory note. See McDowell Mountain
Ranch Cmty. Ass’n, 216 Ariz. at 269, ¶ 14; Nelson, 91 Ariz. at 218.
¶28 Next, Losch argues that the superior court erred by
compounding interest at the rate of 1% per month. The promissory note
states, “upon ‘default’ all obligations under this Note (including principal,
interests, costs and fees) shall bear interest, until paid in full, at the rate of
1% per month.” This language explicitly includes all “interest, costs and
fees” as part of the obligations that will bear interest at a monthly rate, see
Prieve v. Flying Diamond Airpark, LLC, 252 Ariz. 195, 198, ¶ 9 (App. 2021)
(“When the provisions of the contract are plain and unambiguous upon
their face, they must be applied as written.”) (quotation omitted), and the
promissory note does not include any language that would limit the accrual
of interest. Cf. Simmons & Gottfried, PLLC v. Klarkowski, 1 CA-CV 22-0354,
2023 WL 1978216 *2, ¶ 10 (Ariz. App. Feb. 14, 2023) (mem. decision). The
superior court did not err in awarding all of Tempe’s attorneys’ fees and
costs under the promissory note or compounding the accrued interest on a
monthly basis.
¶29 Tempe requests its attorneys’ fees and costs on appeal. As the
prevailing party, we award Tempe its reasonable attorneys’ fees and costs
under the promissory note, upon compliance with ARCAP 21. See McDowell
Mountain Ranch Cmty. Ass’n, 216 Ariz. at 269, ¶ 15.
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CONCLUSION
¶30 For the above reasons, we affirm the grant of summary
judgment.
AMY M. WOOD • Clerk of the Court
FILED: JT
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