Opinion
No. 2 CA-CV 2018-0021
06-14-2019
CORPORATIVO VALENZUELA HERMANOS, S.A. DE C.V., A MEXICAN CORPORATION, Plaintiff/Appellant/Cross-Appellee, v. MARIA GABRIELA LEMMEN MEYER GONZALEZ DE VALENZUELA, SURVIVING SPOUSE OF FEDERICO VALENZUELA GONZALEZ, DECEASED; FRANCISCO JAVIER MICHEL PELAYO AND ROSA MARIA CARPENA DE MICHEL, HUSBAND AND WIFE; LUIS ENRIQUE GARCIA TRUJILLO AND OLIVIA FLORES DE GARCIA, HUSBAND AND WIFE; MERVAL, S.A. DE C.V., A MEXICAN CORPORATION; JUAN DIEGO ESPINOZA LUGO, A SINGLE MAN; ROBERTO LEMMEN MEYER GONZALEZ AND PATRICIA CADENA OCHOA, HUSBAND AND WIFE; EDUARDO LEMMEN MEYER GONZALEZ AND YOLANDA BARANCINI PRECIADO, HUSBAND AND WIFE; PAULINA MICHEL CARPENA, A SINGLE WOMAN; FLORENCIA MICHEL CARPENA, A SINGLE WOMAN; FEDERICO VALENZUELA LEMMEN MEYER, A SINGLE MAN; MARIA GABRIELA VALENZUELA LEMMEN MEYER, A SINGLE WOMAN; MARIA DEL MAR VALENZUELA LEMMEN MEYER, A SINGLE WOMAN; DANIEL VALENZUELA LEMMEN MEYER, A SINGLE MAN; UBS INTERNATIONAL, INC., A NEW YORK CORPORATION; MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., A DELAWARE CORPORATION; WELLS FARGO INVESTMENTS, LLC, A DELAWARE LIMITED LIABILITY COMPANY; BANK OF AMERICA, N.A.; BANK ONE, N.A.; WELLS FARGO BANK, N.A.; MALEGA CIVIL COMPANY, A BELGIAN ENTITY; MALEGA, S.A. DE C.V. OR S. DE R.L. DE C.V., A MEXICAN CORPORATION, Defendants/Appellees/Cross-Appellants.
COUNSEL Waterfall, Economidis, Caldwell, Hanshaw & Villamana P.C., Tucson By D. Michael Mandig, Corey B. Larson, and Ariel Henderson Counsel for Plaintiff/Appellant/Cross-Appellee Risner & Graham, Tucson By William J. Risner Counsel for Defendant/Appellee/Cross-Appellant Maria Gabriela Lemmen Meyer Gonzalez and Ahwatukee Legal Office P.C., Phoenix By David L. Abney Counsel for Defendants/Appellees/Cross-Appellants other than Maria Gabriela Lemmen Meyer Gonzalez
THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES.
NOT FOR PUBLICATION
See Ariz. R. Sup. Ct. 111(c)(1); Ariz. R. Civ. App. P. 28(a)(1), (f). Appeal from the Superior Court in Pima County
No. C20042015
The Honorable Catherine Woods, Judge
AFFIRMED
COUNSEL Waterfall, Economidis, Caldwell, Hanshaw & Villamana P.C., Tucson
By D. Michael Mandig, Corey B. Larson, and Ariel Henderson
Counsel for Plaintiff/Appellant/Cross-Appellee Risner & Graham, Tucson
By William J. Risner
Counsel for Defendant/Appellee/Cross-Appellant Maria Gabriela Lemmen Meyer Gonzalez and Ahwatukee Legal Office P.C., Phoenix
By David L. Abney
Counsel for Defendants/Appellees/Cross-Appellants other than Maria Gabriela Lemmen Meyer Gonzalez
MEMORANDUM DECISION
Judge Espinosa authored the decision of the Court, in which Presiding Judge Eppich and Chief Judge Eckerstrom concurred. ESPINOSA, Judge:
¶1 Corporativo Valenzuela Hermanos, S.A. de C.V. ("CVH") appeals the trial court's judgment dismissing its complaint and dissolving a preliminary injunction previously entered in the case. Although CVH has presented numerous issues on appeal, we find one issue dispositive. Because we agree with the trial court that CVH lacked the capacity to bring the action in the first instance and failed to remedy that deficiency, we affirm and need not address the remaining issues raised in the opening brief and cross appeals.
