Vortex Corp. v. Denkewicz

• Decision Date: 16 September 2014
• Docket Number: No. 1 CA–CV 12–0269.,1 CA–CV 12–0269.
• Citation: 235 Ariz. 551,695 Ariz. Adv. Rep. 7,334 P.3d 734
• Parties: The VORTEX CORPORATION, an Arizona corporation, Plaintiff/Counterdefendant/Appellee, and Cody Ramsey and Margaret Ramsey, husband and wife; Ted Lamb and Sherene Lamb, Third–Party Defendants/Appellees v. Ray P. DENKEWICZ and Carol Ann Denkewicz, husband and wife; Rolf Engelhard and Linda Engelhard, husband and wife, Defendants/Counterclaimants/Third–Party Claimants/Appellants.
• Court: Arizona Court of Appeals

235 Ariz. 551

334 P.3d 734

695 Ariz. Adv. Rep. 7

The VORTEX CORPORATION, an Arizona corporation, Plaintiff/Counterdefendant/AppelleeandCody Ramsey and Margaret Ramsey, husband and wife; Ted Lamb and Sherene Lamb, Third–Party Defendants/Appellees

v.Ray P. DENKEWICZ and Carol Ann Denkewicz, husband and wife; Rolf Engelhard and Linda Engelhard, husband and wife, Defendants/Counterclaimants/Third–Party Claimants/Appellants.

No. 1 CA–CV 12–0269.

Court of Appeals of Arizona, Division 1.

Sept. 16, 2014.

Gammage & Burnham, P.L.C., By Richard K. Mahrle, Phoenix, Counsel for Plaintiff/Counterdefendant/Appellees and Third–Party Defendants.

Tiffany & Bosco, P.A., By Robert A. Royal, Aaron T. Lloyd, Phoenix, Counsel for Defendants/Counterclaimants/Third–Party Claimants/Appellants.

Judge JOHN C. GEMMILL delivered the opinion of the Court, in which Presiding Judge SAMUEL A. THUMMA and Judge RANDALL M. HOWE joined.

OPINION

GEMMILL, Judge.

¶ 1 Ray and Carol Ann Denkewicz and Rolf and Linda Engelhard (collectively “Appellants”) appeal portions of the judgment entered against them in favor of The Vortex Corporation (“Vortex”), Cody and Margaret Ramsey, and Ted and Sherene Lamb (collectively “Appellees”). For the following reasons, we affirm.

BACKGROUND

¶ 2 Vortex was formed in 1993 by Appellant Rolf Engelhard. As an inventor in the area of water purification technology, Engelhard envisioned Vortex as the corporate vehicle by which he could both generate income and fund his projects. Appellees Lamb and Ramsey were introduced to Engelhard in 2003, and shortly thereafter, the three of them entered into business together. Lamb and Ramsey had become majority shareholders in Vortex by 2005.

¶ 3 Appellant Ray Denkewicz was hired in September 2005 to serve as Chief Executive Officer of Vortex. Soon after Denkewicz was hired, Rolf Engelhard was given the position of Chief Technology Officer of Vortex. As part of their employment compensation, Denkewicz and Engelhard were to each receive “3% of the company's outstanding stock, in the form of stock grants, each year for 5 years, based on [their] performance.” After unsuccessful attempts to generate sales and develop manufacturing capabilities for their water purification products, Denkewicz and Engelhard were terminated as Vortex employees in September 2007.

¶ 4 Soon thereafter, Lamb and Ramsey formed a new business, Vortex Pure Water, LLC, which later changed its name to Zuvo, LLC (hereinafter “Zuvo”), in the hope of attracting new investors to what was previously the Vortex endeavor. Lamb and Ramsey formed Zuvo to pay off Vortex's debt and reinvigorate the possibility of production and sales of the products previously in development.

¶ 5 Vortex sued Appellants in February 2008 for claims related to the return of corporate property and alleged violations by Denkewicz and Engelhard of their employment agreements with Vortex. Appellants counterclaimed, seeking stock in accordance with their employment agreements and alleging a series of other claims related to their terminated relationship with Vortex. Appellants' counterclaims alleging fraud, racketeering, and formation of a de facto corporate entity or partnership were dismissed on motion, but their remaining claims, along with Vortex's claims, proceeded to trial. The jury returned multiple verdicts, including:

• An award of a three percent stock interest in Vortex to Ray Denkewicz.

• An award of a three percent stock interest in Vortex to Rolf Engelhard.

• A determination that Appellants were not entitled to additional stock on the basis of a three-page document entitled “Proposed Vortex Operating Structure”—referred to by Appellants as the “VIP Agreement.”

• Damages of $11,482.24 in favor of Vortex for its successful claims.

• Damages of $3,250 each for Ray Denkewicz and Rolf Engelhard for their successful claims.

¶ 6 Because the jury awarded Denkewicz and Engelhard each a three percent stock interest in Vortex, Appellants then asserted dissenter's rights regarding the transfer of Vortex's assets and liabilities to Zuvo. The trial court agreed that Appellants were entitled to dissenter's rights and instructed the parties to “engage in the statutory process” to determine fair value of the Appellants' stock. Vortex subsequently tendered approximately $2,000 to both Denkewicz and Engelhard, representing the fair value of a three percent stock holding, including interest. Appellants disagreed with Vortex's valuation, and Vortex requested a valuation hearing in accordance with Arizona Revised Statutes (“A.R.S.”) section 10–1330 to determine the fair value of their shares at the time they were transferred from Vortex to Zuvo in August 2008.

