Pedco v. Under the Tent

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
PRIME EARTH DEVELOPMENT COMPANY, LLC, Plaintiff/Appellant,
v.
UNDER THE TENT, LLC, Defendant/Appellee.
No. 1 CA-CV 15-0084
FILED 3-24-16
Appeal from the Superior Court in Maricopa County
No. CV2014-053898
The Honorable Thomas L. LeClaire, Judge (Retired)
AFFIRMED
COUNSEL
Theobald Law, PLC, Phoenix
By Scott M. Theobald, Mark A. Nickel
Counsel for Plaintiff/Appellant
Polsinelli PC, Phoenix
By Paul J. Roshka, Jr., Craig M. Waugh
Counsel for Defendant/Appellee
PEDCO v. UNDER THE TENT
Decision of the Court
MEMORANDUM DECISION
Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Peter B. Swann and Judge Donn Kessler joined.
W I N T H R O P, Judge:
¶1 Prime Earth Development Company, LLC (“PEDCO”)
appeals the trial court’s order granting a Rule 12(b)(6) Motion to Dismiss by
Under the Tent, LLC (“UTT”). For the following reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 PEDCO is a limited liability investment company that raises
capital and buys raw land for investment purposes. It manages three
companies: Hidden Valley Ranch I, LLC; Hidden Valley Ranch II, LLC; and
Phoenix-Tucson Ranch, LLC (collectively “Managed Companies”).
¶3 This appeal arises out of one of several civil actions PEDCO
brought against five of its investor members (the “Five Members”) in
response to their arbitration demand to compel PEDCO to produce its
financial records.
¶4 After repeated refusals by PEDCO to share the financial
records, the Five Members filed a demand for arbitration with the American
Arbitration Association, pursuant to PEDCO’s and the Managed
Companies’ operating agreements. The Five Members formed UTT to
collect funds to cover the cost of the arbitration proceedings and protect
their investments in PEDCO and the Managed Companies.
¶5 The Five Members obtained from PEDCO the names and
addresses of members of PEDCO and the Managed Companies. On June
16, 2014, the Five Members sent a letter (the “June 16 Letter”) to other
members of PEDCO and the Managed Companies, expressing their
concerns regarding PEDCO’s reluctance to allow them to inspect PEDCO’s
financial records, and asking the members to contribute and support their
efforts to access this information. PEDCO then sought to amend its
operating agreement to disallow arbitration in any action seeking
declaratory relief. The Five Members sent another letter on July 1, 2014 to
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other members (the “July 1 Letter”), urging rejection of the proposed
amendment.1
¶6 Approximately two weeks later, PEDCO filed the present
action against UTT, alleging that UTT had intentionally interfered with
PEDCO’s economic relations, performance of a contract, and prospective
economic advantage; and seeking injunctive relief to stop UTT’s further
improper acts, and a declaratory judgment that UTT was not a member of
PEDCO. UTT moved under Rule 12(b)(6) to dismiss the complaint for
failure to state a claim upon which relief could be granted; the trial court
granted the motion. Ariz. R. Civ. P. 12(b)(6). A final judgment to this effect
was entered, and PEDCO timely appealed.2 We have appellate jurisdiction
pursuant to Arizona Revised Statutes (“A.R.S.”) section 12-2101(A)(1).3
ANALYSIS
¶7 On appeal, PEDCO contends the trial court erred in not
converting the motion to dismiss to one for summary judgment since it
considered material extraneous to PEDCO’s pleading, and in granting the
motion to dismiss.4
1 For the balance of this decision, we refer to the June 16 and July 1
Letters collectively as “the Letters.”
2 PEDCO originally appealed from an unsigned minute entry. We
stayed the appeal to allow PEDCO to obtain a final signed judgment below;
after such a judgment was entered, we reinstated the appeal.
3 We cite to a statute’s current version absent material revisions since
the relevant date.
4 In its briefing to this court, PEDCO has failed to include any citation
to the record on appeal. An appellant must cite to the record in the
statement of facts or in the argument section of the opening brief. ARCAP
13(a)(4) & 13(a)(7). Failure to do so may constitute waiver of the issues
raised in the brief. Delmastro & Eells v. Taco Bell Corp., 228 Ariz. 134, 137 n.2,
¶ 7, 263 P.3d 683, 686 n.2 (App. 2011). In the exercise of our discretion,
however, we will consider the merits of PEDCO’s arguments. See id.(stating the appellate court may entertain deficient briefs on merits).
