State v. Superior Court of Maricopa County

• Decision Date: 18 June 1979
• Docket Number: No. 14231,14231
• Citation: 599 P.2d 777,123 Ariz. 324
• Parties: , Blue Sky L. Rep. P 71,503 The STATE of Arizona, The Arizona Corporation Commission, The Department of Insurance of the State of Arizona, et al., Petitioners, v. The SUPERIOR COURT OF MARICOPA COUNTY, The Honorable Philip W. Marquardt, Judge of the Superior Court of Maricopa, Richard Davis, et al., Respondents.
• Court: Arizona Supreme Court

Page 777

599 P.2d 777

123 Ariz. 324, Blue Sky L. Rep. P 71,503

The STATE of Arizona, The Arizona Corporation Commission, The Department of Insurance of the State of Arizona, et al., Petitioners, v. The SUPERIOR COURT OF MARICOPA COUNTY, The Honorable Philip W. Marquardt, Judge of the Superior Court of Maricopa, Richard Davis, et al., Respondents.

No. 14231.

Supreme Court of Arizona, In Banc.

June 18, 1979.

Rehearing Denied Sept. 6, 1979.

O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears by Richard J. Woods, Henry L. Timmerman, Phoenix, for petitioners

Wentworth & Lundin by John E. Lundin, Jack S. Emery, Phoenix, Kass, Goodkind, Wechsler & Labaton, New York City, for respondents.

GORDON, Justice:

Petitioners in this special action are the State of Arizona, the Arizona Department of Insurance, the Arizona Corporation Commission and their respective agents, officers and employees. They are the defendants in a class action entitled Davis et al. v. the State of Arizona, et al., Cause No. C-336120, which is pending in the Maricopa County Superior Court. The plaintiffs in that action are depositors ¹ of U.S. and Lincoln Thrift Associations.

In November of 1975, the Securities and Exchange Commission brought an action in Federal Court to appoint a receiver to administer In April of 1976, the depositors served the Arizona Corporation Commission, the Department of Insurance and the Attorney General with notice of a claim against the state and various state commissions and departments. A subsequent notice was also filed requesting allowance or disallowance of the claim before June 24, 1976. The claim asserted that the state and the various commissions and departments of the state fraudulently or negligently permitted the Associations to operate in Arizona, or that they aided and abetted the Associations in defrauding the plaintiffs. Because plaintiffs received no notice of the allowance or disallowance of their claim prior to the commencement of this action, it is deemed to have been disallowed prior to such commencement. The disallowance was subsequently confirmed by order of the Arizona Corporation Commission.

the assets of U.S. and Lincoln Thrift Associations, hereinafter referred to as the Associations, and to enjoin Robert H. Fendler and others from committing further securities fraud or from dissipating the Associations' assets. A class action, on behalf of the depositors in the Associations, was filed in Federal Court against various officers, directors, employees and agents of the Associations.

Plaintiffs have how filed a class action in Maricopa County Superior Court against the state and various state commissions and departments, on behalf of the depositors in the Associations. That complaint is the subject of this special action. The complaint states that the Associations raised over $52 million from approximately 20,000 class members of the public, primarily in the Phoenix and Tucson areas, and that the Associations and their subsidiaries and affiliates are now insolvent.

The complaint makes the following assertions about the Associations' business activities. The Associations promulgated an intensive advertising campaign in order to obtain new investors' funds to meet maturing obligations. The advertising stressed higher interest rates, the safety of the investment, and the fact that depositors were insured for up to $40,000 by Omaha Surety Corporation of America, hereinafter referred to as Omaha. The advertising and sales literature used by the Associations contained material misrepresentations and omissions and concealed the serious financial difficulties of both Associations and their subsidiaries and affiliates. The Associations used false and fraudulent financial statements in order to raise monies and to conceal their impaired financial condition. These statements were not prepared in accordance with generally accepted accounting principles or generally accepted auditing standards, nor did they fairly represent the financial condition of the Associations.

The complaint consists of five counts. Count I alleges that the Corporation Commission officer defendants, while acting within the scope of their actual or apparent authority, made untrue statements or omitted material facts and engaged in courses of business that operated as a fraud. Specifically, this count asserts that the defendants represented to the plaintiffs and others that the Associations were well regulated by the Arizona Corporation Commission; that the Associations and Omaha had made all "filings" required by law; that their corporate papers and insurance certificates were in order; and that they were in a solvent financial condition. Moreover, the defendants failed to make a yearly examination of the Associations as required by statute and failed to disclose that the Associations were in violation of several portions of 14 A.R.S., Title 44, Chapter 12, Article 17.

