IMH Special Asset NT 168 LLC v. Beck

• Court: Arizona Court of Appeals
• Writing for the Court: McMURDIE, Judge
• Decision Date: 22 October 2020
• Docket Number: No. 1 CA-CV 19-0156,1 CA-CV 19-0156
• Citation: IMH Special Asset NT 168 LLC v. Beck, No. 1 CA-CV 19-0156 (Ariz. App. Oct 22, 2020)
• Parties: IMH SPECIAL ASSET NT 168 LLC, et al., Plaintiffs/Appellants, v. GREGORY M BECK, Intervenor/Appellee.

IMH SPECIAL ASSET NT 168 LLC, et al., Plaintiffs/Appellants, v. GREGORY M BECK, Intervenor/Appellee.

No. 1 CA-CV 19-0156

ARIZONA COURT OF APPEALS DIVISION ONE

October 22, 2020

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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

Appeal from the Superior Court in Maricopa County

No. CV2010-010943

No. CV2010-010990 (Consolidated)

The Honorable James D. Smith, Judge

The Honorable Karen A. Mullins, Judge

VACATED AND REMANDED

COUNSEL

Snell & Wilmer L.L.P., Phoenix

By Christopher H. Bayley (argued), Benjamin W. Reeves, and James G.

Florentine

Counsel for Plaintiffs/Appellants

Udall Shumway, Mesa

By Joel E. Sannes (argued), Carson T. H. Emmons

Counsel for Intervenor/Appellee

MEMORANDUM DECISION

Judge Paul J. McMurdie delivered the Court's decision, in which Presiding Judge James B. Morse Jr. and Judge Maria Elena Cruz joined.

McMURDIE, Judge:

¶1 Appellants, IMH Special Asset NT 161, LLC and IMH Special Asset NT 168, LLC (collectively "IMH"), challenge several aspects of the superior court's rulings in favor of Appellee Gregory M. Beck. For the reasons set forth below, we vacate and remand.

FACTS AND PROCEDURAL BACKGROUND

¶2 Recorp New Mexico Associates, LP ("RNMA I") is a single asset New Mexico limited partnership that owns a large land parcel northwest of Albuquerque, New Mexico. RNMA I is governed by a "Limited Partnership Agreement of Recorp-New Mexico Associates Limited Partnership" (the "Partnership Agreement"). When this dispute arose, Recorp Partners, Inc. ("RPI") was RNMA I's managing general partner. IMH and its subsidiaries own or control approximately 13 percent of the limited partnership interests of RNMA I. Beck individually owns an approximately seven percent limited partnership interest in RNMA I.

¶3 In 2012, IMH obtained a significant judgment against David Maniatis and several entities and individuals, not parties to this appeal.¹ As a result, Maniatis agreed to transfer his 9.6 percent ownership interest in RPI to an IMH subsidiary, Stockholder, LLC ("Stockholder"). At that time, Perma, LLC ("Perma"), an entity controlled by Maniatis, held the remaining 90.4 percent interest in RPI.

¶4 IMH's collection efforts resulted in the creation of two receiverships in 2013. The first receivership took control of Stockholder in June 2013 (the "Stockholder Receivership"). The second receivership took control of other assets previously held or controlled by Maniatis, including Perma (the "Bierman Receivership"). The Bierman Receivership concluded in April 2015, at which time Perma was conveyed to Stockholder, granting it control of Perma and its RPI shares.

¶5 In September 2015, the Stockholder Receiver made a capital call on RNMA I's limited partners, including Beck (the "First Capital Call"). Other than the IMH subsidiaries, none of the limited partners provided funds.

¶6 RNMA I was set to dissolve on December 31, 2015, after which there would be a "liquidation period not to exceed 12 months." No partner took action to extend the dissolution date before it elapsed.

¶7 In September 2016, RPI made a second capital call on the RNMA I limited partners (the "Second Capital Call"). The non-IMH-subsidiary limited partners again provided no funds. In November 2016, a well that accessed deep groundwater in which RNMA I held an interest began leaking toxic water, causing significant environmental problems. Around that time, the Stockholder Receiver sought emergency relief, asking the court to allow it to borrow approximately $1.4 million from MRH Lending, LLC, an IMH subsidiary, to perform repairs (the "Well Repair Loan"). The court denied the emergency motion.

¶8 Believing that the Well Repair Loan would deprive him of his RNMA I interest, Beck communicated with other RNMA I limited partners seeking to build support to have RPI removed as the general partner. He also moved to intervene in the underlying action. IMH did not oppose the motion, and the superior court allowed Beck to intervene.

¶9 On December 1, 2016, Beck wrote the Stockholder Receiver to inform him that more than 75 percent of the RNMA I limited partners had voted to remove RPI as the general partner for cause under section 19.2 of the Partnership Agreement. Attached to Beck's letter were approximately 30 consent forms in which RNMA I limited partners "[a]pprove[d] . . . the removal of [RPI] as General Partner, for cause" and "appoint[ed] . . . [Beck] as the undersigned's attorney-in-fact to vote in favor of" RPI's removal (the "Consent Forms"). The Consent Forms also included an amendment to thePartnership Agreement purporting to extend RNMA I's term to December 31, 2025.

