Cal X–Tra v. W.V.S.V.

Citation229 Ariz. 377,276 P.3d 11,633 Ariz. Adv. Rep. 13
Decision Date24 April 2012
Docket Number1 CA–CV 09–0445.,Nos. 1 CA–CV 08–0567,s. 1 CA–CV 08–0567
PartiesCAL X–TRA, a California corporation; Cattletrack 10K, L.L.C., an Arizona limited liability company; Leo R. Beus; Alan Mishkin; Trst, L.L.C., a Delaware limited liability company; Trst II, L.L.C., an Arizona limited liability company; and McWin, L.L.C., an Arizona limited liability company, derivatively on behalf of and for the benefit of 10K, L.L.C., an Arizona limited liability company, Plaintiffs/Appellants/Cross–Appellees, v. W.V.S.V. HOLDINGS, L.L.C., an Arizona limited liability company; Conley Wolfswinkel, Defendants/Appellees/Cross–Appellants. Cal X–Tra, a California corporation; Cattletrack 10K, L.L.C., an Arizona limited liability company; Leo R. Beus; Alan Mishkin; Trst, L.L.C., a Delaware limited liability company; Trst II, L.L.C., an Arizona limited liability company; and McWin, L.L.C., an Arizona limited liability company, derivatively on behalf of and for the benefit of 10K, L.L.C., an Arizona limited liability company, Plaintiffs/Appellees, v. W.V.S.V. Holdings, L.L.C., an Arizona limited liability company, Defendant/Appellant.
CourtCourt of Appeals of Arizona

OPINION TEXT STARTS HERE

Cohen Kennedy Dowd & Quigley, P.C., By Ronald Jay Cohen, Daniel G. Dowd, Laura H. Kennedy, Rebecca L. Van Doren, Phoenix, Attorneys for Plaintiffs/Appellants/Cross–Appellees And Plaintiffs/Appellees.

Wright & Associates, By Lawrence C. Wright, Mesa, And Lee Allen Johnson, P.C., By LeeAllen Johnson, Tempe, Attorneys for Defendants/Appellees/Cross–Appellants And Defendant/Appellant.

OPINION

WINTHROP, Presiding Judge.

[229 Ariz. 381]¶ 1 In this consolidated appeal and cross-appeal, we address questions about the conclusiveness of our previous appellate ruling in subsequent proceedings between the same parties. Concluding that this case presents one of those rare exceptions for which Rule 60(c), Ariz. R. Civ. P., is designed, we agree with the trial court that previous judgments obtained by extrinsic fraud cannot stand. We therefore affirm the trial court's judgment vacating judgments entered in 2003 as the product of extrinsic fraud. We further conclude as a matter of first impression, however, that the trial court erred in awarding attorneys' fees pursuant to Arizona Revised Statutes (“A.R.S.”) section 29–833(A) (West 2012).1 We also conclude that, after a separate but factually related trial, the trial court did not abuse its discretion in setting aside the verdict and ordering a new trial or in declining to impose sanctions against the plaintiff. Accordingly, we affirm the trial court's judgments except for the award of attorneys' fees, and we remand for a new hearing consistent with this opinion.

FACTS AND PROCEDURAL HISTORY
I. 10K's Formation & The Real Estate Transactions

¶ 2 In 1995, Robert Burns, a real estate developer in the Phoenix area, proposed a deal to acquire land in western Maricopa County to a group of investors, including Paul Gilbert, Leo Beus, and some limited liability companies. By June 1995, the investors had formed an entity known as 10K, L.L.C. (“10K”) for the purpose of acquiring, developing, and selling 10,016 acres (“the 10K Property”) in the area of Buckeye, Arizona.

¶ 3 A series of transactions culminated in 10K's purchase of the 10K Property for approximately $9,200,000. The 10K investors paid approximately $1,850,000 in cash and financed the remainder through a promissory note ultimately assigned to Citicorp U.S.A., Inc. (“Citicorp”). The debt was to be serviced through periodic capital calls on the investors.

¶ 4 An operating agreement for the project was put in place, and Phoenix Holdings II, L.L.C. (“Phoenix Holdings”), an entity controlled by Burns and Brent Hickey,2 was hired as the exclusive manager of 10K's businessand affairs. Although Phoenix Holdings was not a member of and did not invest money in 10K, the operating agreement vested almost exclusive control in Phoenix Holdings to direct, manage, and control the 10K Property, except that Phoenix Holdings was required to obtain the approval of two-thirds of the 10K members before selling or transferring all or substantially all of the assets of 10K. In return for management services, Phoenix Holdings was to receive an annual fee of $10,000, reimbursement of project-related expenses, and subordinated profit participation on the sale of the project.

