Mirchandani v. Bmo ( 2016 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
HARESH MIRCHANDANI, Plaintiff/Appellant,
v.
BMO HARRIS BANK, N.A., successor to M&I Marshall and Ilsley Bank, a
chartered banking institution; and TradeCor Desert Sky II, LLC,
Defendant/Appellee.
No. 1 CA-CV 15-0368
FILED 12-20-2016
Appeal from the Superior Court in Maricopa County
No. CV2011-099950
The Honorable David King Udall, Judge
AFFIRMED IN PART, APPEAL DISMISSED IN PART
COUNSEL
Haresh Mirchandani, San Diego, CA
Plaintiff/Appellant
Stinson Leonard Street LLP, Phoenix
By Stefan Palys, Jeffrey J. Goulder
Counsel for Defendant/Appellee
MIRCHANDANI v. BMO
Decision of the Court
MEMORANDUM DECISION
Judge Donn Kessler delivered the decision of the Court, in which Presiding
Judge Kenton D. Jones and Judge Randall M. Howe joined.
K E S S L E R, Judge:
¶1 Appellant Haresh Mirchandani (“Mirchandani”), appearing
in propria persona, appeals the superior court’s dismissal of his and his
wife’s complaint against BMO Harris Bank, N.A. (“BMO”). Mirchandani
also appeals the award of attorneys’ fees to BMO and the denial of his
motion for relief from the judgment. For the reasons stated below, we
affirm the superior court’s rulings against Mirchandani and dismiss the
appeal as to his wife.
FACTUAL AND PROCEDURAL HISTORY1
¶2 Mirchandani and his wife, Indra, (collectively “the
Mirchandanis”) were the sole members of SS Quality Fuels LLC
(“Quality”). Quality owned a gas station operated by the Mirchandanis. In
1 Because the complaint was dismissed at the pleading stage, we
review the well-pleaded facts alleged in the complaint as true. Jeter v. Mayo
Clinic Ariz., 211 Ariz. 386, 389, ¶ 4 (App. 2005) (citation omitted).
“However, we do not accept as true allegations consisting of conclusions of
law, inferences or deductions that are not necessarily implied by well-
pleaded facts, unreasonable inferences or unsupported conclusions from
such facts, or legal conclusions alleged as facts.” Id. (citations omitted). A
complaint’s exhibits, or public records regarding matters referenced in a
complaint, are not “outside the pleading,” and courts may consider such
documents. Strategic Dev. & Constr., Inc. v. 7th & Roosevelt Partners, LLC, 224
Ariz. 60, 63, ¶ 10, 64, ¶ 13 (App. 2010) (citations omitted). Accordingly, we
view the allegations in the complaint in light of those exhibits and public
records.
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2007, Quality entered into a swap loan agreement2 with BMO Harris Bank,
N.A.3 Quality subsequently entered into two additional loans with BMO.4
The Mirchandanis were signatories as the managing members of Quality.
Additionally, the Mirchandanis guaranteed the loans. In 2009, Quality
defaulted on the loans. In 2010, BMO sold the loans, which were still in
default, to TradeCor Desert Sky II, LLC (“TradeCor”).
¶3 TradeCor noticed a trustee’s sale against Quality in May 2010.
Quality then filed for bankruptcy and obtained an automatic stay of the
trustee’s sale. On November 7, 2011 the bankruptcy court lifted the stay,
allowing TradeCor to move forward with the trustee sale.
¶4 In the course of that proceeding, TradeCor sued the
Mirchandanis as guarantors for repayment of the loan they guaranteed
(hereinafter “the prior litigation”). The Mirchandanis responded by raising
affirmative defenses within their answer but did not file any counterclaims
against TradeCor. Ultimately, summary judgment was entered against the
Mirchandanis on January 20, 2011.
