Norton ex rel. Phonejockey Investors No. 2, LLC v. Phonejockey LLC
| Decision Date | 13 October 2016 |
| Docket Number | No. 1 CA-CV 15-0186,1 CA-CV 15-0186 |
| Parties | JOHN R. NORTON, in his capacity as Trustee of the NORTON FAMILY LIVING TRUST DATED 2/15/96, and ROGER L. STEVENSON, in his capacity as Managing Successor Trustee of the NORTON FAMILY LIVING TRUST DATED 2/15/96, individually and on behalf of PHONEJOCKEY INVESTORS NO. 2, LLC, a Wyoming limited liability company, Plaintiffs/Appellants, JOHN R. NORTON, in his capacity as Trustee of the NORTON FAMILY LIVING TRUST DATED 2/15/96 and individually; PJI-2 COLLECTION, LLC, Cross-Appellees, v. PHONEJOCKEY LLC, a Wyoming limited liability company; JUDSON C. BALL and NANCY SUE BALL, husband and wife; and PHONEJOCKEY INVESTORS NO. 2, LLC, a Wyoming limited liability company, Defendants/Appellees/Cross-Appellants. |
| Court | Arizona Court of Appeals |
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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
Nos. CV2011-014515, CV2012-053571, CV2012-053572, CV2013-012882 (Consolidated)
The Honorable Lisa Daniel Flores, Judge
The Honorable Patricia A. Starr, Judge
AFFIRMED IN PART; VACATED IN PART
Gallegher & Kennedy, P.A., Phoenix
By John P. Flynn, Peter J. Moolenaar
Hovore Law, PLLC, Scottsdale
By F. Thomas Hovore
Presiding Judge Peter B. Swann delivered the decision of the court, in which Judge Lawrence F. Winthrop and Judge Donn Kessler joined.
¶1 The superior court entered judgment partially in favor of the plaintiff and partially in favor of the defendants in this derivative action. Both the plaintiff and the defendants appeal. We affirm all aspects of the judgment except its imposition of attorney's fees under Arizona law.
¶2 Phonejockey Investors No. 2, LLC ("PJI-2"), is a Wyoming limited liability company managed by Phonejockey, LLC ("Phonejockey"), which is owned and controlled by Judson C. Ball. PJI-2 was formed in 2004 to develop and operate executive suites in the Phoenix metropolitan area. A membership offering agreement identified the first parcel to be purchased and developed ("the Property").
¶3 The Norton Family Living Trust Dated 2/15/96 ("the Norton Trust") invested in PJI-2, contributing $1,400,000 from 2004 to 2009. During the same period, the Norton Trust also invested in several similar limited liability companies (collectively, "the ADR Companies") managed directly or indirectly by Ball.
¶4 PJI-2 purchased the Property in 2005 and built a commercial facility ("the Facility") on it in 2006. PJI-2 paid Ball a $30,183 finder's fee related to the Property, and a $626,262 development fee related to the Facility. The Facility opened for business in the beginning of 2007 andover the next five and a half years operated at a cumulative loss of more than $7,000,000. PJI-2 ultimately lost the Property and the Facility to foreclosure in mid-2012.
¶5 Meanwhile the Norton Trust had commenced an action in the superior court asserting direct and derivative claims against Phonejockey and Ball related to their management of PJI-2. Also, around the same time, the Norton Trust commenced arbitration proceedings against Ball, Phonejockey, and another of Ball's entities with respect to their management of the ADR Companies. The ADR Companies' governing documents, unlike PJI-2's governing documents, required arbitration. The parties did not agree to arbitrate the claims related to PJI-2.
¶6 A three-person panel decided the arbitration matter in March 2013. The Norton Trust was partially successful in the arbitration. The panel concluded, in relevant part, that Ball was indebted to certain of the ADR Companies for unauthorized finder's and development fees. The panel explained that none of the ADR Companies' governing documents authorized Ball to receive finder's fees for the properties identified as the subjects of the investment offerings, and that Ball had received a development fee from one company that did not provide for such a fee in its governing documents.
¶7 Soon after the arbitration award issued, the Norton Trust moved for partial summary judgment in the PJI-2 litigation, arguing that the arbitration award collaterally estopped the defendants from arguing that there was no obligation to repay finder's and development fees taken from PJI-2. The Norton Trust emphasized a substantial similarity between PJI-2's and the ADR Companies' governing documents with respect to finder's fees, and noted that the PJI-2 documents do not provide for development fees. Phonejockey and Ball did not dispute the similarities in the governing documents. Nor did they dispute that Ball received the finder's fee for the Property and the development fee for the Facility. They argued, however, that the arbitration award did not satisfy the elements of issue preclusion.
