Grand v. Nacchio

• Decision Date: 24 November 2006
• Docket Number: No. 2 CA-CV 2006-0033.,2 CA-CV 2006-0033.
• Citation: Grand v. Nacchio, 147 P.3d 763, 214 Ariz. 9 (Ariz. App. 2006)
• Parties: Richard GRAND and Marcia Grand, cotrustees of the R.M. Grand Revocable Living Trust, dated January 25, 1991, Plaintiffs/Appellants, v. Joseph P. NACCHIO, a New Jersey resident; John A. McMaster, a New Jersey resident; Qwest Communications International, Inc., a Delaware corporation, Defendants/Appellees.
• Writing for the Court: Brammer
• Court: Arizona Court of Appeals

147 P.3d 763

214 Ariz. 9

Richard GRAND and Marcia Grand, cotrustees of the R.M. Grand Revocable Living Trust, dated January 25, 1991, Plaintiffs/Appellants, v. Joseph P. NACCHIO, a New Jersey resident; John A. McMaster, a New Jersey resident; Qwest Communications International, Inc., a Delaware corporation, Defendants/Appellees.

No. 2 CA-CV 2006-0033.

Court of Appeals of Arizona, Division 2, Department B.

November 24, 2006.

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Meyer Hendricks, PLLC, By Tom Galbraith, Phoenix, Munger Chadwick, By Michael J. Meehan, Tucson, for Plaintiffs/Appellants.

Fennemore Craig, P.C., By A. Bates Butler III and James D. Burgess, Tucson, Boies, Schiller & Flexner LLP, By James P. Denvir and Jonathan Sherman, Washington, for Defendant/Appellee Qwest International, Inc.

Lewis and Roca LLP, By John N. Iurino, Tucson, for Defendant/Appellee John A. McMaster.

Perkins Coie Brown & Bain P.A., By Joseph E. Mais and Brian C. Lake, Phoenix, for Defendant/Appellee Joseph P. Nacchio.

BRAMMER, Judge.

¶ 1 Appellants Richard and Marcia Grand, trustees of the R.M. Grand Revocable Living Trust (collectively, the Trust), appeal from the trial court's grant of summary judgment in favor of appellees Joseph Nacchio, John McMaster, and Qwest Communications International, Inc. The Trust filed a securities fraud action against Qwest concerning the Trust's purchase of shares in KPNQwest, an affiliate of Qwest Communications.

¶ 2 The Trust contends on appeal that the trial court erred by finding it was not entitled to rescind the purchase on the grounds it could not tender the purchased shares and was not permitted to tender substitute shares. The Trust also contends that its Arizona statutory claims do not require it to show a causal connection between the alleged misrepresentations and its loss and that summary judgment on its common law fraud and consumer fraud claims was premature. We affirm the trial court's grant of Qwest's partial summary judgment motion on the Trust's claims for damages, but reverse the summary judgment entered against the Trust on its claims for rescission.

Factual and Procedural Background

¶ 3 On review of a summary judgment, we "view the evidence in the light most favorable to the party opposing the motion for summary judgment and draw all inferences fairly arising from the evidence in that party's favor." Phoenix Baptist Hosp. & Med. Ctr., Inc. v. Aiken, 179 Ariz. 289, 293, 877 P.2d 1345, 1349 (App.1994). The salient facts appear to be uncontested and are as follows:

¶ 4 In 1999, Dutch telecommunications company KPNQwest sold shares of its stock through an initial public offering, and the stock began trading on the NASDAQ stock exchange. Qwest International, through its subsidiary Qwest B.V., was a controlling shareholder in KPNQwest. At that time, Joseph Nacchio was chairman and chief executive officer (CEO) of Qwest International and chairman of KPNQwest's supervisory board. John McMaster was CEO and president of KPNQwest. Over a few-month period, the Trust purchased 285,000 shares of KPNQwest stock. By the end of 2000, the NASDAQ Telecom Index had dropped more than sixty percent, and the Trust had sold 255,000 of its shares.

¶ 5 Following those sales, a series of news articles and public disclosures by KPNQwest suggested it had engaged in questionable accounting practices that had inflated its revenue. After these disclosures, KPNQwest's stock further and rapidly depreciated, and in May 2002, KPNQwest filed for bankruptcy in the Netherlands. The Trust sold its remaining KPNQwest shares after the disclosures but before the bankruptcy filing.

¶ 6 The Trust filed an action against Qwest in October 2002 alleging several federal and Arizona statutory securities violations. The Trust later amended its complaint to include common law fraud and breach of duty claims. The trial court dismissed the majority of the claims, and the Trust filed a second amended complaint. That complaint alleged violations of Arizona securities laws under A.R.S. §§ 44-1997, 44-1998, and 44-1991 and of federal securities laws under 15 U.S.C. §§ 77k and 77l(a)(2). The complaint also included a claim for violations of the Arizona Consumer Fraud Act, A.R.S. §§ 44-1521 through 44-1534, and common law claims for breach of fiduciary duty and fraudulent concealment. The complaint sought rescission of the Trust's purchases of the KPNQwest stock, compensatory and punitive damages, and costs.