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PEDCO v. UNDER THE TENT
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I. Converting to Motion for Summary Judgment
¶8 We review the court’s decision whether to convert a Rule
12(b)(6) motion to one for summary judgment for abuse of discretion.
Strategic Dev. & Constr., Inc. v. 7th & Roosevelt Partners, LLC, 224 Ariz. 60, 61–
62, ¶ 1, 226 P.3d 1046, 1047–48 (App. 2010).
¶9 “If ‘matters outside the pleading’ are considered, the motion
must be treated as one for summary judgment.” Coleman v. City of Mesa,
230 Ariz. 352, 356, ¶ 9, 284 P.3d 863, 867 (2012); accord Ariz. R. Civ. P. 12(b).
The complaint’s exhibits, or public records regarding matters referenced in
the complaint, are not considered to be “outside the pleadings.” Coleman,
230 Ariz. at 356, ¶ 9, 284 P.3d at 867. Similarly, documents that are not
attached but are considered central to the complaint are not considered
outside of the subject pleadings, nor is extraneous material that does not
add to or subtract from the sufficiency of the pleadings. Strategic, 224 Ariz.
at 63–64, ¶¶ 8, 14, 226 P.3d at 1049–50.
¶10 In examining the sufficiency of the pleadings, the trial court
appears to have considered the June 16 Letter, the July 1 Letter, and the
operating agreements of PEDCO and the Managed Companies. PEDCO
did not attach those documents to the complaint, but specifically referenced
them, and based its cause of action on statements in the Letters, the alleged
breach of those operating agreements, and the alleged increased cost for
enforcing those agreements. These documents are therefore central to the
complaint. And, PEDCO may not turn its decision to not attach those
central documents as exhibits into a defense, or argue the court should not
have considered them in determining the sufficiency of its complaint.
¶11 PEDCO also contends the trial court should not have
examined the merits of the arbitration demand and its motivation for filing
the present lawsuit. Though the court acknowledged its existence, nothing
in the record suggests that it relied on or otherwise addressed the merits of
the arbitration demand. And the court’s comment as to PEDCO’s
motivation had no bearing on whether the complaint states a claim upon
which relief can be granted; accordingly, the trial court did not err in not
converting the Rule 12(b)(6) motion to one for summary judgment.
II. Motion to Dismiss
¶12 We review a trial court’s ruling granting a Rule 12(b)(6)
motion to dismiss de novo. Coleman, 230 Ariz. at 355, ¶ 7, 284 P.3d at 866. A
Rule 12(b)(6) motion to dismiss should be granted if the complaint fails to
state a claim upon which relief can be granted. Ariz. R. Civ. P. 12(b)(6). In
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determining the motion, “the court must assume the truth of all of the
complaint’s material allegations, accord the plaintiffs the benefit of all
inferences [that] the complaint can reasonably support, and deny the
motion unless certain that plaintiffs can prove no set of facts [that] will
entitle them to relief upon their stated claims.” Gatecliff v. Great Republic Life
Ins. Co., 154 Ariz. 502, 508, 744 P.2d 29, 35 (App. 1987). The court does 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.” Jeter v. Mayo Clinic Ariz., 211 Ariz. 386,
389, ¶ 4, 121 P.3d 1256, 1259 (App. 2005).
¶13 In count 1 of the complaint, PEDCO alleged UTT tortiously
interfered with PEDCO’s economic relations, performance of a contract,
and prospective economic advantage. To establish tortious interference
with contractual relations, a plaintiff must prove: (1) existence of a valid
contractual relationship, (2) the interferor’s knowledge of the relationship,
(3) intentional interference inducing or causing a breach, (4) resultant
damage to the party whose relations have been disrupted, and (5) that the
defendant acted improperly. Safeway Ins. Co. v. Guerrero, 210 Ariz. 5, 10,
¶ 14, 106 P.3d 1020, 1025 (2005). Here, PEDCO alleged UTT wrongfully
obtained the list of PEDCO members’ names and addresses, disseminated
false or misleading information about PEDCO and its managers, solicited
money from other members of PEDCO and the Managed Companies
allegedly in violation of security laws, disrupted PEDCO’s relations with
its members and the Managed Companies, and caused at least one of the
members to breach the operating agreements and made the performance of
those agreements more burdensome and expensive.
