Wine Educ. Council v. Rangers
| Decision Date | 15 December 2020 |
| Docket Number | No. CV-19-02235-PHX-SMB,CV-19-02235-PHX-SMB |
| Parties | Wine Education Council, Plaintiff, v. Arizona Rangers, Defendant. |
| Court | U.S. District Court — District of Arizona |
Pending before the Court is Third-Party Defendant Grant Winthrop's ("Mr. Winthrop") Motion to Dismiss Arizona Rangers' ("AZR") Amended Third Party Compliant, (Doc. 119), and responsive motions. (Docs. 124, 128.) Also pending before the Court is Third-Party Plaintiff AZR's Motion to Dismiss Mr. Winthrop's Amended Counterclaims, (Doc 147), and responsive motions. (Docs. 154, 156.)
These motions relate to an underlying case in which the Wine Education Counsel ("WEC") brought suit against the Arizona Rangers. WEC is an educational organization that promotes the development and effectiveness of viticulture professionals. (Doc. 1 at 2.) WEC has also provided charitable grants to law enforcement groups. (Id.) WEC's underlying complaint in this case alleges that it was named the "backup beneficiary" of certain grants to AZR in the event that AZR either ceased to exist or failed to use the grant funds consistent with each grant's terms. (Id.) According to WEC's complaint, its "backup beneficiary" status extended to six grants made to AZR between November 30, 2016 and October 3, 2017. (Id.) WEC alleged that each of these grants was made after the East Valley Company of AZR affirmatively requested the donations "subject to conditions regarding the purpose and intended use for the funds." (Id.) According to WEC, AZR has since failed to use the grants according to their terms, which allows WEC to assert their claim as the backup beneficiary. (Id. at 3.) WEC brings three claims against AZR. WEC's first claim, breach of contract, alleges the grants imposed a contractual duty on AZR to use the grant funds for specified purposes and that AZR has failed this duty. (Id. at 4.) WEC's second claim, breach of the covenant of good faith and fair dealing, alleges the grant contracts imposed a duty of good faith and fair dealing and that AZR violated that duty by not using the funds for approved purposes. (Id. at 4-5.) WEC's third claim, unjust enrichment, is offered in the alternative and asserts that WEC did not agree to supply AZR funds for any purpose other than those stated in the grant letters, and that to the extent AZR has obtained and used the funds for other purposes AZR has been unjustly enriched. (Doc. 5-6.)
AZR answered WEC's complaint denying any wrongdoing or impermissible use of the grant funds. However, AZR also asserted a contingent Third-Party Complaint ("TPC") against Grant Winthrop ("Mr. Winthrop"), a former associate member of AZR. (Doc. 109 at 7.) To become an associate member, candidates must pass all required background checks, complete a minimum ninety (90) day probationary period and take the Ranger Oath of Allegiance and otherwise agree to obey the AZR bylaws, rules, and regulations. (Id. at 7-8, 21-22.) Members who have met the requirements for admission to AZR but who are still in their probationary period are known as "probationary rangers." Members who have completed their "probationary period" who wish to assist AZR in roles other than that of an active ranger and known as "associate rangers." (Id. at 8.) AZR alleges that Mr. Winthrop applied for membership with AZR and was acting as a probationary ranger by December 2016. (Id.) Mr. Winthrop completed his probationary period and was formally sworn in as an associate ranger on March 7, 2020. (Id.)
According to AZR, Mr. Winthrop's involvement with the organization mostly centered around AZR's fundraising efforts and the management of AZR's grant funds. AZR alleges that while both a probationary and an associate member, Mr. Winthrop solicited donations and grant funds on its behalf. (Id.) AZR alleges Mr. Winthrop's role in the acquisition and distribution of grant funding permits it to maintain a third-party action against him. AZR claims this to be the case because the underlying action "concerns the use of six donations totaling $175,000 that Winthrop solicited on behalf of [AZR] from American Endowment Fund [sic] between November 2016 and September 2017." (Id. at 8.) AZR alleges not only did Mr. Winthrop help it write the grants, but he was involved on both sides of the donation, acting as a donor advisor for the endowment fund responsible for giving AZR the funds. (Id. at 8-9.)
AZR also alleges Mr. Winthrop played a key role in the distribution of the grant funds. AZR states that on or around June 24, 2017 it created an ad hoc development committee responsible for fundraising and that Mr. Winthrop was appointed to that committee. (Id. at 15.) AZR also alleges that each of the grants at issue in WEC's underlying complaint were deposited into the same AZR Chase Bank checking account ("The Chase Account"), that AZR gave Mr. Winthrop the authority to spend the grant funds on its behalf "in accordance with the grant/donation letters," and that Mr. Winthrop accepted this authority. (Id. at 16-17.) AZR places special significance on Mr. Winthrop's role in spending the funds due to his involvement with WEC, stating his approval without comment of the funds used "ratified and approved all expenditures." (Id.)