Factual Background
This case arises from a long and complex factual and procedural history; we relate only the underlying facts necessary to provide context and those necessary for the disposition of this appeal. For clarity, we also identify some of the familial and business relationships of the parties involved, assign pseudonyms to distinguish similar names, and refer to CVH and its subsidiaries as one entity where appropriate.
¶2 We defer to the trial court's resolution of disputed questions of fact where its findings are supported by the record. Great W. Bank v. LJC Dev., LLC, 238 Ariz. 470, ¶ 39 (App. 2015); see Aranda v. Cardenas, 215 Ariz. 210, ¶ 29 (App. 2007) (issue of capacity to sue may depend on resolution of factual questions). CVH is a Mexican corporation founded in 1963 by three brothers, Roberto, Federico, and Pedro Valenzuela Trujillo. When this action commenced in 2004, CVH operated forty-six supermarkets and seventy-eight pharmacies through its subsidiaries, along with a financial clearinghouse for all of the related corporations' interests. The companies' businesses operated primarily in Sonora and Northern Sinaloa, Mexico.
¶3 In 1993, CVH obtained loans from three Mexican banks to finance the purchase of a competing chain of stores. Beginning in 1995, however, the devaluation of the Mexican peso sent CVH into financial crisis, and the company defaulted on its loan obligations with significant outstanding debt. In 1998, CVH began negotiations with the three banks to resolve the outstanding obligations. The principal negotiator for CVH at this time was the company's general director, Javier Michel Pelayo. That year, the company's largest creditor, Banca Serfin, brought an action in the Federal District Court in Hermosillo, Sonora, designated "Case 1/98," to collect on its loan.
¶4 At a shareholders meeting in October of 1999, CVH declared a dividend of $100 million pesos, but it was not paid to anyone at that time; rather, its disposition was to be decided at a future date. By September 2001, Pelayo had negotiated one of the company's debts from roughly $100 million pesos to $17 million pesos and another from about $140 million pesos to $15 million pesos. Banca Serfin, whose two loans totaled approximately $1 billion pesos, remained unpaid, and that debt was sold to a collection agency. At the time, the founders' families owned percentages in the company as follows: Roberto's family owned fifty-percent of the company's stock, Pedro's family owned approximately twenty-eight percent, and Federico's family owned roughly twenty-two percent.
¶5 By late 2001, the collection agency had accepted payment of $28 million pesos to settle the smaller $300 million peso loan. Pelayo had also negotiated a ninety percent discount on the remaining $740 million peso loan, with the agency agreeing to payment of $74 million pesos as satisfaction. By early 2002, the CVH board of directors consisted of founding brother Roberto's widow, Maria Dolores Socorro Noriega de Valenzuela ("Socorro"), three of Roberto's five children, Federico ("FVG"), Lourdes, and Roberto Valenzuela Gonzalez ("RVG"), and the company's counsel. Despite the ownership interests of the other founding families, "family problems" had led to their non-representation on the board.
¶6 On March 12, 2002, FVG called a board meeting to announce that the negotiations with the debt collection agency were "[ninety-nine] percent wrapped up." At that meeting, however, he proposed a plan to acquire the debt from the collection agency rather than having it retired by CVH. His mother, Socorro, would be issued half of the October 1999 dividend, in the amount of $50 million pesos, and use that money to fund part of the acquisition of the debt, while the remaining balance would be paid off by FVG's wife, Maria Gabriela Valenzuela Lemmen Meyer ("Gabriela"). FVG claimed he and Gabriela also had a separate, written agreement in which they agreed he would be the true owner of the debt. FVG explained that because the debt would not be in the company's name, but rather in his wife's, the company would be worth less, which, in turn, would provide leverage for negotiating with the families of the other two founders and allow Roberto's family to ultimately buy out their equity interests at a lower cost. FVG also indicated to his siblings that he would arrange for their shares in the company to nearly double if they voted for his plan.
¶7 The following day, Lourdes informed FVG she did not agree with the plan to have Gabriela acquire the debt, because "the debt had been negotiated for the benefit of the company, not for the benefit of one person." RVG also told FVG that he had arranged a meeting with Bank One in Tucson to obtain a loan to cover the difference between the $50 million pesos the company possessed and the $74 million owed to the collection agency. RVG and Pelayo met with a Bank One representative that week, and, after being informed of the ongoing situation involving Gabriela, the representative agreed to work with them "if it was for the benefit of all of the partners." On March 16, when RVG told FVG that the bank was willing to loan them the money, FVG agreed to "move ahead" with that plan after he and his family returned from a vacation the following week. FVG, however, did not do so, and the debt collection agency was "paid through Gabriela without [the] other partners knowing anything about it."