¶ 7 In April 2005, the United States Supreme Court decided Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005). Qwest then moved for partial summary judgment, arguing Dura had held that a "plaintiff[ ] cannot recover damages for alleged securities fraud if . . . [it] sold [its] stock prior to the time that `the relevant truth' regarding that alleged fraud began to leak out." Qwest reasoned that, because the Trust admitted it had sold 255,000 shares of KPNQwest stock before public disclosure of potential wrongdoing by Qwest, the Trust could not show causation and its claims for damages relating to those shares must be dismissed. The motion also claimed the Trust could not rescind the transaction because it had sold the shares and could not tender them to Qwest as required by law.

¶ 8 Following oral argument, the trial court determined the Trust could not maintain its statutory or common law claims for damages "without any evidence that the decline in the securities price was causally related to the alleged misrepresentations." The court ruled the Trust had failed to produce sufficient evidence that "the decline in KPNQwest share price (during [the Trust's] holding period) was caused by [Qwest's] allegedly fraudulent actions or misrepresentations." The court also decided that, although the Trust "did not tender, cannot now, and should not be allowed `substitute tender'" of the securities, it could seek rescissory damages on its Arizona statutory claims without showing a causal link between the decline in the stock's value and Qwest's alleged misrepresentations.¹

¶ 9 After Qwest moved for reconsideration of that decision, the trial court reversed itself and determined the Trust did have to show causation to obtain rescissory damages. Thus, the trial court granted Qwest's motion for summary judgment on all the Trust's claims involving the 255,000 shares of stock it had sold before the public disclosures by KPNQwest. The trial court then granted the Trust's motion to dismiss, without prejudice, its remaining claims involving the other 30,000 shares so the Trust could file this appeal.²

Jurisdiction

¶ 10 After oral argument, we requested supplemental briefing by the parties on the question of whether the Trust's voluntary dismissal without prejudice, rather than with prejudice, of "[a]ll of the claims pled in the Second Amended Complaint concerning shares of KPNQwest stock sold by plaintiffs during 2002" rendered unappealable the trial court's grant of Qwest's motion for partial summary judgment on claims concerning those shares the Trust sold in 2000.

¶ 11 The trial court's grant of partial summary judgment addressed only the Trust's claims for stock it sold in 2000 and not the claims for stock it sold in 2002. The parties, at the suggestion of the trial court, stipulated to dismissal without prejudice of the claims arising from the shares sold in 2002 and apparently entered into an agreement tolling the statute of limitations as to those claims.

¶ 12 We are obligated to examine our jurisdiction over an appeal; "the right to appeal exists only by force of statute." Cordova v. City of Tucson, 15 Ariz.App. 469, 470, 489 P.2d 727, 728 (1971). Section 12-2101, A.R.S., governs our appellate jurisdiction. Relevant to this case, subsection (B) of § 12-2101 permits an appeal only from a "final judgment." Generally, an order granting a voluntary dismissal of an action without prejudice to its being refiled is not an appealable, final judgment. R.L. Harris & Co. v. Houck, 22 Ariz. 340, 341, 197 P. 575, 575 (1921) (voluntary dismissal without prejudice not appealable).

¶ 13 We are aware of no Arizona case that squarely addresses the question before us: whether § 12-2101 permits a party to obtain appellate review of an adverse partial summary judgment by dismissing the remaining claims without prejudice. But cf. Tucson Estates Residents Ass'n v. Mobilife Corp., 26 Ariz.App. 83, 84, 546 P.2d 352, 353 (1976) (accepting appeal of summary judgment on one count after appellants had voluntarily dismissed second count without prejudice, without discussing jurisdictional issue). Thus, because federal law similarly restricts appellate jurisdiction to "final decisions," 28 U.S.C. § 1291, we turn to federal precedent for guidance. See Reader v. Magma-Superior Copper Co., 108 Ariz. 186, 187, 494 P.2d 708, 709 (1972) (language of 28 U.S.C. § 1291 similar to A.R.S. § 12-2101).

¶ 14 The federal circuits are split, however, on how to resolve this question. Several circuits have concluded they lack jurisdiction of appeals in these situations. See State Treasurer of Mich. v. Barry, 168 F.3d 8, 13 (11th Cir.1999) ("[V]oluntary dismissals, granted without prejudice, are not final decisions themselves and also do not transform an earlier partial dismissal or partial summary judgment order into a final decision."); Chappelle v. Beacon Commc'ns Corp., 84 F.3d 652, 654 (2d Cir.1996) ("We agree with those courts that have precluded an appeal from a dismissal of some of a plaintiff's claims when the balance of his claims have been dismissed without prejudice."); Cook v. Rocky Mountain Bank Note Co., 974 F.2d 147, 148 (10th Cir.1992) ("[W]hen a plaintiff voluntarily requests dismissal of her remaining claims without prejudice in order to appeal from an order that dismisses another claim with prejudice, we conclude that the order is not `final' for purposes of [28 U.S.C.] §...