¶ 5 Phoenix Holdings later proposed that 10K purchase an additional 3,244 acres of adjacent land (“the Spurlock Property”), which was owned by Spurlock Land, L.L.C. (“Spurlock”). Burns found a buyer for the combined parcel of 13,260 acres (collectively, “the Sun Valley Property”) in an entity known as Breycliffe, L.L.C. (“Breycliffe”), a Nevada limited liability company. In November 1998, Spurlock, 10K, and Breycliffe agreed to a series of transactions: In contemporaneously signed purchase agreements, which referenced and were contingent on one another, Spurlock agreed to sell the Spurlock Property to 10K (“the 1998 Spurlock Agreement”), and 10K agreed to sell the Sun Valley Property to Breycliffe (“the 1998 Breycliffe Agreement”). The agreements were to close escrow simultaneously. From these transactions, 10K stood to receive $5, 000 per acre (paid with no interest over as much as twenty years) plus a twenty percent profit participation in the Sun Valley Property once the acreage was developed and sold.3 Under the 1998 Breycliffe Agreement, Breycliffe was required to satisfy certain conditions (“the Approvals Condition”) before closing. Over the next several years, however, Breycliffe did not or was unable to satisfy the conditions; accordingly, the transactions did not close as originally set forth in the agreements.

II. The 2002 Litigation

¶ 6 After November 1998, the 1998 Spurlock and Breycliffe Agreements were amended several times and close of escrow was repeatedly delayed as the closing dates were extended, eventually to March 2002.4 By then, however, disputes had arisen among the parties regarding the timely fulfillment of Breycliffe's and 10K's obligations and whether Spurlock was required to nonetheless allow 10K (and thus Breycliffe) to close despite the fact that the Approvals Condition had still not been met. 10K requested that Spurlock grant an extension of the “Approvals Condition Period,” but after Spurlock declined to grant the extension, 10K accused Spurlock of anticipatorily repudiating and breaching the 1998 Spurlock Agreement and announced it intended to close on the transactions.

¶ 7 The disputes led to litigation among Spurlock, 10K, and Breycliffe. In February 2002, 10K sought specific performance and declaratory relief against Spurlock in superior court cause no. CV 2002–002933. In March 2002, Spurlock sought declaratory relief against 10K and Breycliffe in superior court cause no. CV 2002–004470. The cases were consolidated under cause no. CV 2002–002933 (“the 2002 litigation”).

¶ 8 Settlement negotiations ensued, and on June 4, 2002, the 2002 litigation was settled with the parties entering amended and restated contracts between Spurlock and 10K (“the 2002 Spurlock Agreement”), and between 10K and Breycliffe (“the 2002 Breycliffe Agreement”). The amended agreements extended the date for close of escrow up to September 16, 2003. Pending closing, Breycliffe, as the ultimate buyer, was required to make quarterly and monthly paymentson behalf of 10K to service the debt that encumbered the Spurlock Property. Notwithstanding the rapidly rising real estate market at the time, the purchase price of the Sun Valley Property ($66,300,000) did not change.

¶ 9 Also on June 4, as part of the settlement and on stipulation of the parties, the revised agreements were incorporated into a Final Judgment and Permanent Injunction Order entered by Judge J. Kenneth Mangum (“the 2002 Mangum Judgment”). The 2002 Mangum Judgment enjoined Spurlock, 10K, and Breycliffe to perform the amended contracts.

¶ 10 Breycliffe's interest in the 2002 Breycliffe Agreement was assignable, and Phoenix Holdings, on behalf of Breycliffe, had been secretly marketing that interest to third parties, while at the same time soliciting substantial profit participation for Phoenix Holdings in any such agreement. When some of the 10K investors learned of this activity, they instructed Burns to cease it. The investors also learned that Burns and Phoenix Holdings were about to offer Breycliffe's acquisition interest in the Sun Valley Property to Conley Wolfswinkel, a businessman and real estate investor who had federal convictions for bank fraud, conspiracy to commit bank fraud and misapplication of bank funds, and aiding and abetting misapplication of bank funds, see United States v. Wolfswinkel, 44 F.3d 782, 783–84 (9th Cir.1995), and two civil judgments in excess of one billion dollars each entered against him related to fraudulent business activities. These convictions and judgments related to and/or resulted from Wolfswinkel's role in the savings and loan crisis that occurred after the collapse of the real estate market in the late 1980s.

¶ 11 On June 21, 2002, 10K investors met with Burns and instructed him not to offer the Breycliffe interest to Wolfswinkel and to instead negotiate for 10K's reacquisition of that interest. While Burns met with the 10K investors, however, Hickey met with Wolfswinkel and offered him the opportunity to purchase Breycliffe's right to acquire the Sun Valley Property. At the conclusion of the meeting with Hickey, Wolfswinkel agreed to the deal, an opportunity later described by Wolfswinkel's son, Brandon, as “unbelievable.” 5 Hickey and Burns met with Wolfswinkel later that day to discuss details of the agreement; at the meeting, Burns advised Wolfswinkel that the 10K members were upset and adamant that the deal not go forward.

¶ 12 Nevertheless, Wolfswinkel committed to the deal, and on June 25, 2002, Hickey drafted a Letter of Intent, which included a...

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