Ashkenazi v. Brown

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
ROGER ASHKENAZI, et al., Plaintiffs/Appellants,
v.
RICKMAN BROWN, et al., Intervenors/Appellees.
No. 1 CA-CV 19-0811
FILED 2-25-2021
Appeal from the Superior Court in Maricopa County
CV 2014-000071
CV 2014-006829
(Consolidated)
The Honorable Roger E. Brodman, Judge
AFFIRMED
COUNSEL
Sherman & Howard LLC, Phoenix
By David A. Weatherwax, Craig A. Morgan, Matthew A. Hesketh,
Sean M. Moore
Counsel for Plaintiffs/Appellants
Ryan Rapp Underwood & Pacheco PLC, Phoenix
By J. Henk Taylor
Counsel for Intervenors/Appellees
ASHKENAZI, et al. v. BROWN, et al.
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Jennifer B. Campbell delivered the decision of the Court,
in which Judge Lawrence F. Winthrop and Chief Judge Peter B. Swann
joined.
C A M P B E L L, Judge:
¶1 Roger Ashkenazi, et al. (collectively, “the Ashkenazi Group”)
appeal from the superior court’s order distributing certain deposited funds
to Rickman Brown, et al. (collectively, “the Attorneys”). For the following
reasons, we affirm.
BACKGROUND
¶2 While the issues raised on appeal are decidedly narrow, the
history of this litigation is quite complex. Apart from one noted exception,
the relevant facts are not disputed.
¶3 In 2010, the Attorneys filed a securities fraud complaint on
behalf of a large group of investors against Greenberg Traurig
(“Greenberg”) and other professionals who worked for an insolvent
mortgage lender, Mortgages Ltd. (“Lender”). After the Attorneys
negotiated a settlement of the claims against Greenberg, a majority of the
plaintiffs agreed to settle their claims (“the Greenberg settlement”).
Although each plaintiff executed an engagement agreement (“the
engagement agreement”), which included a majority-rule provision
requiring all plaintiffs to enter into a settlement agreement in the event a
majority of the plaintiffs agreed to a specific settlement offer, a minority
group of plaintiffs (“the Baldino Group”) rejected the Greenberg settlement
and refused to execute a release of their claims as was contemplated under
the terms of the settlement.
¶4 Pending the superior court’s approval of the Greenberg
settlement, the Baldino Group hired new counsel to contest the settlement
and pursue its members’ claims separately. Subsequently, the court found
the engagement agreement’s majority-rule provision enforceable,
overruled the Baldino Group’s objection, and approved the Greenberg
settlement. The Baldino Group appealed.
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ASHKENAZI, et al. v. BROWN, et al.
Decision of the Court
¶5 Thereafter, the Ashkenazi Group also retained new counsel
and sued the Baldino Group in the underlying action. The Ashkenazi
Group alleged the Baldino Group’s interference with, and rejection of, the
Greenberg settlement was, among other things, a breach of contract, a
breach of fiduciary duty, and an abuse of process. The superior court
granted partial summary judgment in favor of the Ashkenazi Group on its
claim for breach of contract, finding the Baldino Group’s refusal to abide by
the terms of the engagement agreement in regard to the Greenberg
settlement was a breach of contract that prevented the Ashkenazi Group
from recovering its share of the Greenberg settlement proceeds. The court
refused the Ashkenazi Group’s request for an Arizona Rule of Civil
Procedure (“Rule”) 54(b) judgment, however, pending resolution of the
overlapping claims for breach of fiduciary duty and abuse of process.
¶6 In a second parallel litigation, the Attorneys and the Baldino
Group asserted claims against each other arising from the Greenberg
settlement. After securing an arbitration award in their favor, the Attorneys
petitioned a federal court to confirm the award, and the court entered a $2.2
million judgment (“the federal judgment”). Once the federal judgment
became final, the Attorneys began collection efforts against the Baldino
Group. Among other actions, the Attorneys placed a first-position lien on
certain unencumbered real property (“the Forest Highlands property”)
owned by a member of the Baldino Group with a value of at least $900,000.
¶7 About the same time, the Ashkenazi Group and the Attorneys
discovered that the Baldino Group was scheduled to receive a distribution
from Lender’s remaining assets through Lender’s bankruptcy trustee. By
this time, both the Ashkenazi Group and the Attorneys had rulings against
the Baldino Group, though only the Attorneys had obtained a final
judgment. To resolve the conflicting claims, Lender’s manager
(“Manager”), appointed by the bankruptcy court to oversee distribution of
Lender’s assets, filed an interpleader complaint in the underlying superior
court action. After the court granted Manager’s motion to interplead,
Manager deposited the disputed funds from the Baldino Group’s
distribution with the court.
