Mohave Elec. Co-op., Inc. v. Byers, 1

• Decision Date: 15 May 1997
• Docket Number: No. 1,CA-CV,1
• Citation: 942 P.2d 451,189 Ariz. 292
• Parties: , 243 Ariz. Adv. Rep. 16 MOHAVE ELECTRIC COOPERATIVE, INC., an Arizona corporation, Plaintiff-Appellant, v. Susan H. BYERS, Defendant-Appellee. 96-0073.
• Court: Arizona Court of Appeals

Page 451

942 P.2d 451

189 Ariz. 292, 243 Ariz. Adv. Rep. 16

MOHAVE ELECTRIC COOPERATIVE, INC., an Arizona corporation, Plaintiff-Appellant, v. Susan H. BYERS, Defendant-Appellee.

No. 1 CA-CV 96-0073.

Court of Appeals of Arizona Division 1, Department C.

May 15, 1997.

[189 Ariz. 294] Ulrich, Kessler & Anger, P.C. by Paul G. Ulrich, Donn G. Kessler, William H. Anger, Phoenix, and Roshka, Heyman & DeWulf, P.L.C. by Raymond S. Heyman, Phoenix, for Plaintiff-Appellant.

John A. Baade, Tucson, for Defendant-Appellee.

OPINION

GRANT, Judge.

This appeal brought by Mohave Electric Cooperative ("Mohave") concerns an action to recover damages caused by the alleged unlawful conduct of Alvin H. Carpenter ("Carpenter") and Susan H. Byers ("Byers"). Carpenter and Byers were Mohave's former general manager and assistant general manager, respectively.

Prior to trial, Carpenter died and his estate settled with Mohave for a substantial amount of damages. The trial court entered partial summary judgment against Mohave precluding Mohave from introducing evidence of Byers's misconduct and of her joint and several liability.

The trial court also issued four rulings which effectively eviscerated most of Mohave's claims against Byers prior to trial. The court subsequently found Byers guilty of fraud, awarding a very small percentage of Mohave's claimed damages. The court then ruled that Byers was the prevailing party and awarded her attorney's fees. ¹

For the reasons set forth below, we reverse the trial court's award of partial summary judgment to Byers and we remand this case for a trial on the merits. We therefore vacate the trial court's judgment awarding Byers attorney's fees.

PROCEDURAL HISTORY AND FACTS

I. Procedural History

Mohave is a member-owned, non-profit cooperative located in Bullhead City, Arizona, which provides electrical power to its members/consumers. This case involves Mohave's claims of fraud, negligence, breach of fiduciary duties and contract, embezzlement, forgery, unjust enrichment, and racketeering. Mohave seeks damages caused by the allegedly unlawful conduct of Carpenter and Byers.

Mohave filed its Complaint against Byers and Carpenter on December 23, 1991. Carpenter died prior to trial, and both Carpenter's estate and the defendants in a related separate action (Mohave's previous accountants) settled with Mohave, collectively paying Mohave more than $500,000.

This appeal centers on four rulings by the trial court which Mohave maintains were erroneous. The first two rulings related to Byers's Motion for Summary Judgment. On March 1, 1995, the trial court granted Byers partial summary judgment dismissing Mohave's claims based on 1,157 packets of credit card and expense transactions which were developed during an audit of Mohave, and finding that Byers was not jointly and severally liable for most of Carpenter's misdeeds. In so holding, the trial court ignored Mohave's claims against Byers for her independent negligence and breach of her fiduciary duties. In that ruling, the trial court also held that Mohave failed to present specific evidence on 1,157 of 1,200 separate acts of fraudulent expenses which had been evaluated in an audit of Mohave. The latter ruling ignored that Mohave had presented an auditing expert's report concerning the 1,200 credit card and expense transactions. The order granting partial summary judgment to Byers reduced Mohave's claims from $368,000, before trebling for racketeering, to less than $50,000, consisting primarily of the remaining expense transactions. Mohave also contests the trial court's order granting Byers's Motion to Dismiss claims based on most of the remaining 43 credit card and expense transactions.

On May 17, 1995, following a bench trial, the trial court granted Byers's Motion for Dismissal pursuant to Rule 41(b) of the Arizona Rules of Civil Procedure, dismissing most of Mohave's remaining claims based on the Statute of Limitations. In that ruling, the trial court found Byers guilty of fraud in the amount of $1,943.68. Mohave maintains the trial court erred in issuing that order because the court ignored Mohave's evidence that Byers and Carpenter wrongfully concealed their misconduct from Mohave. Mohave also maintains that the court misapplied the law pertaining to fraudulent concealment tolling the Statute of Limitations. That ruling left less than $2,000 in damages.