¶14 We do not accept legal conclusions or unreasonable
inferences alleged in the complaint as true. Here, PEDCO failed to allege
facts amounting to any improper act on the part of UTT. On this record,
PEDCO did not point out any statement in the Letters or elsewhere that was
false or misleading. And PEDCO did not allege any facts to suggest that
UTT breached the PEDCO operating agreement or violated any law. UTT
did not wrongfully obtain the list of members as PEDCO itself sent the list
to UTT and, more importantly, as members themselves, the Five Members
have a right to the list under A.R.S. § 29-607 and the terms of the operating
agreement. See A.R.S. § 29-607(A)(1) & (B)(1) (requiring an LLC to maintain
record of a current list of members and their mailing addresses, and to allow
each member to inspect and copy its records). Under the same provisions
in the statute and the operating agreement, the Five Members also have the
right to examine financial records. See § 29-607(A)(1) & (B)(1) (requiring an
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LLC to allow its members to inspect its financial records). Moreover, asking
other members to help cover the anticipated cost of the arbitration
proceedings does not, as a matter of law, constitute issuance of securities,
and was not improper. See A.R.S. § 44-1801(26) (defining security as any
note, stock, bond, or any other similar instrument indicating such an
interest). Therefore, the trial court correctly concluded that PEDCO is not
entitled to relief under count 1.5
¶15 As for count 2, PEDCO sought injunctive relief to enjoin UTT
from committing further improper acts, such as sending letters like the June
16 and July 1 Letters. Because the trial court correctly concluded that
PEDCO had not asserted a cognizable claim against UTT, it correctly
concluded that PEDCO is not entitled to relief under this count, either.
¶16 Lastly, as for count 3, PEDCO sought a declaratory judgment,
declaring UTT is not a member of PEDCO. Whether UTT is a member of
PEDCO is not a contested issue as UTT does not purport to be a member of
PEDCO. Although the Letters bore the UTT letterhead, the Five Members
always referred to themselves as members of PEDCO in the Letters.
Therefore, count 3 also fails.
¶17 Accordingly, the trial court did not err in dismissing
PEDCO’s complaint for failure to state a claim upon which relief can be
granted.
III. Attorneys’ Fees
¶18 UTT requests attorneys’ fees on appeal, arguing PEDCO’s
appeal lacks substantial justification under A.R.S. § 12-349 and fails to
comply with the appellate rules on citing the record and obtaining
transcripts of relevant hearings.6 The statute provides:
A. Except as otherwise provided by and not inconsistent with
another statute, in any civil action commenced or appealed in
a court of record in this state, the court shall assess reasonable
attorney[s’] fees, expenses and, at the court's discretion,
5 As we find PEDCO has failed to demonstrate any improper conduct
by UTT, we need not further analyze other elements of Count 1.
6 PEDCO failed to obtain the transcript of the hearing on the motion
and to include it in the record. Although eventually having attached the
transcript to its reply brief, PEDCO maintains the transcript is unnecessary
for us to consider its appeal.
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Decision of the Court
double damages of not to exceed five thousand dollars
against an attorney or party, including this state and political
subdivisions of this state, if the attorney or party does any of
the following:
1. Brings or defends a claim without substantial justification.
2. Brings or defends a claim solely or primarily for delay or
harassment.
3. Unreasonably expands or delays the proceeding.
4. Engages in abuse of discovery.
...
F. For the purposes of this section, “without substantial
justification” means that the claim or defense is groundless
and is not made in good faith.
A.R.S. § 12-349(A) & (F).
¶19 As the trial court correctly observed, PEDCO filed various
lawsuits, including the present one, to silence the Five Members. The
appeal lacked substantial justification, and in the exercise of our discretion
we therefore award UTT its costs and reasonable attorneys’ fees on appeal,
subject to compliance with ARCAP 21.
CONCLUSION
¶20 The trial court’s order granting UTT’s Motion to Dismiss is
affirmed.
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