¶ 7 At the valuation hearing, both sides presented expert testimony and evidence about Vortex's value. Appellants sought to establish that Vortex was worth somewhere between $15 million and $20 million. Appellees asserted Vortex was worth $61,682 at the time of the action to which Appellants dissented. The trial court ultimately adopted Appellees' valuation and awarded Denkewicz and Engelhard each $2,054.85 for their respective three percent shares including interest. The trial court also awarded Appellees costs and attorneys' fees. Appellants timely appealed, and we have jurisdiction pursuant to A.R.S. §§ 12–120.21 and –2101(A)(1).

ANALYSIS

I. Personal Jurisdiction Over Appellant Carol Ann Denkewicz

¶ 8 Appellants argue that the trial court abused its discretion by denying their Rule 60(c)(1) and (6) motion arguing that Appellant Carol Ann Denkewicz should not be subject to the judgment in this case because “her sole contact with [Arizona] is a contract that her husband entered with an Arizona corporation.” We review the denial of a motion under Rule 60(c) for an abuse of discretion. Searchtoppers.com, LLC v. TrustCash LLC, 231 Ariz. 236, 241, ¶ 20, 293 P.3d 512, 517 (App.2012).

¶ 9 Appellants rely on this court's opinion in Sigmund v. Rea, 226 Ariz. 373, 248 P.3d 703 (App.2011), to argue that, because Rhode Island, where Carol Ann Denkewicz resides, does not recognize a “marital community,” Carol Ann Denkewicz lacks the requisite minimum contacts for her to be subject to a judgment in Arizona. Sigmund dealt with whether “Arizona courts can exercise personal jurisdiction over residents [of another state] who have no contacts with Arizona apart from the unilateral business dealings of their spouses.”Id. at 374, ¶ 1, 248 P.3d at 704. Ultimately, the Sigmund court held that personal jurisdiction cannot be exercised when one spouse's “unilateral actions cannot be attributed” to the other spouse and the couple does not reside in a state that recognizes the marital community. Id. at 377, ¶¶ 13–14, 248 P.3d at 706.

¶ 10 Although Appellants' legal analysis of Sigmund and Rhode Island's property law may be correct, Carol Ann Denkewicz consented to the jurisdiction of the Arizona courts by not asserting her personal jurisdiction defense until well after the conclusion of the major events of this litigation—the trial and the valuation hearing. In contrast, the spouses in Sigmund sought immediate relief from involvement in the Arizona proceeding by motions to dismiss. By allowing the claims against her to proceed until just before entry of judgment without objecting, Carol Ann Denkewicz waived her potential defense that she was merely a bystander caught up in her husband's unilateral actions. See Nat'l Homes Corp. v. Totem Mobile Home Sales, Inc., 140 Ariz. 434, 438, 682 P.2d 439, 443 (App.1984) (holding that “[w]e do not need here to determine when a ‘timely’ application for ruling on the jurisdictional defense must be presented. Suffice it to say, that after a judgment on the merits has been entered, it is too late.”).

¶ 11 On these facts, the trial court did not abuse its discretion in denying Appellants' Rule 60(c) motion regarding Carol Ann Denkewicz.

II. Appellants' Application for a Court–Ordered Advance of Litigation Expenses

¶ 12 Appellants argue the trial court erred in denying their application for an advance of litigation expenses pursuant to A.R.S. §§ 10–851, –853, –854, and –856. We review de novo the trial court's interpretation of these statutes. See Bills v. Ariz. Prop. & Cas. Ins. Guar. Fund, 194 Ariz. 488, 491, ¶ 6, 984 P.2d 574, 577 (App.1999).

¶ 13 These statutes essentially allow a corporation to indemnify a corporate director or officer under certain conditions. See A.R.S. § 10–851. Additionally, “[a] corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding” if certain conditions exist. A.R.S. § 10–853. Corporate officers may also be indemnified and advanced litigation expenses. A.R.S. § 10–856(A). Appellants primarily rely on § 10–856(A) to argue that, notwithstanding their status as former Vortex officers, Vortex should have provided an advance of expenses because Appellants “complied with all applicable statutory sections ... as necessary to qualify for the advance of expenses.”

¶ 14 Appellants admit that § 10–856(A) merely “permits” them “to receive the same protections afforded to directors under A.R.S. § 10–853.” No provision of the statutes identified by Appellants requires a corporation to indemnify or provide an advance of litigation expenses to current directors or officers, much less former officers asserting claims against their former employer. See A.R.S. § 10–853(A) (“A corporation may pay for or reimburse”) (emphasis added); A.R.S. § 10–854 (“On receipt of an application [for indemnification], the court after giving any notice the court considers necessary may order indemnification”) (emphasis added); A.R.S. § 10–856 (“A corporation may indemnify and advance expenses”) (emphasis added).¹

¶ 15 The trial court did not err by denying Appellants' application for an advance of litigation expenses.

III. Dismissal of Appellants' Partnership Claim Under Rule 12(b)(6)

¶ 16 Appellants argue that the trial...