¶8 In the meantime, the Ashkenazi Group and the Attorneys
reached an agreement to split both the interpleaded funds and the
Greenberg settlement proceeds (“the split agreement”), with 78.5%
allocated to the Ashkenazi Group and the remaining 21.5% allocated to the
Attorneys. According to the Attorneys, the parties agreed that no portion
of the Greenberg settlement proceeds would be distributed to the
Ashkenazi Group if the federal court applied the monies toward the federal
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ASHKENAZI, et al. v. BROWN, et al.
Decision of the Court
judgment obtained by the Attorneys in the second parallel litigation. The
Ashkenazi Group denies such a condition, however, and claims the split
agreement was absolute.
¶9 After the Baldino Group’s challenge to the Greenberg
settlement agreement ended unsuccessfully, Greenberg transferred the
settlement proceeds directly to the Attorneys. With nearly $1.5 million of
the Greenberg settlement proceeds earmarked for its members, the Baldino
Group asked the federal court to credit its share of the Greenberg settlement
to the Attorneys and against the federal judgment. The Ashkenazi Group,
in turn, demanded that the Attorneys either pay its members 78.5% of the
Baldino Group’s share of the Greenberg settlement ($1,173,600.46) or place
the funds in the superior court’s interpleader account. The Attorneys, in
response, moved to deposit the $1,173,600.46 into the superior court’s
interpleader account (having retained $321,431.97 (21.5%) of the Baldino
Group’s share), advising the superior court “of the interplay” between the
underlying litigation and the “related federal court collection proceedings,”
and requesting that the court adjudicate the disputed claims. The Baldino
Group opposed the motion, again arguing that the disputed funds should
be applied solely as a credit on the federal judgment.
¶10 The superior court entered a deposit order (“the deposit
order”), incorporating by reference its prior ruling regarding the
distribution of Manager funds, which explained that “interpleader is an
equitable action controlled by equitable principles.”1 The court also noted
that the federal court had not yet determined whether to credit the Baldino
Group’s portion of the Greenberg settlement proceeds toward the federal
judgment, and stated it would “be receptive to issuing an amended order
releasing the funds to the Attorneys” in the event the federal court did so.
¶11 Asserting a significant change in circumstances, the
Ashkenazi Group moved to dismiss its remaining claims against the
Baldino Group and requested a Rule 54(b) judgment on the breach of
contract claim. Granting the motion to dismiss the remaining claims, the
superior court entered a final judgment of over $5.4 million (inclusive of
attorneys’ fees and costs) in favor of the Ashkenazi Group and against the
1 Although the superior court referred to its previous interpleader
order, the Attorneys moved to deposit the Greenberg settlement proceeds
pursuant to Rule 67, which governs deposits with the court generally,
rather than Rule 22, which specifically governs interpleader actions.
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ASHKENAZI, et al. v. BROWN, et al.
Decision of the Court
Baldino Group.2 With that judgment secured, the Ashkenazi Group placed
a second-position lien (the Attorneys having secured the first-position lien)
on the Forest Highlands Property.
¶12 Meanwhile, after tendering some payments on the federal
judgment, the Baldino Group again requested that the federal court credit
its share of the Greenberg settlement proceeds toward the federal
judgment. Although the Attorneys argued that the deposited funds should
be credited toward the Ashkenazi Group’s judgment, not their own, the
federal court determined the Baldino Group’s share of the Greenberg
settlement proceeds, combined with other payments, satisfied the federal
judgment.
¶13 Given the federal court’s ruling, effectively voiding their post-
judgment collection efforts against the Baldino Group, the Attorneys
requested that the superior court distribute the $1,173,600.46 to them. The
Ashkenazi Group opposed the motion and cross-moved for an order
disbursing the deposited monies to its members.
¶14 Because allocation of the deposited funds to the Ashkenazi
Group would provide the Baldino Group with a credit against both the
Ashkenazi Group’s judgment and the federal judgment, the superior court
concluded that distributing the deposited funds to the Attorneys was “the
more equitable solution.” In so doing, the court expressly made no
determination regarding the terms of the split agreement and noted that its
ruling did not preclude the Ashkenazi Group from pursuing breach of
contract, breach of fiduciary duty, malpractice, or any other claim against
the Attorneys.
