Donald v. Eng

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
TIMOTHY DONALD, et al., Plaintiffs/Appellants,
v.
KYLE ENG, et al., Defendants/Appellees.
No. 1 CA-CV 20-0230
FILED 4-22-2021
Appeal from the Superior Court in Maricopa County
No. CV2017-001526
The Honorable Teresa A. Sanders, Judge
AFFIRMED
COUNSEL
Stoops, Denious, Wilson & Murray, P.L.C., Phoenix
By Frank L. Murray, Stephanie M. Wilson, Thomas A. Stoops
Counsel for Plaintiffs/Appellants
Gallagher & Kennedy P.A., Phoenix
By Mark C. Dangerfield, Michael K. Kennedy
Counsel for Defendants/Appellees
DONALD, et al. v. ENG, et al.
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Jennifer M. Perkins delivered the decision of the Court, in
which Judge Randall M. Howe and Judge Maria Elena Cruz joined.
P E R K I N S, Judge:
¶1 Timothy Donald and American Soccer Marketing, L.L.C.
(“ASM”) (collectively “Donald”) appeal the entry of summary judgment for
Kyle Eng. For the following reasons, we affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 Donald is the sole shareholder of ASM, which owned a
United Soccer League (“USL”) soccer franchise. Donald signed the
franchise agreement on behalf of ASM and as a guarantor of ASM’s
obligations.
¶3 After acquiring the USL franchise, Donald began looking for
other investors. He negotiated with three different investor groups: Eng,
Berke Bakay, and a Brazilian group. Donald and Eng began talks in late
January 2014. Under the franchise agreement, USL had to approve any
joint-owner or investor.
¶4 Donald claims he and Eng tentatively agreed to a 50-50
partnership and that he sent Eng a draft operating agreement to that effect
in late January 2014. Then Eng met with USL officers at USL headquarters
in Florida on February 7, 2014, to learn more about the franchise. After the
meeting, Eng emailed the USL officers, stating the agreement with Donald
did not “make sense in its current form” without Eng having “a controlling
interest” in the franchise.
¶5 Donald and Eng met again on February 10, 2014. And
according to Donald, they reached a “handshake deal” granting Eng a 51%
ownership interest. On February 13, 2014, Eng told Donald he decided not
to proceed with the partnership.
¶6 The USL franchise agreement required ASM to pay a
performance security of $50,000. When Donald took over the franchise, he
owed a performance security balance of $25,194.47. USL sent Donald a
default notice on February 14, 2014, stating the default triggered grounds
for immediate termination of the franchise agreement. But USL gave
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Decision of the Court
Donald seven days to cure the default. Donald did not pay the balance
within seven days, and USL terminated the franchise. Eng met with the
officers on February 24, 2014 and USL awarded him the franchise on March
13, 2014.
¶7 In February 2017, Donald sued USL; two USL officers, Alec
Papadakis and Tim Holt (collectively “USL Defendants”); and Eng. Donald
asserted claims against all defendants for fraud, promissory estoppel,
interference with contractual relations or business expectancy, and breach
of fiduciary duty. Donald also alleged the USL Defendants breached the
franchise agreement by terminating the franchise. Because the franchise
agreement contained a mandatory arbitration clause, the court dismissed
the claims against the USL Defendants. This appeal does not involve that
dismissal. See Donald v. Papadakis, 1 CA-CV 17-0728, 2018 WL 4688224 (Ariz.
App. Sept. 27, 2018) (mem. decision) (affirming dismissal of all claims
against USL Defendants).
¶8 In April 2018, arbitration commenced in Florida. The
arbitration panel found Donald’s failure to pay the performance security
balance amounted to a material breach, justifying USL’s termination of the
franchise agreement, so USL did not breach the agreement. The arbitration
panel denied all other claims against the USL Defendants in an earlier
ruling. The arbitration award ordered ASM and Donald to pay the cost of
arbitration and the USL Defendants’ attorneys’ fees and costs.
¶9 During the arbitration proceedings, the superior court
dismissed Donald’s claims for interference with contractual relations or
business expectancy and breach of fiduciary duty. Donald does not
challenge that ruling on appeal. After the arbitration award, Eng moved for
summary judgment on the promissory estoppel and fraud claims. He
argued Donald was collaterally estopped from litigating these claims
because the alleged damages resulted from the termination of the franchise
agreement, which the arbitration panel found lawful. Eng also argued that
Donald failed to prove the elements of promissory estoppel and fraud.
Donald responded, arguing the arbitration award had no preclusive effect
and that questions of fact remained.