¶5 In November 2011, after the bankruptcy court lifted the stay,
the Mirchandanis filed this complaint against both BMO and TradeCor.5
The Mirchandanis alleged that in making the loans, BMO had breached its
duty of good faith and fair dealing; was liable to them based on theories of
promissory estoppel, negligent misrepresentation, fraud, schemes and
artifices to defraud and securities violations under the Arizona racketeering
2 A swap loan can be used to convert floating rate loans to a fixed rate
or vice-versa. According to the complaint, Quality entered into the loan
agreement as a means to change the loan from a variable interest rate loan
to a fixed interest rate loan.
3 The loan was actually entered into with BMO’s predecessor-in-
interest, M&I Marshall and Ilsley Bank. We refer to both as BMO for ease
and clarity.
4 The complaint lists these loans as “bridge loans.” The loans were
entered into on December 23, 2008, and March 22, 2009.
5 Additionally, Quality filed almost identical claims against BMO and
TradeCor in bankruptcy court. That case was ultimately dismissed with
prejudice.
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act, (Arizona Revised Statutes (“A.R.S.”) § 13-2314.04(A) and (D) (2003));6
and that both BMO and TradeCor were liable to them for conspiracy to
deprive them of their ownership of the property under A.R.S. § 33-420
(1994). They also sought to enjoin TradeCor’s proposed trustee’s sale of the
property.7 Additionally, the Mirchandanis filed an emergency motion for
a temporary restraining order (“TRO”) as to the sale. BMO filed a notice of
removal based on federal question jurisdiction and diversity of citizenship.
The United States District Court denied the Mirchandanis’ TRO because
Quality and not the Mirchandanis owned the property and thus the
Mirchandanis could not show they would suffer personal irreparable harm
from the sale. The federal court later granted the Mirchandanis’ motion to
remand the case back to the superior court for lack of subject matter
jurisdiction in the federal court.
¶6 TradeCor and BMO moved to dismiss the complaint under
Arizona Rule of Civil Procedure (“Rule”) 12(b)(6) and 13(a), arguing, in
part, that the claims arose out of the same loan transactions in the prior
litigation or amounted to counterclaims which should have been raised in
the prior litigation and thus were barred by res judicata or collateral
estoppel. The superior court dismissed the complaint based on res judicata.
Mirchandanis appealed and this Court affirmed the dismissal as to
TradeCor, but reversed the judgment as to BMO. As part of that decision,
we explained that while a judgment can be affirmed on other grounds than
those found by the superior court, we were reluctant to rule on an issue the
superior court had not reached. Mirchandani v. BMO Harris Bank, N.A., 235
Ariz. 68, 72, ¶ 15 (App. 2014) (citations omitted).
¶7 On remand, BMO again moved to dismiss and also raised for
the first time the issue of standing. Following a full briefing and oral
argument, the court dismissed the complaint with prejudice for lack of
standing, ruling that the claims belonged to Quality. Mirchandani
appealed. After Mirchandani filed the notice of appeal, the Mirchandanis
filed a motion pursuant to Rule 60, claiming the trial court judge was
biased. The minute entries denying the Rule 60 motion were not signed
and thus not appealable and the Mirchandanis did not file a notice of appeal
from such orders. We therefore stayed this appeal, to allow the superior
court to enter signed order(s) conforming to the orders denying the Rule 60
6 We cite to the current version of statutes unless changes material to
this decision have occurred.
7 Both parties acknowledge that the claim to enjoin the trustee’s sale
is now moot as the sale was complete on December 12, 2011.
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motion and to allow the Mirchandanis to file a timely supplemental notice
of appeal to include that order. The superior court ultimately entered a
signed order and Mirchandani timely appealed from it.
DISCUSSION
I. Jurisdiction
¶8 This Court has an independent obligation to review its
jurisdiction. Robinson v. Kay, 225 Ariz. 191, 192, ¶ 4 (App. 2010) (citations
omitted). BMO argues this Court lacks jurisdiction over the appeal from
the original judgment due to Mirchandani’s original notice of appeal being
untimely. This Court initially dismissed the appeal for lack of jurisdiction,
finding the notice of appeal untimely. However, on a motion to reconsider,
a motions panel of this Court found the appeal timely. We agree that appeal
was timely.
