Sweidy v. Spring Ridge Acad.
| Docket Number | CV-21-08013-PCT-SPL |
| Decision Date | 29 November 2023 |
| Parties | Kimberly Sweidy, Plaintiff, v. Spring Ridge Academy, et al., Defendants. |
| Court | U.S. District Court — District of Arizona |
Before the Court are 12 Motions in Limine filed by Defendants (Docs 182-194), and Plaintiff's respective Responses (Docs 199-210). Each motion was fully briefed on or before November 7, 2023. On November 21, 2023, the Court held a final pretrial conference and heard oral argument on all the pending motions. The Court's rulings are as follows.
This matter concerns the enrollment of the Plaintiff Kimberly Sweidy's (“Plaintiff') minor daughter at Defendant Spring Ridge Academy in December 2019. (Doc. 178 at 1). Spring Ridge Academy operated as a therapeutic boarding school for high school aged girls in Mayer, Arizona. (Id.). Plaintiff agreed to enroll her daughter at Spring Ridge Academy and signed an enrollment agreement on December 13, 2019. (Id.). Plaintiff alleges that she was fraudulently misled by both Defendant Spring Ridge Academy and its admissions director, Defendant Kate Deily, as to the nature and quality of the programs and therapeutic modalities provided at the school. (Id.). Plaintiff further alleges that she was injured as a result of Defendants' allegedly fraudulent conduct and seeks damages to compensate her for her injuries. (Id.). Both Defendants deny that they committed any fraudulent conduct or that they have caused injury to Plaintiff. (Id.).
Plaintiff alleges that Spring Ridge Academy used a variety of seminars, workshops, and residential living conditions to take advantage of a vulnerable population-i.e., divorced parents and their children-and make money. (Doc. 1 at 14). Plaintiff alleges that Spring Ridge Academy does this by using tactics such as public shaming, manipulation and coercion, fear, yelling and violence, disclosure of confidential information, drugs, isolation, and food deprivation. (Id.). Such tactics “are designed to destroy the student's faith and relationship [with] the parents and to destroy the parent's faith in themselves, such that the school and its owners, with no credentials whatsoever, have unbridled access and ability to imprison students for an arbitrary and uncertain time period for money.” (Id. at 14). Plaintiff originally brought eight distinct causes of action, but six Counts were dismissed by this Court at summary judgment on August 15, 2023. (Doc. 166 at 31). Thus, the only remaining claims are: (i) actual and constructive fraud and (ii) consumer fraud against Defendants Spring Ridge Academy and Kate Deily. (Id.).
1. Defendants' Motion in Limine Regarding Permissible Damages Evidence (Doc. 182). Plaintiff's Response (Doc. 199).
Defendants request that the Court exclude Plaintiff's evidence of non-pecuniary damages. (Doc. 182 at 1). Defendants argue that Plaintiff has improperly included calculations for special and consequential damages for claims previously dismissed, and for speculative damages not related to the alleged fraud. (Id. at 2). Defendants further argue that Plaintiff should be precluded from introducing evidence of special damages because Arizona caselaw only allows for pecuniary damages in fraud claims. (Doc. 182 at 2). Plaintiff argues that Arizona case law does allow for special damages in the case of loss of enjoyment of a familial relationship. (Doc. 199 at 2).
Common law fraud is a tort claim. See CIT Fin. LLC v. Treon, Aguirre, Newman & Norris PA, No. CV-14-00800-PHX-JAT, 2016 WL 6610604, at *5 (D. Ariz. Nov. 9, 2016). The Restatement (Second) of Torts provides that “[o]ne who fraudulently makes a misrepresentation . . . is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation.” Restatement (Second) of Torts § 525 (1977) (emphasis added). Under Arizona law, consequential damages may be available if they arise from fraudulent conduct. Cole v. Gerhart, 423 P.2d 100, 102 (Ariz. 1967). However, a victim of fraud is only entitled to compensation if the wrong was the natural and proximate result of the fraud. Id. at 103. Further, The Restatement (Second) provides that fraudulent conduct must be the cause in fact and legal cause of pecuniary loss to support a damages award. Restatement §§ 546, 548A. Additionally, a defendant is subject to fraud “liability for pecuniary loss suffered by one who justifiably relies upon the truth of the matter misrepresented, if his reliance is a substantial factor in determining the course of conduct that results in his loss.” Restatement § 546 (emphasis added). “A fraudulent misrepresentation is a legal cause of a pecuniary loss resulting from action or inaction in reliance upon it if, but only if, the loss might reasonably be expected to result from the reliance.” Restatement § 548A (emphasis added). Thus, the damages recoverable in a fraud case are usually “limited to the actual pecuniary loss sustained.” Arce-Mendez v. Eagle Produce P'ship Inc., No. CV 05-3857-PHX-JAT, 2008 WL 659812, at *3 (D. Ariz. Mar. 6, 2008).