Apart from his seat on the ad hoc committee, AZR also alleges that Mr. Winthrop personally undertook to spend the grant funds. (Id. at 16-17.) It states that "[u]nbeknownst to Arizona Rangers, in or around July 2017, Winthrop applied for and obtained an auxiliary American Express card ("the Amex card") ...under [AZR's] name...linked to his personal account." (Id. at 16.) Mr. Winthrop was the only member of AZR who used the Amex card, and he used the card to make purchases pursuant to the grants. (Id.) These purchases with the Amex card were then reimbursed via an auto payment feature of The Chase Account. (Id.) Using the Amex card, Mr. Winthrop made "dozens of purchases" totaling more than $70,000.00. (Id.) These purchases were in addition to another $67,626.75 of the grant funds spent from The Chase Account via check or Chase credit card. (Id.) AZR alleges that "[Mr.] Winthrop controlled how the vast majority of the funds were used[,]" and that "all expenditures of grant funds were either directed by [Mr.] Winthrop or voted on...with [his] input and approval." (Id.)
Of the grant money given to AZR, Mr. Winthrop used the Amex card to spend $23,301.30 on "business/relationship development dinners and travel" for the purpose of securing resources and additional donors for AZR. Eventually, AZR leadership learned of Mr. Winthrop's Amex card, and raised concerns about oversight in grant fund spending. (Id. at 17.) AZR undertook an investigation and review of grants received and funds spent. While the investigation did not accuse Mr. Winthrop of any wrongdoing, AZR did order Mr. Winthrop's Amex card in AZR's name to be closed and required future grant procurement to follow certain procedures. (Id. at 18.) After AZR reached this determination Mr. Winthrop "decided to withdraw from [AZR] and demanded reimbursement of the $175,000 and/or the turnover of the purchased supplies/equipment to [WEC]." (Id.)
While AZR still maintains it did not misuse any of the grant funds subject to WEC's complaint, it alleges that in the event AZR is determined to be liable for misuse of the funds "it will be because Mr. Winthrop intentionally and/or negligently misappropriated and/or improperly spent funds and/or property belonging to [AZR] without its knowledge or authority." (Id. at 20.) As such AZR brings three claims against Mr. Winthrop as a third-party defendant in this action. (Id.) AZR alleges that to the extent it is determined to be liable to WEC, it will either be (1) due to Mr. Winthrop's breach of his fiduciary duty as AZR's agent or (2) due to his negligence in his role in the management of AZR funds. (Id. at 20-23.) AZR also asserts Mr. Winthrop will be liable under the theory of common law indemnity. (Id. at 23-24.)
Mr. Winthrop filed a Motion to Dismiss AZR's TPC under Rule 12(b)(6). (Doc. 119.) There, he argued that both AZR's negligence and breach of fiduciary duty claims must be dismissed under Rule 14 of the Federal Rules of Civil Procedure, that AZR had failed to properly plead any agency relationship or any other relationship giving rise to fiduciary duties, that AZR had not pled facts sufficient to establish any duty supporting its negligence claim, and that AZR had failed to plead facts necessary to establish a common law indemnity claim. (Id.) AZR responded arguing Rule 14 allows it to assert its claims for breach of fiduciary duty and negligence when a third-party defendant's liability is contingent on the outcome of an underlying case and that the facts pled in AZR's TPC adequately show a breach of Mr. Winthrop's fiduciary duties and duty of care to AZR. (Doc. 124 at 4.)
Apart from filing a Motion to Dismiss AZR's TPC, Mr. Winthrop has also subsequently filed counterclaims against AZR asserting that AZR is liable to Mr. Winthrop under theories of breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment. (Doc. 132 at 9-11.) Mr. Winthrop's counterclaims allege that he became a probationary member of AZR in December 2016 and became an associate member of AZR on or around March 7, 2017. (Id. at 2.) Mr. Winthrop alleges these were both "volunteer" positions but admits that he was expected to "understand and uphold the [AZR] bylaws and be familiar with and strive to abide by [AZR] Rules and Regulations." (Id. at 2-3.)
Mr. Winthrop discusses AZR's rules and regulations in some detail. He alleges the bylaws provide a board of directors for oversight and to "correct any potentially damaging situation[s]," that the rules require the organization "implement reasonable safeguards, including adequate physical...
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