¶9 The original signed judgment dismissing the complaint was
filed April 3, 2015. However, Mirchandani had, prior to April 3, 2015, filed
a motion to clarify the court’s earlier but unsigned decision and on April 8,
2015, the court filed a signed minute entry denying the motion to clarify.
Mirchandani filed his notice of appeal on May 7, 2015, which was within
thirty days of the April 8 minute entry but more than thirty days from the
April 3 judgment. The motions panel held that because the trial court
expressly ruled on a motion to clarify in the April 8 minute entry, that
particular motion was not implicitly denied in the April 3 judgment.
Additionally, we find the trial court’s April 3 order holding that BMO “need
not respond to the Mirchandanis’ filings unless ordered to do so,” indicated
that the April 3 judgment was not the trial court’s final ruling. Had it been,
the trial court would not have needed to issue the order excusing BMO from
responding, as the matter would have already been fully plead. As such,
the April 8, 2015 minute entry was the final judgment, and Mirchandani’s
May 7, 2015 notice of appeal was timely. We have jurisdiction pursuant to
A.R.S. § 12-2101(A)(1) (2016).
¶10 We also have jurisdiction over the appeal from the order
denying the Rule 60 motion. Signed orders denying Rule 60 motions are
appealable pursuant to A.R.S. § 12-2101(A)(5)(a). See Johnson v. Nelson, 128
Ariz. 587, 588 (App. 1981) (discussing a previous version of the statute). The
signed order was filed October 27, 2016 and Mirchandani amended his
notice of appeal on October 27, 2016, less than 30 days from the entry of the
order.
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¶11 However, we lack jurisdiction over any appeal purportedly
brought by or on behalf of Indra Mirchandani. Mirchandani signed the
notices of appeal for both himself and his wife, Indra, and signed the
opening brief for himself only. Indra did not sign the notices of appeal nor
file an opening brief in this matter. Accordingly, to the extent Mirchandani
seeks to reverse the judgment and orders against his wife, we dismiss the
appeal as to his wife. State v. One Single Family Residence at 1810 E. Second
Ave., Flagstaff, Ariz., 193 Ariz. 1, 2 n.1 (App. 1997) (finding that where only
the husband signed the notice of appeal, and he was not an attorney, he
could not represent his wife in court and the notice of appeal was invalid
as to her); Haberkorn v. Sears, Roebuck & Co., 5 Ariz. App. 397, 399 (1967)
(holding that a husband who is not a member of the bar may not represent
his wife in a court of law. “This is true whether her interest be separate or
community.”).
II. Standing
¶12 We review a superior court’s grant of a motion to dismiss for
lack of standing de novo. See Robert Schalkenbach Found. v. Lincoln Found.,
Inc., 208 Ariz. 176, 180, ¶ 15 (App. 2004) (citation omitted). The appellate
court will affirm a judgment of dismissal only if, assuming the truth of all
material facts alleged by the plaintiffs, they would not be entitled to relief
under any facts susceptible of proof under the claims stated. Redhair v.
Kinerk, Beal, Schmidt, Dyer & Sethi, P.C., 218 Ariz. 293, 294, ¶ 2 (App. 2008)
(citation omitted).
¶13 To have standing to sue, a plaintiff must show a
“particularized injury to themselves.” Bennett v. Brownlow, 211 Ariz. 193,
196, ¶ 17 (2005) (citations omitted). Additionally, the injury must be distinct
and palpable so that the plaintiff has a personal stake in the outcome. See
Fernandez v. Takata Seat Belts, Inc., 210 Ariz. 138, 140, ¶ 6 (2005) (citation
omitted).
