Opinion
No. 1 CA-CV 14-0263
06-30-2015
JOSEPH MINDER, Plaintiff/Appellee, v. APPLE MUSIK DEVELOPMENT, LLC, an Arizona limited liability company; MUSIKANTOW AND ASSOCIATES, LLC, an Arizona limited liability company; EVAN MUSIKANTOW and NICOLE K. MUSIKANTOW, husband and wife, Defendants/Appellants.
COUNSEL Lane & Nach, PC, Phoenix By Adam B. Nach, Lisa Perry Banen Counsel for Plaintiff/Appellee Lorona Mead, PLC, Phoenix By Jess A. Lorona Counsel for Defendants/Appellants
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV2012-008980
The Honorable Randall H. Warner, Judge
AFFIRMED
COUNSEL Lane & Nach, PC, Phoenix
By Adam B. Nach, Lisa Perry Banen
Counsel for Plaintiff/Appellee
Lorona Mead, PLC, Phoenix
By Jess A. Lorona
Counsel for Defendants/Appellants
MEMORANDUM DECISION
Judge Kent E. Cattani delivered the decision of the Court, in which Presiding Judge Patricia K. Norris and Judge Patricia A. Orozco joined. CATTANI, Judge:
¶1 Appellants Apple Musik Development, LLC ("Apple Musik"), Musikantow and Associates, LLC ("M&A"), and Evan and Nicole Musikantow appeal the superior court's finding that the Musikantows defrauded Appellee Joseph Minder. For reasons that follow, we affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 Evan Musikantow approached Minder to discuss investing in "minibar.ber.shop," a combination upscale barbershop, bar, and restaurant located in the Scottsdale Quarter. During their initial meeting, Musikantow gave Minder a prospectus that included, among other things, detailed financial projections for the business. Minder and Musikantow then executed a Memorandum of Understanding ("MOU") in which Minder agreed to make a capital contribution of $250,000 in exchange for a 12.5 percent ownership interest in Apple Musik. The two discussed a formal operating agreement, but dispute whether it was executed.
¶3 Minder met his obligations under the MOU by paying $150,000 to the contractor responsible for minibar.ber.shop's build out and contributing $100,000 to Apple Musik. Based on the prospectus and Musikantow's projections, Minder believed that Apple Musik would own and operate minibar.ber.shop. Minder later learned that M&A, not Apple Musik, leased the improved space, owned the inventory, and received all revenues generated by minibar.ber.shop. Minder also learned that Musikantow had obligated Apple Musik to pay M&A a $100,000 annual licensing fee. Under that guise, Musikantow transferred Minder's $100,000 contribution to M&A, and the Musikantows used some of the funds for personal expenses. Musikantow's projections had not disclosed the licensing fee, or that M&A would own and operate minibar.ber.shop.
¶4 Minder sued Appellants, asserting a variety of legal theories and seeking compensatory damages "in the minimum amount of $250,000." Following a one-day bench trial, the superior court issued detailed findings of fact and conclusions of law, finding the Musikantows liable for fraud and breach of fiduciary duty, and M&A liable for unjust enrichment. Appellants timely appealed the court's judgment, challenging only the fraud ruling. We have jurisdiction under Arizona Revised Statutes ("A.R.S.") § 12-2101(A)(1).
Absent material revisions after the relevant date, we cite a statute's current version. --------
DISCUSSION
¶5 On appeal of a bench trial, we will not disturb the superior court's findings of fact unless they are clearly erroneous. Powers v. Guaranty RV, Inc., 229 Ariz. 555, 562, ¶ 26, 278 P.3d 333, 340 (App. 2012); Ariz. R. Civ. P. 52(a). We view the evidence and reasonable inferences from that evidence in the light most favorable to the prevailing party, and we will affirm if any evidence supports the court's judgment. FL Receivables Trust 2002-A v. Arizona Mills, L.L.C., 230 Ariz. 160, 166, ¶ 24, 281 P.3d 1028, 1034 (App. 2012).