Procedural History in Mexico and Pima County
¶8 After Gabriela acquired CVH's debt, she was substituted as plaintiff in Case 1/98. In November 2002, she entered into a judicial settlement agreement with CVH in Sonora, negotiated and signed by Pelayo on behalf of the company, in which CVH acknowledged Gabriela's ownership of the full, undiscounted $740 million peso debt. CVH was to initially pay her $20 million pesos, followed by monthly payments of roughly $1 million pesos. Gabriela, along with FVG and their son, thereafter transferred substantial portions of the payments they had received into banking and investment accounts in Pima County.
¶9 In December 2002, a criminal investigation was initiated in Mexico relating to the settlement agreement with Gabriela, and in November 2003, a judge in Mexico issued an "order of arrest" against her, FVG, Pelayo, and the company's treasurer. CVH also brought legal challenges to the Case 1/98 judicial settlement agreement in various courts in Mexico, at one point succeeding in temporarily suspending payments to Gabriela. The challenges were, however, ultimately unsuccessful in overturning the settlement, and the order suspending the debt payments to Gabriela was eventually lifted.
¶10 In 2004, while the legal challenges were pending in Mexico, CVH filed this action in Pima County Superior Court. The complaint named twenty-seven individual and corporate defendants, including FVG, Gabriela, and Pelayo, and 101 fictitious defendants. CVH alleged embezzlement and breach of fiduciary duties, fraud, misappropriation and unjust enrichment, fraudulent transfers, and sought civil remedies for violations of Arizona's racketeering statutes, restitution, an equitable accounting, a constructive trust, and preliminary equitable and injunctive relief. None of the company's subsidiaries were plaintiffs to the action.
¶11 In April 2005, "to preserve the frozen assets while the merits of th[e] action [we]re adjudicated in Arizona or in Mexico, or in both jurisdictions," the trial court granted the preliminary injunction. At that time, the criminal charges stemming from the same set of facts and the challenges to the Case 1/98 judicial settlement agreement were still pending in Mexico. The following month, the court entered an order staying the proceedings to allow the matters pending in Mexico to be litigated and resolved, noting that the case was primarily a dispute involving "Mexican Courts, applying Mexican law to its citizens," and that Mexico's court system "should, if ultimately appropriate, determine . . . the disposition of the funds which are at issue here."
¶12 In October 2008, CVH moved to lift the stay, reporting that a "final judgment in Mexico" had been issued and arguing that judgment "should be enforced in th[e trial] Court." The defendants opposed the motion, but the trial court ultimately lifted the stay and denied a motion for reconsideration.
¶13 Previously, in March 2005, before the action in Mexico had concluded, one of the defendants, Malega Civil Company, had moved to dismiss the Pima County case, alleging CVH lacked the capacity to sue. The motion included a sworn declaration from Socorro, owner of fifty percent of CVH's shares, which stated that any changes to the company's board required fifty-one percent shareholder approval, and because she had not voted in favor of changing the board to include the Valenzuela family members, the "family members who purport[ed] to represent CVH in the Litigation [we]re not authorized to do so." She also averred that she had not voted her fifty-percent share "in favor of bringing the Litigation in Arizona." The motion was denied on October 4, 2005, when the trial court found that, even assuming the CVH board was invalidly elected, there would still be "no colorable argument that this [invalid election] deprives CVH of its capacity to sue" under Rule 9(a), Ariz. R. Civ. P.
¶14 The Pima County defendants continued to assert the lack of capacity argument in some manner in various filings over the ensuing years. In early 2016, the trial court received expert reports discussing various Mexican legal principles at play in the case, including CVH's capacity to sue. In April 2016, an evidentiary hearing was held on that and other issues. The hearing lasted seven days, during which the court heard from Gabriela's Mexican-law expert on the issue of CVH's alleged incapacity. In December 2016, the court dismissed CVH's complaint against all defendants, ruling that CVH lacked the capacity to sue, the claims were subject to res judicata under Mexican law, public policy against splitting a cause of action in multiple courts mandated dismissal, and that CVH was not entitled to equitable relief because it had "unclean hands" in the dispute. After judgment was entered, however, the court granted CVH's motion for new trial, vacating the previous judgment and scheduling another hearing to allow CVH an opportunity to "supplement its defense of the res judicata issue."