¶10 RPI took the position that the removal attempt did not comply with the Partnership Agreement. While it acknowledged the agreement allowed it to challenge the removal attempt in arbitration, RPI contended there was "no need" to do so because the effort was "void on its face." Instead, it continued to act as the general partner, making another capital call on the limited partners in January 2017 (the "Third Capital Call").

¶11 None of the limited partners except for IMH subsidiaries provided any funds in response to the Third Capital Call. After IMH funded the unpaid portions of the Third Capital Call, RPI notified the non-contributing limited partners that it had terminated their interests.

¶12 Shortly thereafter, Beck moved the court for an order that RPI lacked authority "to take any action as general partner of [RNMA I]." The court considered the motion but did not expressly grant or deny the requested relief. But cf. Atchison, Topeka & Santa Fe Ry. Co. v. Parr, 96 Ariz. 13, 15 (1964) (Motions the superior court does not rule on are deemed denied.).

¶13 In July 2017, the court appointed a replacement Stockholder Receiver. Two months later, it ruled that the Stockholder Receivership should be terminated and allowed Stockholder to "continue to manage the shares of stock directly." Beck then requested an evidentiary hearing to determine:

1. Whether RNMA I had been dissolved;

2. Whether RPI had the authority to act as RNMA I's general partner after the December 2016 removal attempt;

3. Whether the receivership orders or the Partnership Agreement authorized the Third Capital Call; and

4. Whether IMH could become RNMA I's de facto general partner after it terminated RPI's then-president.

The hearing began in December 2017 but did not conclude until November 2018. In May 2018, the court ordered the parties to submit any remaining sworn witness testimony and make the testifying witnesses available for court questioning. IMH raised due-process objections, which the court overruled. IMH sought special-action review over the court's decision, butwe declined to exercise jurisdiction. Around that time, the court directed the Stockholder Receiver to "issue a Superseding Irrevocable Stock Power to clarify the transfer of shares to [RPI]" and discharging him "after he issues the Superseding Irrevocable Stock Power (if not yet done)." The parties agreed the Stockholder Receiver had already issued that document several months earlier, but the court did not formally discharge the Stockholder Receiver until May 2019.

¶14 After the hearing concluded in November 2018, the court ruled that (1) the Stockholder Receiver did not have the power to manage RNMA I during the time the receivership order was in place; (2) the Stockholder Receivership order did not authorize the Third Capital Call or the subsequent forfeiture of Beck's limited partnership interest; and (3) Beck's interest was not forfeited (the "January 2019 Ruling"). IMH moved to vacate, alter, or amend the January 2019 Ruling under Arizona Rules of Civil Procedure ("Rules") 59(a), 59(d), and 60(b). It also appealed the January 2019 Ruling, which we stayed pending resolution of the post-judgment motions.

¶15 The superior court stayed the January 2019 Ruling and set a bench trial to determine "(1) whether [Stockholder] owned 9.6 or 100 percent of [RPI], and (2) whether the actions of [RPI] as General Partner of [RNMA I] were authorized under the Receivership Order." Following the trial, the superior court ruled as follows (the "November 2019 Ruling"):

It had jurisdiction to resolve the dispute between IMH and Beck under the order winding up the Stockholder Receivership;

Stockholder "came to own 100% of RPI";

Beck did not violate the injunction included in the Stockholder Receivership order;

The removal of RPI as the general partner did not violate the RNMA I Partnership Agreement.

On these findings, the superior court granted IMH's motion regarding Stockholder's ownership interest in RPI but otherwise denied it. The court determined that "RPI could not act as the general partner for RNMA I after the written notice of removal." It deemed that its acts after receiving written notice—which included the Third Capital Call and the termination and assignment of Beck's limited partnership interest—were ultra vires. The court also ruled that RPI "may contest its removal via arbitration under thepartnership agreement," which it had not yet done, and noted the parties' agreement that "the only issue remaining for an arbitrator is whether cause existed to remove RPI."

¶16 IMH timely appealed from the January 2019 and November 2019 Rulings. We have jurisdiction under Arizona Revised Statutes ("A.R.S.") section 12-2101(A)(4).

DISCUSSION

¶17 We review the denial of Rule 59 and Rule 60 motions for an abuse of discretion. See Am. Power Prods., Inc. v. CSK Auto, Inc., 239 Ariz. 151, 154, ¶ 10 (2016) (Rule 59); City of Phoenix v. Geyler, 144 Ariz. 323, 328 (1985) (Rule 60). Following a bench trial, we review the superior court's legal conclusions de novo but defer to its findings of fact unless clearly erroneous. Town of Marana v. Pima County, 230 Ariz. 142, 152, ¶ 46 (App. 2012). A finding of fact is not clearly erroneous if supported by substantial evidence, even if there is significant...