Rhue v. Dawson

• Citation: 173 Ariz. 220,841 P.2d 215
• Decision Date: 22 September 1992
• Docket Number: No. 1,CA-CV,1
• Parties: James P. RHUE, a single man, Plaintiff-Appellee, v. John W. DAWSON, a single man, Defendant-Appellant. 89-543.
• Court: Court of Appeals of Arizona

Page 215

841 P.2d 215

173 Ariz. 220

James P. RHUE, a single man, Plaintiff-Appellee, v. John W. DAWSON, a single man, Defendant-Appellant.

No. 1 CA-CV 89-543.

Court of Appeals of Arizona,

Division 1, Department B.

Sept. 22, 1992.

As Corrected Oct. 2 and Nov. 23, 1992.

[173 Ariz. 222] Byrnes, Rosier & Himelrick by Richard G. Himelrick, Scottsdale, Paul G. Ulrich, P.C. by Paul G. Ulrich, Phoenix, for plaintiff-appellee.

Meyer, Hendricks, Victor, Osborn & Maledon, P.A. by Andrew D. Hurwitz, Ron Kilgard, Phoenix, for defendant-appellant.

AMENDED OPINION

LANKFORD, Judge.

Defendant John W. Dawson appeals from a judgment on a jury verdict in favor of plaintiff James P. Rhue and from the trial court's order denying the motion for judgment notwithstanding the verdict or, in the alternative, to modify judgment or for a new trial.

The jury awarded compensatory damages and punitive damages to Rhue on claims arising out of a joint venture agreement. In addition, the jury found that Dawson had violated Ariz.Rev.Stat. (A.R.S.) § 13-2310 ¹ which prohibits fraudulent schemes and artifices. ² As a result, the trial judge trebled the compensatory damages under Arizona's civil racketeering statute ³ and awarded a total judgment including attorneys' fees and costs, of $8,379,339 plus interest on that amount until paid.

Dawson raises five main issues on appeal:

1. Did the trial court err in admitting evidence of Dawson's alcoholism?

2. Was the evidence sufficient to sustain an award of damages for lost profits?

3. Was the evidence sufficient to sustain a verdict for:

a. wrongful dissolution of the partnership;

b. breach of fiduciary duty; and

c. racketeering?

4. Did the trial court err in instructing the jury regarding punitive damages?

5. Did the trial court err by including both trebled compensatory damages under the racketeering statute and punitive damages in the judgment?

I.

The facts of this case must be viewed in the light most favorable to sustaining the jury verdict and resulting judgment. Rogus v. Lords, 166 Ariz. 600, 601, 804 P.2d 133, 134 (App.1991).

During a meeting in early December, 1986, Rhue proposed to Dawson that they form a partnership. ⁴ The purpose of the partnership was to acquire and develop shopping center property. Rhue was to be the partner with shopping center development expertise and was to handle the day-to-day details. Dawson was to be the financial partner, contributing the bulk of the capital and facilitating financing. Rhue and Dawson agreed to purchase, renovate, and sell a shopping center and to share the profits and equity equally. Dawson was to receive a preferred distribution of partnership funds to reimburse him for capital contributions at the time the partnership assets were liquidated. Rhue was to receive a development fee equal to three percent of the cost of the redevelopment project. Rhue and Dawson named the entity "Shopping Center Enterprises of Arizona" (hereinafter referred to as "SCEA").

Rhue testified that after they had discussed the terms of the partnership in their first meeting in December, 1986, Dawson stood up, put his arm around Rhue, and said, "Well, come on, partner, I'm going to show you your new office." Rhue began working on the joint project either that same day or the next day. The parties did not immediately formalize their business association by entering into a written agreement, although drafts were circulated for the parties' review.

Rhue located two shopping center properties which were eventually purchased by SCEA. SCEA first purchased the Valley Plaza Center for $3.2 million. For $4 million, SCEA then purchased an adjacent site on which a vacant store was located. The two sites were separated by 75th Street in Scottsdale, Arizona. Rhue and Dawson originally planned to develop both sites into a unified shopping center to be called "Los Arcos Crossing."

To facilitate bank financing, Dawson contacted an appraiser recommended by the lending institution to obtain appraisals on the properties. The appraiser provided a simple letter appraisal of the "as is" market value of the Valley Plaza Center alone at $3,625,000. The appraiser later furnished Dawson with a full appraisal valuing the combined properties at $15,625,000. This appraisal assumed that the properties would be redeveloped pursuant to plans and specifications prepared by SCEA. Evidence presented at trial indicated that Rhue and Dawson estimated the cost for acquiring and renovating the property at $11,849,580, ⁵ for a projected profit of $3,775,420. Rhue's one-half share of the projected profits would have been $1,887,710.

