Breitbart-Napp v. Napp

• Decision Date: 24 May 2007
• Docket Number: No. 1 CA-CV 05-0557.,No. 1 CA-CV 05-0844.,1 CA-CV 05-0557.,1 CA-CV 05-0844.
• Citation: 216 Ariz. 74,163 P.3d 1024
• Parties: In re the Marriage of Stacey BREITBART-NAPP, Petitioner/Appellee, v. David NAPP, Respondent/Appellant.
• Court: Arizona Court of Appeals

163 P.3d 1024

216 Ariz. 74

In re the Marriage of Stacey BREITBART-NAPP, Petitioner/Appellee, v. David NAPP, Respondent/Appellant.

No. 1 CA-CV 05-0557.

No. 1 CA-CV 05-0844.

Court of Appeals of Arizona, Division 1, Department C.

May 24, 2007.

The Cavanagh Law Firm, P.A. by Philip C. Gerard, Helen R. Davis, Christopher Robbins, Phoenix, Attorneys for Petitioner/Appellee.

Mariscal, Weeks, McIntyre & Friedlander, P.A. by Steven D. Wolfson, Phoenix, and Jenner & Block LLP by David J. Bradford, Steven McMahon Zeller, Chicago, Attorneys for Respondent/Appellant.

OPINION

BARKER, Judge.

¶ 1 David Napp ("Husband") appeals from the trial court's orders granting the Motion for Relief of Stacey Breitbart-Napp ("Wife") filed pursuant to Arizona Rule of Civil Procedure ("Rule") 60(c) and awarding Wife attorneys' fees and costs related to the Rule 60(c) motion. For the following reasons, we affirm as to the Rule 60(c) order, vacate the award of fees and costs, and remand.

Facts and Procedural History

¶ 2 Husband and Wife were married on June 5, 1988. They have two minor children. On January 6, 2001, Husband and Wife executed a post-marital agreement ("Post-Marital Agreement") in anticipation of either party filing a petition for dissolution. Husband had ownership interests in National Home Communities, EMB/NHC, LLC, and various affiliated entities (collectively referred to as "EMB") that he agreed would be contributed to DSN, LLC ("DSN"). In subsequent legal proceedings, the Delaware Court of Chancery described the business structure of EMB as follows:

The partnerships were formed at various times from 1996 to 1999 to acquire, own and operate real property developed and used as recreational vehicle ("RV") or mobile home communities. A different, specially formed affiliate of Lehman Brothers, Inc. serves as both 1% general partner and a 74% limited partner of each partnership (collectively, the "PAMI Partners"). In each case, the other 25% limited partner is EMB/NHC, L.L.C. [EMB], a Delaware limited liability company owned and controlled by David Napp and Colleen Edwards. [EMB] manages the properties and is entitled to distributions on its 25% limited partnership interest only after Lehman receives a sizeable preferential return and the return of all its capital.

PAMI-LEMB I Inc. v. EMB-NHC, L.L.C. v. Lehman Bros. Holdings, 857 A.2d 998, 1001 (Del.Ch.2004) (mem.opinion) [hereinafter "Memorandum Opinion"].

¶ 3 According to the Post-Marital Agreement, Wife and Husband would each have a forty-percent ownership interest in DSN. Their minor children would each have a ten-percent interest. Neither party was to transfer his or her interest in DSN prior to January 2, 2002. Thereafter, Wife had the right to (1) retain her interest; (2) sell her interest in DSN to a third party, subject to Husband's right of first refusal; or (3) "put" her ownership interest in DSN to Husband, who was required to purchase the interest at fair value. In the event Husband and Wife could not agree on a fair value, an agreed upon appraiser would determine the value.

¶ 4 On September 28, 2001, Wife filed a petition for dissolution of the marriage in Maricopa County. In November 2003, the parties negotiated a Property Settlement Agreement ("PSA") with the assistance of Judge Edward O. Burke as a special settlement judge. The court entered a decree of dissolution on December 30, 2003. Husband signed the PSA on April 23, 2004. The decree stated the following concerning the PSA:

The written Property Settlement Agreement which will be signed by the parties, dated as of November 21, 2003, is incorporated herein as Exhibit "B." Said Agreement is approved and the property and debts of the parties are divided and distributed as set forth in said Agreement. All other rights and obligations of the parties are settled in accordance with each and every term and provision thereof, as the judgment of this Court. Said Agreement is incorporated but specifically not merged into this Decree, and the same shall be enforceable as a contract between the parties.