¶14 Mirchandani argues that he has a direct stake in the outcome
of the litigation because he personally guaranteed the loans and because
Quality was a “closely held LLC.” However, although a guarantor who has
paid upon his principal’s debt has an immediate right of action against the
principal, affirmative recovery by the guarantor against a third party would
exceed the scope of the surety relationship and “usurp claims belonging
only to the principal.” Schroeder v. Hudgins, 142 Ariz. 395, 398 (App. 1984),
(citations and quotations omitted) (abrogation on other grounds recognized by
Franko v. Mitchell, 158 Ariz. 391, 400 n.1 (App. 1988)). In Schroeder, we held
that a sole shareholder and guarantor of an LLC lacked standing to sue the
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LLC’s former attorney for malpractice. Id. at 400. The issue arose after the
LLC’s loans went into default and the LLC was foreclosed on and the
guarantors were sued for repayment of the loan they guaranteed. Id. at 397.
As we stated, “[g]enerally, even where all of the stock in a corporation is
owned by a sole shareholder, he may not maintain an action individually
for wrongs against the corporation.” Id. at 398; see Hidalgo v. McCauley, 50
Ariz. 178, 183 (1937).
¶15 The holding in Schroeder is not completely analogous to the
facts here because it deals with a guarantor and LLC member suing the
LLC’s counsel and not a lender. However, the basic holding is consistent
with cases in other jurisdictions that hold that a guarantor or sole
shareholder of a corporation lacks standing to sue lenders based on alleged
fraud or misrepresentations on loans made to the corporation. In Park Bank
v. Westburg, 832 N.W.2d 539 (Wis. 2013), the Westburgs, a married couple,
started a woodworking business and created an LLC in which they were
the sole shareholders. The LLC defaulted on loans and the bank brought
actions against the LLC for the breach and against the Westburgs on their
guaranty. Id. at 542-44, ¶¶ 6-13 & 22-24. The Westburgs counterclaimed
against the bank alleging breach of the duty of good faith and fair dealing.
Id. at 544, ¶ 25. The court in Park Bank found that “where an individual’s
injury results from the corporation’s injury, the resulting claim is derivative
and the individual lacks standing to raise it in a direct action.” Id at 548, ¶
43 (citation omitted). The court also explained that to assert a direct claim,
the guarantors would have to show that the “injury [is] independent of the
firm’s fate” and concluded that the Westburgs’ claims were not direct
because they were secondary to that of the LLC. Id. at 549-50, ¶¶ 48-53
(citation and quotation omitted); see Mid-State Fertilizer Co. v. Exch. Nat. Bank
of Chi., 877 F.2d 1333, 1336 (7th Cir. 1989) (“Guarantors must be treated as
creditors. When they suffer direct injury-injury independent of the firm’s
fate—they may pursue their own remedies. Those whose injury is
derivative must take their place in line”); see also 13 Fletchers Cyclopedia of
the Law of Corporations § 5972.25 (Supp. 2016) (“[G]uarantors are treated
no differently from creditors in determining whether a guarantor may bring
a derivative action. Thus, generally, guarantors may not maintain a
derivative proceeding.”).
¶16 Mirchandani argues that the superior court erred in applying
the holding in Hidalgo stating that other cases “undermine the ruling that
the claims were derivative.” See Hidalgo, 50 Ariz. at 183. Mirchandani cites
several cases that allowed shareholders to maintain individual actions.
However, in each of those cases only the shareholder suffered legal injury,
not the corporation. See, e.g., Funk v. Spalding, 74 Ariz. 219, 224 (1952)
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(finding that the corporation did not suffer an injury); Albers v. Edelson Tech.
Partners L.P., 201 Ariz. 47, 52, ¶ 18 (App. 2001) (citations omitted) (finding
an exception exists where “the injuries or damages were sustained by
individual shareholders rather than by the corporation.”). Additionally, in
each of those cases, the shareholder was suing another shareholder or
member of the corporation, not a third party.
¶17 Mirchandani also argues that he suffered direct injuries such
as the personal default judgment of $2.2 million obtained by TradeCor
against him and his wife based on the guaranty, the resulting foreclosure of
his home, credit score reduction, adverse effects on employment, lost
income, and the lost option to purchase the Quality business. However,
these injuries alleged by Mirchandani are not directly related to the actions
of BMO but are a secondary effect of the breach by Quality of BMO’s
contracts and loans with Quality which Mirchandani guaranteed. They
thus, “derive” from claims Quality might seek to bring against BMO rather
than being attributable to conduct of BMO directed against Mirchandani.