¶15 After denying the Ashkenazi Group’s motion for
reconsideration, the superior court reduced its rulings to a final order
(“distribution order”). The Ashkenazi Group appealed.
2 The Baldino Group timely appealed from the final judgment. In a
recent decision, this court concluded that the Ashkenazi Group failed to
present evidence of actual losses in its motion for summary judgment, and
therefore the superior court erred by granting summary judgment on
damages. Ashkenazi v. Baldino, 1 CA-CV 19-0049, 1 CA-CV 19-0050, 2020 WL
1527415 at *3, ¶ 11 (Ariz. App. Mar. 31, 2020) (as amended) (mem. decision).
At this point, the matter is still pending on remand.
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Decision of the Court
DISCUSSION
¶16 The Ashkenazi Group raises several challenges to the
superior court’s distribution order.
¶17 Although the parties dispute the applicable standard of
review, each asked the superior court to apply equitable principles in
resolving their conflicting claims to the deposited funds. While the
“availability of equitable relief” is subject to de novo review, we uphold a
superior court’s equitable remedy absent an abuse of discretion. Loiselle v.
Cosas Mgmt. Group, LLC, 224 Ariz. 207, 210, ¶ 8 (App. 2010). As defined by
the Arizona Supreme Court, discretion “is a liberty or privilege allowed to
a judge, within the confines of right and justice,” to determine “what is fair,
equitable, and wholesome, as determined by the peculiar circumstances of
the case, and as discerned by his personal wisdom and experience.” Walker
v. Kendig, 107 Ariz. 510, 513 (1971) (citation omitted). Equitable
considerations include the relative hardships of the parties and the
adequacy of other remedies. Ahwatukee Custom Estates Mgmt. Ass’n v.
Turner, 196 Ariz. 631, 635, ¶ 9 (App. 2000).
¶18 In its distribution order, the superior court acknowledged
that the Ashkenazi Group had a reasonable claim to the deposited funds.
But given the federal court’s ruling―that the Baldino Group’s portion of the
Greenberg settlement proceeds, combined with other payments, satisfied
the federal judgment―the superior court concluded that equitable
principles compelled allocation of the funds to the Attorneys. Otherwise,
the superior court explained, the Attorneys would simultaneously lose
their interest in the Baldino Group’s share of the Greenberg settlement
proceeds, deposited with the superior court, and their ability to pursue
collection on the federal judgment. In other words, disbursing the
deposited funds to the Attorneys would permit “maximum cumulative
recovery” from the Baldino Group, while allocation of the deposited funds
to the Ashkenazi Group “would result in a windfall to the Baldino [Group]
at [the] Attorneys’ expense.” In outlining its reasoning, the court also noted
that satisfaction of the federal judgment operated to extinguish the
Attorneys’ first-position lien on the Forest Highlands Property, effectively
elevating the Ashkenazi Group’s lien on the property from second to first
position. As a result, the Ashkenazi Group likewise would have received a
double benefit had the superior court distributed the deposited funds to its
members because the federal court’s satisfaction order improved their
ability to collect on a Baldino Group asset, namely the Forest Highlands
Property.
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ASHKENAZI, et al. v. BROWN, et al.
Decision of the Court
¶19 As a preliminary matter, the Attorneys contend that the
Ashkenazi Group waived any challenge to the distribution order by failing
to contest the deposit order. According to the Attorneys, the deposit order
stated that the deposited funds would be allocated to the Attorneys if the
federal court credited the Greenberg settlement proceeds against the
federal judgment. This characterization of the deposit order is incorrect.
Rather than mandate distribution of the deposited monies to the Attorneys
in the event the federal court credited the Greenberg settlement proceeds
against the federal judgment, the deposit order simply stated that in such a
circumstance, the court would “be receptive to issuing an amended order
releasing the funds to the Attorneys.” (Emphasis added). Even if the
Attorneys initially misconstrued the deposit order on this point, at the
hearing on the parties’ cross-motions for distribution, the superior court
made clear that the deposit order only expressed the court’s willingness to
consider the import of such a federal ruling. Despite the court’s clarification,
the Attorneys persisted in mischaracterizing the deposit order, both in the
superior court and on appeal. To be clear, the deposit order did not
mandate a distribution of the deposited monies to the Attorneys if the
federal court credited the Greenberg settlement proceeds against the
federal judgment, and the Ashkenazi Group did not waive its subsequent
challenges to the distribution order by failing to contest the deposit order.