¶15 In October 2017, after the additional day of hearings and testimony on behalf of CVH from another expert on Mexican law, the trial court reversed portions of its decision but again granted the defendants' motion to dismiss for lack of capacity to sue and vacated the preliminary injunction. The court explained, as more fully discussed below, that "the fraudulently-acquired authority to file this suit in Pima County in 2004 has been deemed an absolute nullity, and Plaintiff never has been validly authorized [to] maintain this 2004 action in this Court." In so ruling, the court noted that its previous denial of the motions to dismiss for lack of capacity had "relied upon what now is known to be false and fraudulent representations concerning [CVH's] legal authority to initiate or maintain th[e] action." The court cited a declaration of Federico Antonio Valenzuela Quiroga ("FVQ") and submitted by CVH, dated April 13, 2005, in which FVQ swore that, as a member of the CVH board since June 24, 2003, the Pima County lawsuit "was filed at his direction acting on behalf of [CVH] and its board of directors." By 2017, however, it was "definitively known that the corporate representative who authorized the filing of th[e] case was not a duly authorized board member, and he lacked legal authority to cause th[e] case to be filed in April 2004." The court entered judgment on January 9, 2018, and CVH appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(1).
Waiver
¶16 On appeal, CVH first argues the defendants "abandoned, forfeited[,] and waived" the lack of capacity defense because dismissal on that basis was first raised in 2005 and not raised again until April 2016. While "[l]ack of capacity to sue is not jurisdictional and can be waived," Gonzales v. Ariz. Pub. Serv. Co., 161 Ariz. 84, 87 (App. 1989), "the defendant in a lawsuit may always question whether the plaintiff is a proper party if the issue is raised in a timely manner," Hurt v. Superior Court, 124 Ariz. 45, 48 (1979). Waiver is generally a question of fact, and the trial court's finding "binds this court unless we conclude that the finding is clearly erroneous." Minjares v. State, 223 Ariz. 54, ¶ 17 (App. 2009); see also Chaney Bldg. Co. v. Sunnyside Sch. Dist. No. 12, 147 Ariz. 270, 273 (App. 1985) ("[W]aiver may be inferred from conduct and is, therefore, a question of fact to be determined by the trier of fact.").
¶17 In its ruling, the trial court observed that, "[s]ince the inception of this case in Pima County, the defendants have repeatedly sought to have this case dismissed . . . for grounds that include . . . lack of capacity to sue." The court noted the issue "was tangentially raised" early on, "raised again in supplemental briefing," and "discussed and argued extensively by both sides during the evidentiary hearing." It also noted that in denying previous motions to dismiss on the capacity issue, it had considered the issue unaware that FVQ had "authorized the filing of this litigation on behalf of [CVH] and its board of directors" only after his "illegal and fraudulent election as a board member." Given the repeated attempts to assert the defense and new information that became available to the court after previous rulings on the issue, we cannot say the court clearly erred in finding the defense preserved. See Minjares, 223 Ariz. 54, ¶ 17.
Capacity to Sue
Conflict of Law
¶18 Whether a plaintiff lacks the capacity to sue is a question of law, which we review de novo. Gemstar Ltd. v. Ernst & Young, 185 Ariz. 493, 499 (1996). But we must first determine whether Arizona or Mexican substantive law applies to this case. When analyzing a choice of law issue, Arizona courts look to the Restatement (Second) of Conflict of Laws for guidance. Id. at 500. "The local law of the state of incorporation will be applied" to determine issues involving the rights and liabilities of a corporation. Id. at 501 (quoting Restatement (Second) of Conflict of Laws § 302 (1971)). As noted in Gemstar, the comments to Restatement § 302 indicate that when deciding issues involving a corporation's "internal affairs," courts apply the law of the place of incorporation. Id. Whether a corporation has the capacity to sue is an issue involving the corporation's "internal affairs," and "thus the law of the place of incorporation governs the issue." Id. These principles are equally applicable when considering, as in Gemstar, places of incorporation and operative events in other countries. Id. at 496, 501.