¶6 A showing of common law fraud requires "(1) a representation, (2) its falsity, (3) its materiality, (4) the speaker's knowledge of its falsity or ignorance of its truth, (5) the speaker's intent that the information should be acted upon by the hearer and in a manner reasonably contemplated, (6) the hearer's ignorance of the information's falsity, (7) the hearer's reliance on its truth, (8) the hearer's right to rely thereon, and (9) the hearer's consequent and proximate injury." Green v. Lisa Frank, Inc., 221 Ariz. 138, 156, ¶ 53, 211 P.3d 16, 34 (App. 2009) (citation omitted). The superior court found that Minder established all nine elements by clear and convincing evidence, but Appellants argue that Minder's evidence of reliance and proximate injury was "inconclusive." We address both challenged elements below.
I. The Superior Court Did Not Err by Finding Reliance.
¶7 Appellants first argue that Minder did not rely on Musikantow's representations, but on Musikantow's industry experience and the desirability of minibar.ber.shop's Scottsdale Quarter location. Reliance is normally an issue for the trier of fact. Lerner v. DMB Realty, LLC, 234 Ariz. 397, 402, ¶ 15, 322 P.3d 909, 914 (App. 2014). Here, the record supports the superior court's ruling because, although Minder considered Musikantow's industry experience and the store's location to be important, he also relied on Musikantow's representations.
¶8 By its terms, the MOU was intended to document the parties' "mutual understanding regarding the ownership, capitalization, and operations of [Apple Musik]." Nevertheless, Musikantow admitted that he did not tell Minder that M&A would own minibar.ber.shop's assets, or that Minder's $100,000 contribution would be diverted to M&A. When a false impression is conveyed by disclosing some facts but concealing others, such concealment is in effect a false representation that the whole truth has been disclosed. Hill v. Jones, 151 Ariz. 81, 84-85, 725 P.2d 1115, 1118-19 (App. 1986). Minder clearly relied on the partial picture Musikantow painted when he entered into the MOU. Thus, the superior court's finding regarding reliance is supported by the record. See Carrel v. Lux, 101 Ariz. 430, 435-36, 420 P.2d 564, 569-70 (1966) (finding that a buyer could reasonably rely on a misleading income statement prepared by the owners of the property at issue, "whom we might assume to have complete knowledge of all the facts").
¶9 Appellants also argue that Minder could have discovered M&A's involvement in minibar.ber.shop had he undertaken a more thorough due diligence process. But reliance does not become unreasonable simply because the truth could have been discovered, even if it could have been discovered without considerable trouble or expense. Dawson v. Withycombe, 216 Ariz. 84, 98, ¶ 34, 163 P.3d 1034, 1048 (App. 2007); Carrel, 101 Ariz. at 435, 420 P.2d at 569 (citing Restatement (Second) of Torts § 540). Thus, even if Minder's due diligence was deficient, Appellants have not established that the superior court clearly erred by finding reliance.
II. Appellants Offer No Relevant Evidence to Refute the Superior Court's Finding of Proximate Injury.
¶10 Generally, a defrauded plaintiff may recover damages for any injury that directly and naturally results from acting on the defendant's fraudulent representations. Union Bank v. Safanie, 5 Ariz. App. 342, 348, 427 P.2d 146, 152 (1967). Appellants dispute the superior court's finding that Minder lost his investment "as a consequence of Musikantow's intentional failure to disclose material facts." Appellants argue that Minder's loss instead resulted from the Scottsdale Quarter developers' decision not to proceed with a proposed third phase of development. As evidence, Appellants cite (1) Musikantow's testimony that M&A was embroiled in a dispute with its landlord regarding the purported third phase, and (2) Minder's testimony that he did not know a third phase was under consideration. This evidence does not, however, establish a causal link between the alleged third phase and Minder's loss. We therefore find no clear error in the court's finding that Minder's loss was a consequence of Musikantow's intentional failure to disclose.
CONCLUSION
¶11 Based on the foregoing, we affirm the superior court's judgment.