¶10 The superior court entered summary judgment in Eng’s
favor, finding that based on the arbitration award, Donald could not prove
that Eng caused any damages from the loss of the franchise. Donald moved
for reconsideration. At that time, the arbitration award remained pending
in the Florida federal district court, so the parties agreed that Eng would
file a response after the district court issued its ruling.
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Decision of the Court
¶11 After several months, the district court confirmed the
arbitration award but concluded that because Donald was not a party to the
franchise agreement in his individual capacity, he could not be held
personally liable for the arbitration fees and costs. Donald responded by
filing a “supplement to response to motion for summary judgment in light
of Florida district court and opposition to fee petition under A.R.S. § 12-
349” with several hundred pages of exhibits (collectively “Supplemental
Pleading”). Responding to the motion for reconsideration, Eng moved to
strike Donald’s Supplemental Pleading. The court struck the Supplemental
Pleading but granted oral argument to address the recent district court
ruling.
¶12 After oral argument, the superior court affirmed the
summary judgment and entered a final judgment on March 3, 2020. Donald
timely appealed. We have jurisdiction under A.R.S. § 12-2101(A)(1).
DISCUSSION
¶13 Summary judgment is appropriate “if the facts produced in
support of the claim or defense have so little probative value . . . that
reasonable people could not agree with the conclusion advanced by the
proponent of the claim or defense.” Orme Sch. v. Reeves, 166 Ariz. 301, 309
(1990); see also Ariz. R. Civ. P. 56(a). We review the superior court’s decision
to grant summary judgment de novo, considering the facts and any
inferences drawn from those facts in the light most favorable to Donald. See
Tierra Ranchos Homeowners Ass’n v. Kitchukov, 216 Ariz. 195, 199, ¶ 15 (App.
2007).
I. Donald’s Response to the Motion for Reconsideration
¶14 After Donald moved for reconsideration, the parties agreed
that Eng would submit his response once the district court ruled in the
arbitration case. But after the district court ruled, Donald replied by filing a
“Supplement To Response to Motion for Summary Judgment,” which the
court struck. Donald contends the court abused its discretion because Eng
got the last word and Donald did not get to submit anything in writing to
address the district court ruling. We review the court’s ruling on a motion
to strike for an abuse of discretion. Dowling v. Stapley, 221 Ariz. 251, 266,
¶ 45 (App. 2009).
¶15 The superior court noted that a reply in support of a motion
for reconsideration is impermissible. Given that rule and “the unique
circumstances regarding the timing” of the motion for reconsideration and
response, the court granted oral argument on the motion for
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Decision of the Court
reconsideration so Donald could address the district court ruling. This oral
argument provided Donald with adequate opportunity to address the
district court ruling and Eng’s response. The record does not support
Donald’s assertion that the court cut the oral argument short. And Donald’s
response went beyond explaining the relevance of the district court ruling
to the collateral estoppel issue. Donald also filed two responses to the
motion to strike, both of which asserted the summary judgment ruling
could not stand given the district court’s ruling. He had ample opportunity
to address the district court ruling. We thus affirm the superior court’s
order striking Donald’s response to his motion for reconsideration.
II. Collateral Estoppel
¶16 The arbitration award concluded USL lawfully terminated
the franchise agreement after Donald failed to cure the default. Based on
this ruling, the superior court determined collateral estoppel precluded
Donald from arguing that Eng’s actions caused USL to terminate the
franchise agreement. Donald argues the court erred because the arbitration
case involved different facts, law, and parties.
Collateral estoppel, or issue preclusion, binds a
party to a decision on an issue litigated in a
previous lawsuit if . . . (1) the issue was actually
litigated in the previous proceeding, (2) the
parties had a full and fair opportunity and
motive to litigate the issue, (3) a valid and final
decision on the merits was entered, (4)
resolution of the issue was essential to the
decision, and (5) there is a common identity of
the parties.
Campbell v. SZL Props. Ltd., 204 Ariz. 221, 223, ¶ 9 (App. 2003). We review
the court’s application of collateral estoppel de novo. Id. at ¶ 8.
A. Issues Actually Litigated
¶17 The arbitration addressed Donald’s claim that USL
wrongfully terminated the franchise agreement. In the superior court,
Donald asserted claims against Eng for fraud and promissory estoppel.
Donald argues that collateral estoppel does not apply because the two
proceedings involved different claims, and because the arbitration panel
disregarded Eng’s conduct in causing USL’s breach.