¶ 5 The PSA contained an "Incorporation and Non-Merger" clause as follows:

This Agreement may be presented by either party in the action presently pending for dissolution of the marriage between the parties for the approval thereof by the Court, and if approved, shall be incorporated in and become a part of any order or decree or judgment rendered in any such dissolution action, and may be enforceable by contempt proceedings or any other appropriate remedy which the law shall allow, but the terms hereof need not be set forth in the decree, and this Agreement shall not be merged in any order, decree or judgment and the provisions of this Agreement shall remain separately enforceable as a contract between the parties, regardless of any incorporation by identification in any order, decree or judgment of the Court.

Wife refused to sign the PSA on April 23, based on an alleged disclosure violation by Husband, which she learned of after negotiating the PSA. The court denied her motion to stay her obligation to sign. Wife had expressed concerns at the April 23 meeting regarding her right to attack the PSA based on Husband's disclosure violation if she signed, but she signed the agreement on April 26, 2004. She added the following language: "My signature shall not constitute waiving my Rule 60(c) rights concerning Husband's Rule 26.1 violation regarding this agreement."

¶ 6 In the PSA, Wife agreed to "put" her interest in DSN to Husband. Husband agreed to execute a promissory note to Wife for $500,000 as an "equalization payment." Husband agreed to transfer the marital residence to Wife. The parties also agreed to an appraisal process for the Sunshine Keys property, one of the RV properties in which EMB had an interest. Husband was to make a payment to Wife based on the value of the Sunshine Keys property as determined by the appraisal process.

¶ 7 At the close of the PSA negotiations in November 2003, Judge Burke stated with respect to the properties in which EMB had an interest that, "whether for a higher or lower value — any intervening sales on every property, other than Sunshine Keys — [Husband] now gets those benefits, except that he has to pay [Wife] accelerated payments against the note." Counsel for Wife confirmed this understanding. Husband paid the equalization payment on May 17, 2004, and the Sunshine Keys payment on September 23, 2004.

¶ 8 On June 18, 2004, Wife filed a Rule 60(c) motion for relief from the decree of dissolution and the property settlement agreement. As grounds for relief, she claimed that Husband had violated Rule 26.1 by not disclosing to Wife that Lehman had decided to sell the RV properties in the summer of 2003. Wife claimed that a key issue in negotiating the PSA was the value of EMB's interest in the RV properties. She argued that, had she known Lehman had decided to sell the RV properties, Wife's efforts at valuing the RV properties and her decision to "put" her interest in DSN to Husband would have been affected. Wife stated that whether she received less than her share of the value of the RV properties in the PSA remained to be determined but that the court should grant relief from the decree of dissolution and PSA based solely on Husband's alleged discovery violation.

¶ 9 The facts of the alleged discovery violation are as follows. The discovery special master, Michael McCarthy, indicated that the discovery process, including the valuations of the properties in which EMB had an interest, was ongoing through November 2003. On September 16, 2003, Wife's valuation consultant, Ronald Freeman, met with Husband to review documents for the valuation process. McCarthy summarized the status of the dispute over the value of EMB's interest in the properties in a November 7, 2003 report. At that time, Lehman continued to argue that the individual partnerships in which Lehman and EMB had an interest should be "POOLED for purposes of determining profit, loss, preferences and residuals, rather than each partnership standing alone for such purposes." EMB also had an unresolved accounting issue dispute with Lehman that would substantially affect the value of EMB's interest in the individual partnerships. The valuation experts for both Husband and Wife agreed that "IF Lehman prevails, the parties have NO asset value in the partnerships." If Lehman did not prevail, Husband and Wife "would share substantial amounts." McCarthy was of the opinion that resolution of the issue would require litigation and may not be resolved "for years to come." In fact, the Delaware Court of Chancery resolved the issue in favor of EMB in its Memorandum Opinion.

¶ 10 Wife attached an affidavit submitted by Husband in the Delaware court litigation with her Rule 60(c) motion. In the affidavit, Husband said that in August 2003, "Lehman approached Edwards and myself [sic] about `marketing' Lehman's interest in the RV portfolio." Lehman informed Edwards and Husband that it would handle the sales process but that Edwards and Husband would have the opportunity to "match" any offer Lehman received. Edwards and Husband met with the Lehman sales team, developed 2004 projections, redrafted an offering memorandum, and engaged in other activities related to the sales process. McCarthy, Freeman, and Wife's counsel, Philip C. Gerard, all submitted affidavits stating that they were never told that Lehman had decided to market the RV properties. In deposition testimony, Freeman testified that, had he known Lehman was "marketing" the RV portfolio and that Husband was involved in preparing related financial information, he would have "followed up on it." Freeman also said that the financial information would have been "potentially relevant" to the valuation. McCarthy testified in deposition that, had he "known that there was active marketing going on," he would have questioned why the parties were going through the...