¶19 Should the record contain "either no information, or else insufficient information . . . about the foreign law, the forum will usually decide the case in accordance with its own local law except when to do so would not meet the needs of the case or would not be in the interests of justice." Id. at 501 (quoting Restatement § 136 cmt. h). A "question as to foreign law is not a question of fact, but a question of law to be determined by the court." Societe Jean Nicolas Et Fils v. Mousseux, 123 Ariz. 59, 61 (1979). Therefore, while we accept the trial court's factual findings unless clearly erroneous, we review the trial court's interpretation and application of foreign law de novo. See Calisi v. Unified Fin. Servs., LLC, 232 Ariz. 103, ¶ 13 (App. 2013). To do so, this court "can arrive at a resolution of the foreign law question on the basis of its own independent research and analysis," Kadota v. Hosogai, 125 Ariz. 131, 136 (App. 1980), "consider[ing] any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Arizona Rules of Evidence," Ariz. R. Civ. P. 44.1. We are not, however, required to "examine foreign legal sources independently in the absence of any suggestion that such a source would be fruitful or of any help to the parties." Kadota, 125 Ariz. at 137.
¶20 The issue of capacity to bring this case was discussed at length before the trial court, both sides presented competing expert opinions and testimony on the subject, and the record includes certified translations of the Mexican cases that were relied upon by the experts. In our discretion, we therefore rely only on the record as presented to this court rather than "undertak[ing] the burden" of exhaustive research on the foreign law issue, id., and, finding that record sufficient to resolve the issue, base our analysis upon the Mexican law presented, cf. Gemstar, 185 Ariz. at 501 (applying local law where record insufficient to resolve foreign law issue).
Underlying Facts: Changing of the Board
¶21 On June 24, 2003, a meeting of the CVH shareholders was called in which a new board of directors and corporate officers were elected. The new board was comprised of six family members, including FVQ. The shareholders present at the meeting voted unanimously to "file suit" against FVG, Gabriela, Pelayo, and the other "individuals responsible for damages which [were] caused to the company." In 2005, after participating in what would eventually be Malega Civil Company's unsuccessful first challenge to CVH's capacity in Pima County, Socorro sued in the Federal District Court of Mexico, challenging the validity of three CVH shareholder meetings, including the June 24 meeting, and seeking their annulment.
¶22 On January 9, 2006, the Mexican court found that CVH corporate bylaws required at least fifty-one percent of the capital stock of the company to be represented in order for a general shareholders meeting to be legally recognized. Although sixty-eight percent of the stock was purported to be represented at the meetings, the individuals claiming to represent those shares did not own them and, instead, were only to receive them upon Socorro's death. Additionally, Socorro retained the right to vote her shares and had not authorized anyone to do so on her behalf at any of the meetings in question. Thus, regarding the June 24 meeting, the Mexican court found that because Socorro was not deceased and retained her voting rights, she "could not have been represented in the meeting held . . . by those pretending to be the beneficiaries of such capital stock." The court also found that the CVH statutory auditor who convened the meeting lacked the power to do so, as his appointment to the position was legally defective. The court then found all three of the challenged meetings a nullity and ordered the notarized instruments stemming from the meetings "cancell[ed]."
Many legal acts in Mexico, including "routine commercial transactions and agreements, require action by a public or commercial notary to be valid or fully effective." INTERNATIONAL STATEMENT OF MEXICAN BANKRUPTCY LAW 16 (Am. Law. Inst. ed., 2003). What a public notary "say[s] has happened in their presence or has been executed under their authority is presumed by law to have actually happened, . . . and to be legal," unless otherwise ordered by a court. Id. at 151-52.
¶23 Following that ruling, on May 3, 2006, CVH shareholders held another meeting, the legality of which appears undisputed, at which the entirety of the capital stock, including Socorro's, was represented. The meeting minutes included the "[a]ppointment or ratification, as the case may be, of the Board of Directors." The shareholders then agreed that the "actions filed with the Arizona courts for recovery of the funds of [CVH] and its subsidiary companies, which were illegally disposed of, are ratified."
Legal Analysis
¶24 It is undisputed that, under Mexican law, the nullification of the June 24 meeting deprived CVH of its capacity to sue in Pima County. According to a 2008 federal case from Mexico's Collegiate Circuit Court, which the defendants' expert submitted to the trial court, the act of nullification "void[s] and depriv[es] the contested act from its effect," and "depending on the role played by the ineffective act in the specific proceeding," the nullification "affects the entire proceeding." CVH concedes the lawsuit was filed "based upon instructions stemming from" the June 24 meeting. It argues, however, that the trial court erred by "refus[ing] to find that the [later] unchallenged May 3[, 2006] shareholder resolution cured the capacity problem."