¶8 After the arbitration award was confirmed, the superior court granted the Norton Trust's motion and gave preclusive effect to the arbitration panel's determination that finder's and development fees were inappropriate. The court held that Ball was indebted to PJI-2 for the finder's and development fees it had paid.
¶9 The Norton Trust also filed a motion for summary judgment requesting PJI-2's dissolution and liquidation. The Norton Trust argued that dissolution was statutorily required because the loss of the Facility to foreclosure rendered PJI-2's activities no longer reasonably practicable. The defendants objected on jurisdictional grounds, arguing that only a Wyoming court may declare dissolution of a Wyoming entity. The court agreed that it lacked jurisdiction to order PJI-2's involuntary dissolution, and it therefore denied the Norton Trust's motion.
¶10 The litigation ultimately proceeded to a jury trial on claims of breach of fiduciary duty, breach of contract, and breach of the covenant of good faith and fair dealing, all related to the defendants' decision to construct the Facility (and thereby earn management fees) despite unexpectedly difficult economic realities. The jury returned a defense verdict on all of the claims.
¶11 The court entered a final judgment that ordered Ball to pay $656,445 to PJI-2 for the unauthorized finder's and development fees, with pre- and post-judgment interest of 4.25% per annum, and dismissed all other claims and counterclaims. The court awarded Phonejockey and Ball $785,484 in attorney's fees and costs under A.R.S. §§ 12-341 and -341.01(A) with post-judgment interest of 4.25% per annum, and awarded the Norton Trust $131,149 in expenses under A.R.S. § 29-833(A).
¶12 The Norton Trust appeals, and Phonejockey and Ball cross-appeal. The Norton Trust challenges the attorney's fees award, the interest rate on the award against Ball, the amount of the expenses award, the court's refusal to grant its request to redirect PJI-2's award to the Norton Trust's counsel's trust fund, and the court's refusal to order PJI-2's dissolution. The defendants challenge the order requiring Ball to repay the finder's and development fees, and they contend that the Norton Trust was not entitled to recover any expenses.
¶13 We first address the defendants' contention in the cross-appeal that the superior court erred by determining Ball's liability for the finder's and development fees based on issue preclusion. We review the grant of summary judgment de novo, viewing the evidence and reasonable inferences in the light most favorable to the non-moving party. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12 (2003). We review the applicationof issue preclusion de novo. Campbell v. SCZ Props., Ltd., 204 Ariz. 221, 223, ¶ 8 (App. 2003).
¶14 Issue preclusion binds a defendant to an adverse decision on an issue in a previous lawsuit if:
(1) the issue was actually litigated in the previous proceeding, (2) the parties had a full and fair opportunity and motive to litigate the issue, (3) a valid and final decision on the merits was entered, (4) resolution of the issue was essential to the decision, and (5) there is common identity of the parties.
¶15 Subject to the same qualifications and exceptions, issue preclusion may apply to issues decided in an arbitration proceeding. Restatement (Second) of Judgments § 84 & cmt. c.1 For issue preclusion to apply, the arbitration proceedings must have "the elements of adjudicatory procedure." Restatement (Second) of Judgments § 84(3)(b). Only "[w]hen arbitration affords opportunity for presentation of evidence and argument substantially similar in form and scope to judicial proceedings [should] the award . . . have the same effect on issues necessarily determined as a judgment has." Restatement (Second) of Judgments § 84 cmt. c.
¶16 Here, the arbitration proceedings were extensive. In discovery, the parties produced over 73,000 pages of documents and deposed 18 witnesses. The panel considered motions for summary judgment, heard 11 days of testimony from 16 witnesses, and received opening statements, closing statements, and post-hearing briefs. On this record, we conclude that the arbitration was sufficiently similar to a judicial proceeding to permit the application of issue preclusion. Further,the record reveals no legal policy or contractual provision prohibiting application of the doctrine.
¶17 The elements of issue preclusion were satisfied. The Norton Trust asserted derivative claims against Ball, in his capacity as a manager, in both the arbitration and the litigation. The parties had a full and fair opportunity and motive in the arbitration proceedings to dispute the meaning of the finder's fees provisions and the effect of the absence of a development fee provision, and they actually did so. The resolution of those issues was essential to determine liability, and the parties disputed them at...
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