As the court in Mid-State explained:
“Corporation” is but a collective noun for real people—
investors, employees, suppliers with contract rights, and
others. A blow that costs “the firm” $100 injures one or more
of those persons. If, however, we allow the corporation to
litigate in its own name and collect the whole sum (as we do),
we must exclude attempts by the participants in the venture
to recover for their individual injuries.
Mid-State, 877 F.2d at 1335-36. Mirchandani’s claims are derivative.
Mirchandani’s claims against BMO, based on the documents the superior
court properly relied on, alleged wrongs done to Quality and therefore the
claims belong to Quality. Because Quality could have sued on the claims
alleged in the complaint, Mirchandani is excluded from recovering for his
alleged individual injuries which derive from the alleged injuries to
Quality. We therefore affirm the court’s motion to dismiss for lack of
standing.
III. Judicial Bias
¶18 Mirchandani moved for relief from judgment, arguing that
the superior court judge who had dismissed the action was biased. The
court treated this as a motion to remove a judge for cause, assigned the
motion to another judge to be heard, and that judge heard and then denied
the motion. We review the denial of a motion for change of judge based on
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alleged bias for an abuse of discretion. Stagecoach Trails MHC, L.L.C. v. City
of Benson, 232 Ariz. 562, 568, ¶ 21 (App. 2013) (citations omitted). We
presume trial judges are free of bias and prejudice. Id. (citation omitted).
¶19 Mirchandani argues the superior court judge should have
recused himself on three grounds: (1) BMO made a political donation to the
judge’s cousin’s political campaign in Colorado; (2) BMO has made
donations to the Maricopa County Bar Association; and (3) the judge had
attended seminars that BMO personnel also attended.
¶20 The only evidence Mirchandani provided of the alleged bias
was the judge’s rulings. Judicial rulings alone, however, “do not support a
finding of bias or partiality without a showing of an extrajudicial source of
bias or a deep-seated favoritism.” Id. (citations omitted). “A change of
judge for cause is not warranted if based merely on speculation, suspicion,
apprehension, or imagination.” Id. (citation and quotations omitted).
Based on the evidence presented, the court did not abuse its discretion in
denying Mirchandani’s motion for change of judge. As such, we affirm the
denial of the motion for relief from judgment.
IV. Attorneys’ Fees
¶21 We review de novo the superior court’s determination that
A.R.S. § 12-341.01 (2013) authorizes an attorneys’ fees award. Hanley v.
Pearson, 204 Ariz. 147, 149, ¶ 5 (App. 2003) (citation omitted). If
authorization is found, we then review the trial court’s awarded amount of
attorneys’ fees for an abuse of discretion. Charles I. Friedman, P.C. v.
Microsoft Corp., 213 Ariz. 344, 350, ¶ 17 (App. 2006) (citation omitted). An
award of attorneys’ fees will be found to be an abuse of discretion only if
there is “no evidence to support the superior court’s conclusion or the
reasons given by the court [are] clearly untenable, legally incorrect, or
amount to a denial of justice.” Id. (quotations and citations omitted).
Alternatively, an abuse of discretion may be found if the trial court, in its
discretion, commits an error of law. Fuentes v. Fuentes, 209 Ariz. 51, 56, ¶ 23
(App. 2004) (citation omitted).
¶22 On appeal, Mirchandani raises two cognizable arguments
that the superior court erred in awarding fees: that the complaint did not
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arise out of contract for purposes of an award of attorneys’ fees and that the
fee request consisted of block billing.8 We disagree with both arguments.
¶23 Pursuant to A.R.S. § 12-341.01(A), a prevailing party may be
awarded reasonable attorneys’ fees from a claim arising out of a contract.
A.R.S. § 12-341.01’s reference to “aris[ing] out of contract” should be
construed broadly. ML Servicing Co. v. Coles, 235 Ariz. 562, 570, ¶ 30 (App.