The Mexican citation for this case is particularly lengthy and unwieldy and we omit it; none of the parties dispute its authority.
¶25 In its ruling, the trial court reasoned that, "[u]nder applicable law in Mexico, the declaration of absolute nullity applies to the corporation's judicial actions, including the filing of this lawsuit" and that because of that nullification, "it is legally impossible to ratify anything that occurred during the June 24, 2003 meeting, or anything that occurred as a result of the June 24, 2003 meeting." The court found "in the case of an absolute nullity the only apparent cure to the Plaintiff's lack of capacity to sue would be the dismissal of the suit and the filing of a new suit based upon actual legal capacity."
¶26 In its nullification of the June 24 meeting, the Mexican court had cited Article 2226 of the Mexican Federal Civil Code, which expert testimony described as a declaration of "absolute"—rather than relative—nullity. Article 2226 establishes that when an absolute nullity is issued by the judge, the temporary effects of the nullified act "shall be destroyed retroactively." This encompasses not only the designation of the board of directors elected at that meeting, but also the actions taken by that board, including any actions taken in judicial proceedings. The filing of the action in Pima County based on instructions from the June 24 meeting and at the direction of a member of the board of directors fraudulently elected at that meeting was one such "retroactively destroyed" temporary effect.
¶27 CVH relies on a 1987 federal case from Mexico, referred to by both parties only as Productos de Uva De Aguascalientes, to argue "the shareholders of CVH corporation took a decision authorized by Mexican law" to rectify the situation. That case states "the decisions made during a shareholder meeting that is null . . . when the totality of shares are not represented therein, can be made again in a new, legally convened shareholder meeting . . . and such decisions can be agreed to be retroactive in their effects to a certain date." Productos de Uva De Aguascalientes. Thus, although CVH acknowledges "an invalid shareholder meeting may not be 'ratified' under Mexican law," it argues on appeal, as it did below, that on May 3 "the shareholders convened another meeting at which they ratified the continuation of this suit, a decision retroactive to the date this suit was filed." The trial court disagreed with that conclusion, as do we.
¶28 While true that the shareholders would have been permitted to make such a decision and give it retroactive effect, the actions taken to achieve this end were simply insufficient. The directive to file the Pima County lawsuit, authorized by the fraudulently elected CVH board of directors and FVQ in particular, was the direct result of the nullified shareholder agreement to "file suit" made at the June 24 meeting where that board was elected. When that meeting was nullified, any apparent authority that board of directors had was instantly and absolutely revoked, retroactive to the date of the nullified meeting. Under the reasoning of Productos, the shareholders were required to consider and make the same decision—to file a lawsuit in Arizona—as the decision made at the nullified meeting. See id. (when shareholder meeting nullified for lack of quorum, decisions only valid if made again in new, legally convened shareholder meeting). The shareholders could have taken the affirmative step to grant the legally elected board of directors the power to file a new lawsuit, thus curing CVH's incapacity, but did not. Instead, they merely declared the lawsuit in Arizona "ratified," an action that was without effect once the original shareholder meeting had been designated an absolute nullity via judicial decree. Thus, CVH's incapacity was not effectively cured under Mexican law, and the trial court did not err in so concluding and granting the motion to dismiss.
Fees and Costs
¶29 The appellees have requested their attorney fees and costs on appeal pursuant to A.R.S. § 12-349(A). But it appears CVH took the steps it believed necessary to maintain the lawsuit, and has argued ever since that its incapacity was cured. An award of attorney fees under § 12-349 is discretionary, see State Comp. Fund v. Yellow Cab Co. of Phx., 197 Ariz. 120, ¶ 19 (App. 1999), and although unsuccessful, we cannot say CVH brought this appeal "without substantial justification," nor did it "[u]nreasonbly expand[] or delay[] the proceeding" as contemplated by § 12-349(A). We therefore deny the appellees' request for attorney fees, but award their costs on appeal pursuant to A.R.S. § 12-341 and upon compliance with Rule 21, Ariz. R. Civ. App. P.
Disposition
¶30 For the foregoing reasons, the trial court's dismissal of CVH's lawsuit and dissolution of the preliminary injunction are affirmed.