¶20 Turning now to the distribution order, the Ashkenazi Group
first contends that the Attorneys breached their fiduciary duties and
violated ethical rules by “competing” for the Greenberg settlement
proceeds. In making this argument, the Ashkenazi Group relies solely on
“admissions” the Attorneys allegedly made in their court filings.
¶21 Without question, the Attorneys opposed the Baldino
Group’s motion for satisfaction of judgment in the federal court. The
Attorneys argued that the Greenberg settlement proceeds were “not
immediately payable” to them because the Ashkenazi Group claimed 78.5%
of the monies and therefore they were “legally and ethically required to
interplead those funds.” The Attorneys also acknowledged that they owed
a fiduciary duty to the members of the Ashkenazi Group and had an
“ethical responsibility” to seek a court order resolving the parties’
competing claims to the Greenberg settlement proceeds.
¶22 At the hearing on the parties’ cross-motions for distribution,
the superior court questioned the Ashkenazi Group’s contention that the
Attorneys’ fiduciary duties and ethical responsibilities prevented them
from accepting payment of the Baldino Group’s share of the Greenberg
settlement proceeds. In response, counsel for the Ashkenazi Group cited
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ASHKENAZI, et al. v. BROWN, et al.
Decision of the Court
the Attorneys’ purported admissions and argued that a lawyer may not
compete against his client “for the same limited pot of assets.”
¶23 As noted by the superior court, an attorney may not delay or
otherwise impede his client’s ability to collect on a judgment. Apart from
that, however, the Ashkenazi Group has not cited, and our research has not
revealed, any ethical rule that precludes a lawyer from accepting payment
on a judgment from an opposing party before his client receives satisfaction
on an independent judgment against the same opposing party.
¶24 Next, the Ashkenazi Group contends that its members are
entitled to the deposited monies, as a matter of law, pursuant to the parties’
split agreement. Although the Ashkenazi Group maintains that the split
agreement is absolute, it argues that even if its members orally agreed to a
condition based on the federal court’s possible application of the Greenberg
settlement proceeds toward the federal judgment, such a condition is
invalid because it was not reduced to writing as required by Arizona Rule
of Professional Conduct (“E.R.”) 1.8(a).
¶25 As relevant here, E.R. 1.8(a) precludes a lawyer from entering
into a “business transaction with a client or knowingly acquir[ing] . . . [a]
pecuniary interest adverse to a client unless:” (1) the transaction and terms
are “fair and reasonable to the client” and “fully disclosed and transmitted
in writing in a manner that can be reasonably understood by the client;” (2)
the client is advised in writing to seek “independent legal counsel on the
transaction;” and (3) the client gives written informed consent to the
transaction. The rule is intended to prevent an attorney from using his
“legal skill and training, together with the relationship of trust and
confidence between lawyer and client,” to “overreach[]” and take
advantage of the client. Model Rules of Prof’l Conduct R. 1.8 cmt. (Am. Bar
Ass’n 2020).
¶26 To support its claim, the Ashkenazi Group cites Matter of
Neville, 147 Ariz. 106 (1985) in which the supreme court analyzed the rule3
regulating a lawyer’s business relationship with his client and explained
that the ethical bar to a financial transaction between lawyer and client,
absent full disclosure and consent, protects a client who may otherwise
3 At that time, the predecessor to E.R. 1.8 precluded a lawyer from
entering into a business transaction with a client if the parties had “differing
interests” and if the client expected “the lawyer to exercise his professional
judgment . . . for the protection of the client,” unless the client consented
after full disclosure. Id. at 110.
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ASHKENAZI, et al. v. BROWN, et al.
Decision of the Court
view his lawyer “as a protector rather than as an adversary.” 147 Ariz. at
111. Recognizing “that lawyers are provided no bright line by which to
determine when they can act as ordinary business people in relation to the
interests of those whom they have represented in the past or whom they
represent on other matters at the present,” Id. at 112, the supreme court set
forth several factors to consider “on a case-by-case basis,” such as the length
and extent of the attorney-client relationship, the sophistication of the
client, and “perhaps most important,” the “presence or absence of
independent counsel for the client in the very transaction under
consideration.” Id. at n.4. As the supreme court explained, when the client
“is represented by another lawyer,” he generally does “not have reasonable
grounds to expect the former lawyer to protect him.” Id.