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Decision of the Court
¶18 The different claims do not preclude collateral estoppel
because the parties litigated the same issues. Donald’s fraud and
promissory estoppel claims stem from Eng’s conduct that allegedly caused
USL to unlawfully terminate the franchise agreement. To succeed, Donald
had to prove an unlawful termination. The parties litigated that issue
during arbitration, and the arbitration panel determined that USL lawfully
terminated the franchise agreement because Donald materially breached
the agreement by failing to pay the performance security. Donald does not
allege that Eng caused his failure to pay the performance security. Eng’s
actions therefore could not have caused Donald to suffer any losses because
the franchise termination was not unlawful, and Eng was not the proximate
cause of the alleged losses. See Robertson v. Sixpence Inns of Am., Inc., 163
Ariz. 539, 546 (1990) (“The proximate cause of an injury is that which . . .
produces an injury, and without which the injury would not have
occurred.”).
¶19 Donald contends the arbitration panel ignored Eng’s conduct.
During arbitration, Donald claimed he defaulted on the franchise
agreement because of mistaken dates in the agreement, not based on his
failure to pay the performance security. In concluding that Donald owed
the performance security, and reforming the agreement based on mutual
mistake, the arbitration panel found evidence that: (1) Donald knew he
owed the performance security; (2) USL sought to enforce the performance
security requirement through reminders; and (3) absent the payment, USL
could default the franchise. USL demonstrated its intent to enforce the
performance security requirement before Eng's alleged dates of
interference, and Donald demonstrated his anticipation that he needed to
make that payment. Based on these findings, Donald cannot show that
Eng's conduct proximately caused USL's enforcement. See id. These
findings also show Donald fully litigated the breach issue, satisfying
collateral estoppel.
¶20 Donald also argues that he sought damages unrelated to the
franchise termination and that those damages were not litigated during
arbitration. Donald claims Eng requested Donald’s attorney to draft an
operating agreement, causing Donald to incur “tens of thousands of
dollars” in fees.
¶21 Eng contends that Donald waived this argument by raising it
for the first time in his motion for reconsideration. But in his response to
Eng’s motion for summary judgment, Donald argued these damages were
different from those sought in the arbitration. Donald thus did not waive
the argument about the attorneys’ fees. Donald did, however, allege for the
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Decision of the Court
first time in the motion for reconsideration that he hired employees and
leased space. We therefore do not address Donald’s arguments relating to
those damages. See Evans Withycombe, Inc. v. W. Innovations, Inc., 215 Ariz.
237, 240, ¶ 15 (App. 2006) (appellate courts generally do not consider
arguments raised for the first time in a motion for reconsideration).
¶22 The evidence Donald cites does not create a question of fact
sufficient to preclude summary judgment. Donald claims Eng directed him
to prepare a formal agreement on February 10, 2014, and “urged” Donald
to pay for these documents. Donald also claims that “changes were made”
on February 11, 2014, costing “tens of thousands of dollars[.]” But Donald
makes these claims with no supporting evidence. “Self-serving assertions
without factual support in the record will not defeat a motion for summary
judgment.” Florez v. Sargeant, 185 Ariz. 521, 526 (1996) (quoting Jones v.
Merchs. Nat. Bank & Tr. Co. of Indianapolis, 42 F.3d 1054, 1058 (7th Cir. 1994)).
¶23 Eng offered contrary evidence to Donald’s assertions.
According to an email that Eng provided, Donald sent the operating
agreement to Eng on January 29, 2014—well before the February 10, 2014
“handshake agreement” that prompted the alleged damages. On February
11, 2014, Donald emailed to ask Eng if Donald’s attorney, Connie Mabelson,
should provide the revised agreements to Eng’s attorney. Before Eng
responded, Donald texted him that Mabelson would send the revised
agreement to Eng’s attorney. This all occurred before Eng ever confirmed
that he wanted Donald’s attorney to do so. Although Donald contends there
may have been other forms of communication, he fails to cite to any such
evidence before the court.
¶24 Donald’s damage reports similarly fail to support these
alleged damages. The reports include the cash flow Donald anticipated
receiving if he kept the franchise, and listed Donald’s cash investment as
another component of damages. To support the cash investment
calculation, the reports referred to a list of Donald’s expenses, but the list
included only one $66 expense from February 11, 2014, the date Donald’s
attorney prepared the documents allegedly at Eng’s urging. The court
properly struck any evidence from the Supplemental Pleadings. See supra
¶¶ 15–16. Based on this record, no reasonable juror could conclude that Eng
proximately caused Donald to incur thousands of dollars in attorneys’ fees.
See Orme Sch., 166 Ariz. at 309.