Just seven days after Dawson received the full appraisal, he presented a form entitled "Joint Venture Agreement" for Rhue's signature. According to Rhue, Dawson pressured Rhue to sign the agreement within a time period too brief to permit Rhue to read it. When Rhue specifically asked Dawson whether certain changes they had previously discussed and agreed upon were reflected in the agreement, Dawson replied in the affirmative.

Dawson, however, failed to bring to Rhue's attention the insertion of a unilateral "Option to Purchase" clause. Previous drafts that had been circulated between Rhue and Dawson lacked this buyout provision. The clause allowed Dawson to buy Rhue's interest in the partnership merely by returning any capital contribution Rhue had made. Because Rhue contributed primarily expertise but not capital and would be entitled to an equal share of the project's equity upon dissolution, this provision was highly unfavorable to Rhue. Rhue signed the agreement without reading and verifying the contract provisions for himself.

Rhue learned approximately two months later that the agreement he had signed contained a buyout clause. Rhue immediately delivered a letter to Dawson stating that Rhue had never agreed to the buyout provision, that he did not intend to be bound by the written agreement, and that he expected Dawson to renegotiate the buyout provision according to their earlier agreements. Dawson responded with a letter from his attorney and a notice of intent to exercise the buyout provision. Dawson, through his staff, then proceeded to lock Rhue out of the partnership offices, claiming that Rhue had removed records and files.

Soon thereafter, Rhue filed suit against Dawson. The second amended complaint contained counts for declaratory judgment, fraud in the inducement/constructive fraud, breach of fiduciary duty, violation of the civil racketeering statute, breach of the implied covenant of good faith and fair dealing, attempted wrongful dissolution of partnership, unjust enrichment, rescission, estoppel, and constructive trust. The jury returned the verdict in Rhue's favor, the superior court denied Dawson's post-trial motions, and Dawson appealed.

II.

Dawson first alleges that evidence of his alcoholism was irrelevant to the issues at trial, and therefore, that the trial court erroneously admitted this evidence. ⁶ Alternatively, Dawson argues that even if relevant, the evidence was unfairly prejudicial and should have been excluded under Arizona Rules of Evidence Rule 403.

When we first reviewed this issue, we concluded that no objection to the evidence had been preserved for appeal. Dawson's motion for reconsideration directed us to that part of the trial transcript which shows that he made an objection. We conclude that although Dawson preserved at least one objection, his objection was insufficient to preserve the error for appeal.

The admissibility of the evidence of alcoholism was first raised when Rhue filed a motion in limine to clarify the extent to which such evidence would be admissible at trial. Rhue's motion cited four reasons for admitting the evidence: (1) to explain why the project failed after Rhue was ousted from the partnership; (2) to explain Dawson's mood swings and "confrontational and belligerent" behavior; (3) to explain why Dawson was careless in confiding to his then-girlfriend that he planned to get rid of Rhue; and (4) to attack Dawson's credibility by establishing a reason for Dawson's inability to recall conversations.

Dawson filed no written response to the motion in limine. The motion was argued in chambers without a court reporter. As a result, Dawson's arguments for excluding the evidence were not recorded.

The arguments on the motion were later summarized on the record as follows:

MR. SUSEMIHL [Dawson's counsel]: ....

While on the record, we ought to briefly summarize what happened yesterday in chambers. Mr. Himelrick [Rhue's counsel] explained to the court his desire to put in and make alcoholism an issue in order to attack the credibility of Mr. Dawson and his ability to remember what he said, and also to show it affected Mr. Dawson's abilities to successfully construct the shopping center. We objected to all of that as being irrelevant and solely for purposes of prejudicing the jury. And the court indicated, if I state it correctly, it did have probative value, and it was relevant, over our objection, and you are going to allow that evidence in. We agreed we would put that on the record to preserve that objection.

THE COURT: That is accurately stated, I believe.

(Emphasis added).

In the original version of this opinion, we held that Dawson had waived his relevancy objection and, in dictum, stated that evidence of Dawson's alcoholism was not relevant to the issues tried in this case.

On reconsideration, we reexamined the record. We conclude that evidence of Dawson's alcoholism and excessive alcohol consumption could affect his credibility and memory loss. Therefore, the trial court did not abuse its discretion in admitting the evidence as relevant. See State v. Stotts, 144 Ariz. 72, 82, 695 P.2d 1110, 1120 (1985) (a trial court's decision admitting evidence will not be disturbed absent abuse of discretion).

" 'Relevant evidence' means any evidence having any tendency to make the existence of...