¶27 In this case, the members of the Ashkenazi Group were
represented by independent legal counsel who negotiated the split
agreement on their behalf. Under these circumstances, the Ashkenazi
Group could not reasonably have expected the Attorneys to protect their
interests in the split agreement,4 and we cannot conclude, as a matter of
law, that E.R. 1.8(a) precluded an oral condition concerning the possible
application of the Greenberg settlement proceeds to the federal judgment.
¶28 Alternatively, the Ashkenazi Group contends that the
superior court improperly distributed the deposited funds without
determining which party was legally entitled to the monies under the split
agreement. As support for its claim, the Ashkenazi Group cites Metropolitan
Life Insurance, Co. v. Reynolds, which outlines a two-step process for
resolving interpleader actions: (1) “the court determines whether an
interpleader action is appropriate; and (2) the court adjudicates the
competing claims, entering judgment in favor of the party who is legally
entitled to the interpleaded funds. CV-13-01253-PHX-BSB, 2013 WL
6048808, at *2 (D. Ariz. 2013) (mem. decision).
¶29 To qualify as an interpleader action, however, the party
moving to interplead monies must be a disinterested stakeholder with “no
interest in the funds or property in dispute.” Arizona Bank v. Wells Fargo
Bank, N.A., 148 Ariz. 136, 140 (App. 1985). In this case, the Ashkenazi Group
and the Attorneys submitted competing affidavits attesting to the terms of
4 In its opening brief, the Ashkenazi Group concedes that its members
did not rely on the Attorneys to protect their interests in the split agreement.
Indeed, they “were shocked” when the Attorneys initially suggested the
split agreement and “angry” that the Attorneys “were putting their own
interests before that of their own clients.”
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ASHKENAZI, et al. v. BROWN, et al.
Decision of the Court
the split agreement. The Attorneys neither disclaimed an interest in the
deposited funds nor moved for an interpleader action pursuant to Rule 22.
Instead, the Attorneys moved to deposit the funds pursuant to Rule 67(a),
which expressly permits a party to deposit monies with the court “whether
or not that party claims any of it.” Therefore, this matter is not a true
interpleader action, and the question before us is whether Rule 67 requires
a superior court to determine which party is legally entitled to deposited
funds before entering a distribution order.
¶30 Because no Arizona case interprets the requirements of Rule
67, both parties rely on federal cases that interpret the corresponding
federal rule to support their respective positions. But unlike its federal
counterpart, Arizona’s Rule 67(b) authorizes the superior court to “order
that the money or property be delivered to the party claiming it on
conditions that the court finds just.” Thus, by its express terms, Arizona’s
Rule 67 countenances an equitable remedy for funds deposited with the
court.
¶31 In this case, the factual dispute between the Ashkenazi Group
and the Attorneys concerning the terms of the split agreement raised a new
claim, wholly separate from the underlying action between the Ashkenazi
Group and the Baldino Group. Recognizing that this new claim could lead
to protracted litigation, the superior court deferred ruling on the factual
dispute and returned the deposited funds to the Attorneys based on the
relative equities of the parties at that stage of the proceedings. In so doing,
the court expressly stated that its distribution order did not foreclose the
Ashkenazi Group from litigating the split agreement in a new action.
¶32 Finally, the Ashkenazi Group asserts that equity favored
allocation of the Greenberg settlement proceeds to its members, noting the
Attorneys have collected substantially more money from the Baldino
Group, as well as a considerable sum from their representation of the
Ashkenazi Group, and separate litigation against the Attorneys will cost
both time and money. While the Attorneys have recovered more money
from the Baldino Group than the members of the Ashkenazi Group, the
federal court’s satisfaction order foreclosed any additional collection efforts
by the Attorneys against the Baldino Group. This determination
substantially improved the Ashkenazi Group’s ability to collect from the
Baldino Group on an unencumbered asset of significant value―the Forest
Highlands Property. Given these facts, the superior court did not abuse its
discretion by distributing the deposited monies to the Attorneys.
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CONCLUSION
¶33 For the foregoing reasons, we affirm the superior court’s
distribution order. Both parties request an award of their attorneys’ fees on
appeal pursuant to A.R.S. § 12-341.01. In our discretion we deny both
requests. We award the Attorneys their costs incurred on appeal,
conditioned upon compliance with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
11