¶25 Donald argues that the lack of damages does not preclude
summary judgment because he need only prove a detriment to state a
promissory estoppel claim. This misstates the law. To state a claim for
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Decision of the Court
promissory estoppel, Donald “must show that [Eng] made a promise[,]
should have reasonably foreseen that [Donald] would rely on that
promise[,]” and that Donald actually relied on that promise to his
detriment. See State ex rel. Romley v. Gaines, 205 Ariz. 138, 143, ¶ 15 (App.
2003); see also Restatement (Second) of Contracts § 90 (1981). The detriment
must be actual, not “merely formal.” Weiner v. Romley, 94 Ariz. 40, 44 (1963).
A detriment alone is therefore insufficient. “His condition must be such
that, if the estoppel be not permitted, he will suffer damage.” Id. at 44(quoting State ex rel. McKittrick v. Mo. Utils. Co., 96 S.W. 2d 607, 615 (Mo.
1936)). Donald showed no such damages.
B. Differences in Applicable Law
¶26 Donald also contends he did not receive a full and fair
opportunity to litigate the fraud claim against Eng because the arbitration
applied Florida law, which requires proof of fraud in the performance of
the contract, rather than Arizona law, which requires proof of fraud in the
inducement. But both jurisdictions require proof of damages in a fraud case.
See Enyart v. Transamerica Ins. Co., 195 Ariz. 71, 77, ¶ 18 (App. 1998) (a fraud
claim requires a “consequent and proximate injury”); see also La Pesca
Grande Charters, Inc. v. Moran, 704 So. 2d 710, 713 (Fla. Dist. Ct. App. 1998)
(a fraud claim requires damages because of fraud that are separate from
any breach of contract damages). As discussed above, Donald failed to
show Eng proximately caused any damages. The difference in the fraud
elements does not warrant reversal of the summary judgment.
C. Common Parties
¶27 Next, Donald argues there were no common parties because
Eng did not participate in the arbitration. But Arizona law allows the use of
defensive collateral estoppel if the other elements are met. Campbell, 204
Ariz. at 223, ¶ 10. That Eng was not a party does not prevent him from
asserting collateral estoppel defensively. See id.¶28 Donald also argues there were no common parties because he
was not personally a party to the franchise agreement. The district court
ruled that Donald was not a party to the franchise agreement and lacked
standing to seek damages against USL. The court therefore concluded
Donald was not personally liable for attorneys’ fees and vacated that
portion of the arbitration award. Based on this ruling, Donald contends
there was not a common identity of parties. We disagree.
¶29 Collateral estoppel applies to the same parties or “persons in
privity with parties.” Scottsdale Mem’l Health Sys., Inc. v. Clark, 157 Ariz. 461,
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Decision of the Court
466 (1988). “Finding privity between a party and a non-party requires both
a substantial identity of interests and a working or functional
relationship . . . in which the interests of the non-party are presented and
protected by the party in the litigation.” Hall v. Lalli, 194 Ariz. 54, 57, ¶ 8
(1999) (quoting Phinisee v. Rogers, 582 N.W. 2d 852, 854 (Mich. Ct. App.
1998)). First, Donald was a party to the arbitration case despite the district
court’s finding that he was not personally liable for the fees and costs. And
Donald was in privity with ASM. As ASM’s sole shareholder, Donald and
ASM had a “substantial identity of interests” and a “working relationship”
so that Donald’s interests were fully represented in the arbitration case. We
affirm the grant of summary judgment.
III. Donald’s Request to Take Additional Depositions
¶30 Donald asked the superior court to extend the discovery
deadline so he could depose three non-party witnesses to determine how
much money Eng received when he surrendered the USL franchise. Eng
objected, as did all three witnesses, and the court denied Donald’s request
without comment. We review the court’s rulings on disclosure and
discovery matters for an abuse of discretion. Marquez v. Ortega, 231 Ariz.
437, 441, ¶ 14 (App. 2013).
¶31 Donald contends these depositions were necessary because
Eng testified that he did not know how much money he received when he
sold the franchise to third parties. This evidence was relevant to prove
damages related to the loss of the franchise. As discussed above, Donald is
collaterally estopped from arguing that Eng caused those damages. Any
evidence Donald might have discovered from these witnesses is therefore
immaterial. We affirm the denial of Donald’s request to depose these
witnesses.
CONCLUSION
¶32 We affirm the judgment and award Eng his reasonable costs
on appeal under A.R.S. § 12-342.
AMY M. WOOD • Clerk of the Court
FILED: AA
9