2014) (citation omitted). This includes actions where contract claims are
interwoven with tort claims. Id. (citations omitted); see Zeagler v. Buckley,
223 Ariz. 37, 39, ¶ 7 (App. 2009) (citations omitted) (“[W]hen two claims are
so intertwined as to be indistinguishable, a court has discretion to award
attorney fees under § 12-341.01 even though the fees attributable to one of
the causes of action would not be recoverable under this statute.”); City of
Cottonwood v. James L. Fann Contracting, Inc., 179 Ariz. 185, 195 (App. 1994)
(citation omitted) (finding trial courts have “significant discretion to award
fees in a matter intertwined with another matter for which it may not grant
attorneys’ fees.”). Additionally, loan agreements have been found to
constitute contracts for the purposes of A.R.S. § 12-341.01(A). See, e.g., Sw.
Savings & Loan Ass’n v. SunAmp Sys., Inc., 172 Ariz. 553, 563 (App. 1992);
Great W. Bank v. LJC Dev., LLC, 238 Ariz. 470, 482, ¶ 44 (App. 2015)
(awarding prevailing party attorneys’ fees under A.R.S. § 12-341.01(A)
based on issues arising from a loan agreement). Because the current dispute
is based on claims arising from the default of a loan contract, the court
properly applied A.R.S. § 12-341.01(A).
¶24 Nor did the superior court abuse its discretion by awarding
BMO $56,751.79 in attorneys’ fees. To determine whether a party’s
requested attorneys’ fees are reasonable, courts consider the attorneys’
hourly rates and the amount of time spent on each task. Schweiger v. China
Doll Rest. Inc., 138 Ariz. 183, 187-88 (App. 1983). Thus, if the attorneys’
hourly rates and the time spent on each task were reasonable, then the fees
themselves will be reasonable. Id. Once the party requesting fees “makes
a prima facie case that the fees are reasonable, the burden shifts to the party
8 Mirchandani also argues that the fee award should be reversed
because the matter has not been finally resolved and he might obtain a
reversal, that the alleged torts of BMO caused him extreme hardship and
that a large fee award would discourage others from pursuing legitimate
claims. The first argument fails because we are, herein, affirming the
judgment. The second fails because it is based on a summary affidavit
about the lack of resources available to Mirchandani, not taking into
account any limitations on garnishment or attachment of his allegedly
limited assets. The third argument fails because it is speculative.
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opposing the fee request to establish that the amount requested is clearly
excessive.” Geller v. Lesk, 230 Ariz. 624, 628, ¶ 11 (App. 2012), as amended
(Sept. 26, 2012).
¶25 Here, the award of attorneys’ fees was reasonable. BMO
provided evidence of its attorneys’ hourly rates and recorded, in detail, the
time spent preparing the case, avoiding block billing by breaking down
work spent on different aspects of the case by time. Hawk v. PC Vill. Ass’n,
Inc., 233 Ariz. 94, 100, ¶ 23 (App. 2013) (citation and quotation omitted)
(finding that requests for fees contain sufficient information if they
“indicate the type of legal service provided, the date the service was
provided, the attorney providing the service, . . . and the time spent in
providing the service.”). Although Mirchandani argued below and on
appeal that the fees were improperly awarded because they contained
vague descriptions and lump sums, this statement is contradicted by the fee
application itself. Thus, we cannot say the superior court abused its
discretion in awarding fees, and we affirm the award.
CONCLUSION
¶26 For the foregoing reasons, we affirm the superior court’s
judgment dismissing the complaint for lack of standing, the order denying
the Rule 60 motion, and the award of attorneys’ fees. We deny
Mirchandani’s request for attorneys’ fees on appeal both because he
appeared pro per, Connor v. Cal-Az Props., Inc., 137 Ariz. 53, 56 (App. 1983),
and because he has not prevailed on appeal. Additionally, we grant BMO’s
request for attorneys’ fees and costs incurred on appeal upon timely
compliance pursuant to Arizona Rule of Civil Appellate Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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