In the present case, Defendants claim that Plaintiff has included the following in her calculation of damages: (1) claims for conversion of property (a previously dismissed claim), (2) legal fees and costs related to this litigation, (3) counseling sessions (for which no expert has been identified), (4) future therapy sessions ($776,000), (5) disgorging of profits ($117,000), (6) Plaintiff's personal “time damages” researching and prosecuting this lawsuit ($900,000), (7) and loss of child support ($220,000). (Doc. 182 at 2).
With the exception of disgorgement of profits, none of the above claims for damages can fairly be said to be the natural and proximate result of the alleged fraud. This is the standard required by the Restatement, and Arizona law. See Cole, 423 P.2d at 102. First, the damages calculation for conversion of property are only relevant to a previously dismissed claim, and not to the remaining claims of fraud. Evidence of these damages thus will not be allowed. Second, the choice to begin this litigation is completely unrelated from Defendants' allegedly fraudulent conduct. Plaintiff's lost time prosecuting this case is also similarly unrelated. The proper mechanism for obtaining these alleged losses is to move for attorney's fees. Plaintiff's arguments at the final pretrial conference failed to distinguish how these damages differed from attorney's fees, especially as she is also acting as a counsel of record. Third, it is not reasonable to say that counseling and therapy sessions are the direct result of Plaintiff's reliance on the allegedly false representation by Defendant. Plaintiff may have taken these actions to help her and her child deal with the consequences of what allegedly occurred at Springe Ridge Academy, but this is too attenuated from the alleged fraud to be considered the legal or factual cause of these damages. Similarly, the loss in child support related to Plaintiff's decision to de-enroll her daughter from Spring Ridge Academy was her choice alone. While the Court agrees that this may have been a rational choice based on the allegations, that does not make it the natural and proximate result of the fraud.
However, Plaintiff's calculation for disgorgement of profits is proper. Springe Ridge Academy received tuition payments due to Plaintiff's reliance on the allegedly fraudulent statements. These pecuniary losses are directly related as they would not have occurred but for Plaintiff's reliance. Thus, this reliance was the factual cause of these losses. Similarly, the reliance serves as the proximate legal cause as it is reasonable to expect that alleged misrepresentations would lead to Plaintiff paying tuition to Springe Ridge Academy. Thus, the evidence of disgorgement of profits, totaling $117,000 is admissible.
Plaintiff cites two cases in objecting to Defendants' motion, Reben v. Ely, 705 P.2d 1360 (Ariz.Ct.App. 1985) and Howard Frank, M.D., P.C. v. Superior Ct. of State of Ariz., In & For Maricopa Cnty., 722 P.2d 955 (Ariz. 1986). Neither case is relevant to this claim, or to damages for fraud more generally. Both cases address whether there is a cause of action available to parents in Arizona for the loss of consortium of an injured child. Here, Plaintiff's only remaining claims are for variations of fraud. Therefore, the causes of action between these cases and the present case are wholly unrelated. The fact that both cases include factually similar backgrounds to the current case does not make their legal reasoning applicable.
In sum, the Court finds much of the proposed evidence supporting Plaintiff's claim for damages is inadmissible. Plaintiff may present evidence of consequential damages for fraud, but only if the allegedly fraudulent conduct is both the cause in fact and legal cause of the pecuniary loss. The Court finds that claims for conversion of property, legal fees and costs related to this litigation, counseling and future therapy sessions, Plaintiff's personal “time damages” researching and prosecuting this lawsuit, and loss of child support are all not the factual or proximate result of reliance on Defendants' alleged misrepresentations or omissions. Plaintiff may not present evidence of these Damages at trial. However, this Court does find that evidence offered by Plaintiff to argue disgorgement of profits is tied to the factual and proximate result of reliance on Defendants' alleged misrepresentations. Therefore, Defendants' Motion (Doc. 182) is granted in part and denied in part.
2. Defendants Motion in Limine Regarding Expert Testimony (Doc. 183). Plaintiff's Response (Doc. 200).
Defendants argue that...
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