Callanan v. Sun Lakes Homeowners' Ass'n No. 1, Inc., 1

• Decision Date: 24 August 1982
• Docket Number: CA-CIV,No. 1,1
• Citation: 134 Ariz. 332,656 P.2d 621
• Parties: Robert A. CALLANAN, Plaintiff-Appellant, v. SUN LAKES HOMEOWNERS' ASSOCIATION # 1, INC., an Arizona corporation; Sun Lakes Properties, Inc., an Arizona corporation; Edward J. Robson, dba Sun Marketing Development; Maurice Kay; Jack P. Jones; Jerry Levy; Edna Pitts; Angelo Sandilla and James Stuart, Defendants-Appellees. 5402.
• Court: Arizona Court of Appeals

Page 621

656 P.2d 621

134 Ariz. 332

Robert A. CALLANAN, Plaintiff-Appellant, v. SUN LAKES HOMEOWNERS' ASSOCIATION # 1, INC., an Arizona corporation; Sun Lakes Properties, Inc., an Arizona corporation; Edward J. Robson, dba Sun Marketing Development; Maurice Kay; Jack P. Jones; Jerry Levy; Edna Pitts; Angelo Sandilla and James Stuart, Defendants-Appellees.

No. 1 CA-CIV 5402.

Court of Appeals of Arizona Division 1, Department C.

Aug. 24, 1982.

Rehearing Denied Oct. 1, 1982.

Review Denied Oct. 19, 1982.

Paul M. Rybarsyk, Scottsdale, for plaintiff-appellant.

Powers, Ehrenreich, Boutell & Kurn by Michael F. Ruffatto, Nancy J. Beck, Phoenix, for defendants-appellees Sun Lakes Properties, Inc. and Robson.

Fennemore, Craig, von Ammon & Udall by Dwayne L. Burton, Charles M. King, Phoenix, for defendants-appellees Sun Lakes Homeowners' Association # 1, Inc., Kay, Jones, Levy, Pitts, Sandilla and Stuart.

OPINION

HAIRE, Judge.

In this appeal the appellant, who was the plaintiff in a stockholders' derivative action, contends that the trial court was without authority to award attorney's fees to the defendants (appellees) upon the entry of judgment dismissing plaintiff's complaint without prejudice.

The defendants' first motions to dismiss the complaint were based upon plaintiff's failure to allege, in accordance with Rule 23.1, Rules of Civil Procedure, 16 A.R.S., his efforts to seek redress of his alleged grievances from the directors of the defendant association or his reasons for not making those efforts. On these first motions to dismiss, the trial court ruled that the motion would be granted unless plaintiff filed an amended complaint within 20 days from the date of the ruling.

Plaintiff then timely filed an amended complaint, which was again challenged by the defendants' motions to dismiss. The basis for the motions to dismiss the amended complaint was that plaintiff still had not complied with the requirements of Rule 23.1, having failed to allege his efforts to seek relief from the stockholders of the defendant association or his reasons for failing to seek such relief. The court granted the motions to dismiss the amended complaint by minute entry order dated October 23, 1979.

Thereafter, the defendants moved for an award of attorney's fees pursuant to the provisions of A.R.S. §§ 10-049(B) and 12-341.01. After considering plaintiff's response to the attorney's fees motions, as well as plaintiff's motion for rehearing concerning the order of dismissal, the trial court by minute entry order denied plaintiff's motion for rehearing and awarded attorney's fees to the defendants.

On March 20, 1980, a formal written judgment was entered by the trial court. That judgment dismissed plaintiff's complaint "without prejudice for Plaintiff's failure to comply with the requirements of Rule 23.1, Arizona Rules of Civil Procedure." It also gave defendants judgment against plaintiff for their attorney's fees, without specifying whether the award was being made pursuant to A.R.S. §§ 10-049 or 12-341.01. ¹

Plaintiff has timely appealed from this judgment but has raised no issues relating to the propriety of the trial court's entry of judgment dismissing his complaint. Rather, the sole question presented is:

"In a stockholders derivative action where the action is dismissed without prejudice for failure to comply with Rule 23.1, may the court properly award attorney's fees to the defendants?"

Plaintiff urges that neither A.R.S. § 10-049(B) nor § 12-341.01 furnishes support for the trial court's award of attorney's fees to defendants. We consider first the applicability of A.R.S. § 10-049(B) to the facts of this case.

A.R.S. § 10-049(B) provides:

"In any action hereafter instituted in the right of any domestic or foreign corporation by the holder or holders of record of shares of such corporation or of voting trust beneficial interest therefor, the court having jurisdiction, upon final judgment and a finding that the action was brought without reasonable cause, may require the plaintiff or plaintiffs to pay to the parties named as defendant the reasonable expenses, including fees of attorneys, incurred by them in the defense of such action." (Emphasis added).