On August 16, 1995, following a bench trial, the trial court entered a judgment for $1,943.68 against Byers on Mohave's claims for fraud and breach of fiduciary duty, but found for Byers on the remaining claims. Despite that judgment, the trial court found that Byers was the prevailing party and awarded her more than $100,000 in attorney's fees and costs.

On August 31, 1995, Mohave filed a Motion for New Trial and to Vacate the Judgment (Motion for New Trial), and a Motion to Alter or Amend the Judgment. The trial court issued an amended judgment denying those motions, reducing the judgment against Byers to $615.25 (again based on the Statute of Limitations), and awarding Byers additional attorney's fees.

Mohave filed a timely Notice of Appeal from both the August 16, 1995 judgment and the amended judgment. This court has jurisdiction pursuant to Arizona Revised Statutes Annotated ("A.R.S.") sections 12-2101(B), 12-2101(C), 12-2101(F)(1) and 12-120.21(A).

II. Pertinent Facts

The majority of Mohave's claims and damages were dismissed by the trial court on summary judgment. On appeal of that order, the evidence is viewed in the light most favorable to Mohave. AROK Constr. Co. v. Indian Constr. Servs., 174 Ariz. 291, 293, 848 P.2d 870, 872 (App.1993).

A. Mohave's Corporate Structure and Byers's Employment with Mohave

Mohave is an Arizona non-profit cooperative governed by an elected board of directors ("the board"). Carpenter, who was Mohave's general manager for 18 years, from 1972 to late 1990, ran the cooperative on a daily basis. The evidence at trial established that Carpenter operated Mohave as if it were his own business and he controlled, or at a minimum, strongly influenced, the board. Carpenter formally retired on January 31, 1991. The evidence established that the policies of the board provided: (1) that Carpenter was selected by, reported to, and was overseen by, the board; (2) that Carpenter was authorized to "interpret policy, exercise judgment, establish a supervisory organization, determine administrative and operating procedures and execute them by delegating functional activities to subordinates"; and (3) that Carpenter had "wide latitude in the selection and management of personnel and the termination of the services of personnel," and that he was responsible for "the proper maintenance of accounting records."

In October 1986, Carpenter created the position of assistant general manager and appointed Byers to that position. She remained in that position until March 1991. Byers had very little experience to qualify her for such a position. She had previously worked for Mohave as a meter reader and secretary. She only had a high school diploma and had graduated from beauty school. It is uncontested that Byers and Carpenter had a personal romantic relationship. Byers admitted in her responses to requests for admission that she had authority to sign on Carpenter's personal bank account, and that she and Carpenter dined, socialized and went on vacation together. Mohave County records document that Carpenter and Byers had purchased a home together as joint tenants with right of survivorship.

Mohave asserts a conspiracy claim against Byers, maintaining that the close relationship between Carpenter and Byers motivated Carpenter to appoint Byers as the assistant manager and enabled Carpenter and Byers to collaborate to defraud Mohave. Mohave also maintains that Carpenter and Byers paid for much of their relationship with Mohave credit cards and funds.

During her tenure as assistant general manager, Byers directly reported to Carpenter. In her deposition, Byers testified that as assistant general manager she supervised department heads, including the heads of the accounting and finance departments, called meetings with those department heads, and also reported directly to the board. She and others testified that during Carpenter's rather frequent absences, Byers operated Mohave on a daily basis.

Mohave presented evidence that Mohave had written policies requiring the general manager to: (1) provide general oversight, care, and management of the company's assets; (2) exercise control over accounting procedures and records; and (3) comply with all laws. Mohave also presented evidence that Byers had a duty to comply with those written policies, both when she performed her duties as assistant general manager and when she served as acting general manager during Carpenter's significant absences.

Mohave alleges that from at least 1986, when Byers became assistant general manager of Mohave, Carpenter and Byers filed false credit card charges and expense vouchers with Mohave, converted Mohave's funds and equipment for their personal use, and mismanaged Mohave to benefit both themselves and their families and friends.

As assistant general manager, Byers was issued credit cards to use for business-related expenses, including meals and travel. She could obtain cash advances and reimbursement for out-of-pocket business expenses by submitting expense vouchers. The requirement to submit vouchers for reimbursement for business expenses applied to other company employees. Periodically, Byers submitted receipts for reimbursement. Byers and other employees, including Carpenter, submitted credit card receipts and vouchers to Monika Colby, head of Mohave's accounting department.

B. The MMI Audit

The key document in this case is an investigative audit completed on August 31, 1992, by Murphy & Maconachy, Inc., a certified public accounting and management consulting firm...