Count II alleges that the State of Arizona, the Arizona Corporation Commission, the Corporation Commissioner defendants, and the Corporation Commissioner officer defendants aided and abetted the Associations in defrauding the plaintiffs. Specifically, the defendants failed to examine the Associations on a yearly basis, as required by law, or failed to do so in accordance with standards required by law. Moreover, they failed to adequately examine the Associations' applications for registration and continued to issue investment certificates to Count III alleges that the State of Arizona, the Arizona Corporation Commission, the Corporation Commissioner defendants and the Corporation Commission officer defendants were negligent in performing their statutory duties. Specifically, the defendants failed to make a yearly examination of the Associations, or failed to do so in accordance with standards required by law. They failed to properly supervise and regulate the affairs and records of the Associations and permitted them to continue to issue investment certificates when the Associations were in violation of numerous provisions of 14 A.R.S., Title 44, Chapter 12, Article 17. Moreover, Count III alleges that the Director of the Securities Division and the other Corporation Commission officer defendants were personally involved in these violations and that they wilfully and knowingly acted in disregard of their statutory duties and were grossly negligent.

the Associations when they knew, or should have known, that they were in violation of numerous provisions of 14 A.R.S., Title 44, Chapter 12, Article 17. The defendants also failed to disclose that the Associations were not properly regulated by the Corporation Commission and failed to disclose that Omaha did not have sufficient assets to insure payments of its insured obligations.

Count IV alleges that the State of Arizona, the Arizona Department of Insurance, the Insurance Director defendants and the Insurance Department officer defendants were negligent or reckless in supervising the affairs of Omaha. This count also alleges that these defendants aided and abetted the Associations in defrauding the plaintiffs, and that they made untrue statements or omitted material facts and engaged in a course of business that operated as a fraud. Specifically, the defendants failed to examine the affairs of Omaha in the manner and within the time prescribed by law. The examinations that were conducted were negligently or recklessly performed. Moreover, the defendants were in violation of their statutory duties when they renewed Omaha's certificate of authority. They also failed to disclose that Omaha did not have sufficient assets to insure payments of its insured obligations. Count IV further states that the Insurance Director defendants and the Insurance Department officer defendants were personally involved in these acts and that they wilfully and knowingly acted in disregard of their statutory duties.

Count V alleges that the surety defendants are jointly and severally liable upon their official bonds for the allegations made in Counts I through IV. Plaintiffs pray for a judgment requiring the defendants to pay themselves and the class they represent a sum equal to the damages they have sustained from the alleged acts and omissions.

The defendants filed a motion to dismiss the complaint for failure to state a claim upon which relief could be granted, pursuant to 16 A.R.S., Rules of Civil Procedure, rule 12(b)(6). The trial court entered an order denying the motion, and the defendants have now petitioned this Court for relief through special action.

To support the granting of a motion to dismiss for failure to state a claim upon which relief can be granted, it must be clear that the plaintiffs are not entitled to relief under any interpretation of the facts, which is susceptible of proof. San Manuel Copper Corp. v. Redmond, 8 Ariz.App. 214, 445 P.2d 162 (1968). Such a motion admits the truth of the facts alleged, for purposes of the motion, Industrial Commission v. Superior Court, 5 Ariz.App. 100, 423 P.2d 375 (1967), and merely contends that the plaintiffs are not entitled to relief under any legal theory. See Mackey v. Spangler, 81 Ariz. 113, 301 P.2d 1026 (1956).

The trial court's denial of defendant's motion to dismiss was a non-appealable order. A.R.S. § 12-2101. Under some conditions it is appropriate to review such a non-appealable order by special action, when a portion of the complaint cannot be justified under any rule of law. See Nataros v. Superior Court of Maricopa County, 113 Ariz. 498, 557 P.2d 1055 (1976). The special conditions existing in this case that militate in favor of this Court accepting jurisdiction in a special action proceeding For these reasons we take jurisdiction pursuant to 17A A.R.S., Rules of Procedure for Special Actions, rule 1, and reverse the order of the trial court, which denied the motion to dismiss, as it applies to portions of Counts III, and V. The...