Plaintiff's initial contention is that the judgment of dismissal without prejudice entered in this case was not a "final judgment". Relying upon Decker v. City of Tucson, 4 Ariz.App. 270, 419 P.2d 400 (1966), plaintiff contends that there can be no final judgment in an action unless the judgment "decides and disposes of the cause on its merits, leaving no question open for judicial determination." While the Decker decision does contain the language relied upon by plaintiff, it furnishes no support for plaintiff's position here. The actual basis for the court's dismissal of the purported appeal in Decker rests, not upon any question relating to the merits, but rather upon the ambiguity and inconclusiveness of the document which purported to be the "judgment" from which the appeal was taken. Thus the court stated:

"The subject 'judgment' merely grants to 'certain answering defendants' their motion for summary judgment and leaves unresolved the questions: (1) against whom? and (2) as to what?" 4 Ariz.App. at 272, 419 P.2d at 402.

Contrary to plaintiff's contentions, there are numerous Arizona decisions which hold that judgments of dismissal not based upon the merits of the underlying claim constitute final judgments. See, e.g., Campbell v. Deddens, 93 Ariz. 247, 379 P.2d 963 (1963); Meloy v. Saint Paul Mercury Indemnity Co., 72 Ariz. 406, 236 P.2d 732 (1951); and Miller v. The Arizona Bank, 45 Ariz. 297, 43 P.2d 518 (1935). Plaintiff relies on Jung v. K. & D. Mining Co., 356 U.S. 335, 78 S.Ct. 764, 2 L.Ed.2d 806 (1958), for the proposition that an order dismissing a complaint but allowing plaintiff to file an amended complaint is interlocutory in nature and not a final judgment. Such reliance displays a lack of thorough understanding of the United States Supreme Court's holding in Jung, as well as a lack of appreciation of the fundamental distinctions between an interlocutory nonappealable order, and the fact that such an order may result in a final judgment when requisite substantive and procedural formalities have been accomplished. Thus in Jung, after making the observation noted above, the United States Supreme Court indicated that another order of absolute dismissal after expiration of the time allowed for amendment would be required to make a final disposition of the cause. An examination of the record in Jung revealed that such an order had been subsequently entered, and the court held:

"It was the District Court's order of March 25, 1957, dismissing 'this cause of action,' that constituted the final judgment in the case." 356 U.S. at 337, 78 S.Ct. at 766, 2 L.Ed.2d at 808.

Similarly, here the trial court's initial order conditioning the denial of dismissal upon the filing of an appropriate amended complaint was not a final judgment. When, however, the plaintiff was unable to file an appropriate amended complaint, the subsequent formal written judgment dismissing the case constituted a "final judgment". Subject to plaintiff's right to appeal, the judgment completely disposed of the case and terminated the action, leaving no aspect of plaintiff's claim pending in the trial court. Such a judgment of dismissal, even though without prejudice, is a final judgment. As stated in Moore's Treatise:

"If, however, the motion is sustained and the effect is to dismiss the action for want of jurisdiction, either of the person or subject matter, or because of improper venue, or for any other reason, although the dismissal is without prejudice, the judgment is final." (Footnote omitted). 9 Moore's Federal Practice, p 110.08, at 113.

For an opinion holding that a judgment granting a motion to dismiss a minority stockholder's derivative action complaint without prejudice constitutes a final judgment, see Elfenbein v. Gulf & Western Industries, Inc., 590 F.2d 445 (2d Cir.1978).

We hold that in this case, the trial court's use of the phrase "without prejudice" did not make its judgment of dismissal any less final. Rather, as stated by the court in Elfenbein, supra:

"The action is terminated; however, a subsequent suit will not be barred by the doctrine of res judicata." 590 F.2d at 449.

Plaintiff also urges that even if the judgment of dismissal was final in the conventional sense, we should interpret A.R.S. § 10-049(B) as requiring a final judgment on the merits, rather than literally applying the language used in the statute. No direct authority from Arizona or any other jurisdiction involving a substantially identical statute ² has been cited in support of this contention. However, we do note that in Petkas v. Piedmont-Lindberg Corporation, 151 Ga.App. 323, 259 S.E.2d 713 (1979), in considering whether attorney's fees could be awarded under a statute substantially identical to A.R.S. § 10-049(B), the court held that a judgment of dismissal based upon the minority stockholders' voluntary dismissal after one day of trial was a final judgment so as to give the court authority to award attorney's fees to the defendants. Likewise, in Sackett v. Mitchell, 264 Or. 396, 505 P.2d 1136 (1973), the court held that a judgment of dismissal without prejudice constituted a final determination of the rights of the parties and a "final judgment" for the purpose of meeting the requirements of an Oregon statute allowing the award of attorney's fees in contract actions.

Here, the statute does not expressly contain the limitation plaintiff would have us engraft upon its terms, and we cannot presume that such was the intention of the drafters in proposing § 49 of the Model Business Corporation Act or of the Arizona legislature in enacting A.R.S. § 10-049(B).

In urging that no judgment should be considered as final unless it adjudicates the merits of the minority stockholders'...