Opinion
No. 1 CA-CV 13-0737
11-24-2015
JOHN MILLER CONN and JOAN ROEBER CONN, husband and wife, Plaintiffs/Appellees/Cross-Appellants, v. JIM D. BATES and NANCY E. BATES, husband and wife; TRI-STATE SURGICAL ASSOCIATES, P.L.L.C., an Arizona limited liability company, Defendants/Appellants/Cross-Appellees. TRI-STATE SURGICAL ASSOCIATES, P.L.L.C., an Arizona limited liability company, Counter-Claimant/Appellant/Cross-Appellee, v. JOHN MILLER CONN and JOAN ROEBER CONN, husband and wife, Counter-Defendants/Appellees/Cross-Appellants.
COUNSEL Gregory & Elias, PLC, Bullhead City By T'shura Ann Elias Counsel for Plaintiffs/Appellees/Cross-Appellants Jennings, Strouss & Salmon, PLC, Phoenix By Brian Imbornoni Counsel for Defendants/Appellants/Cross-Appellees
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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 Mohave County
No. L8015CV20087192
The Honorable Randolph A. Bartlett, Judge Retired
REVERSED AND REMANDED
COUNSEL Gregory & Elias, PLC, Bullhead City
By T'shura Ann Elias
Counsel for Plaintiffs/Appellees/Cross-Appellants
Jennings, Strouss & Salmon, PLC, Phoenix
By Brian Imbornoni
Counsel for Defendants/Appellants/Cross-Appellees
MEMORANDUM DECISION
Presiding Judge Randall M. Howe delivered the decision of the Court, in which Judge Andrew W. Gould and Judge Peter B. Swann joined. HOWE, Judge:
¶1 Dr. Jim and Mrs. Nancy Bates appeal the trial court's judgment in favor of Dr. John and Mrs. Joan Conn and awards of attorneys' fees and costs. The Conns cross-appeal, arguing that this Court lacks jurisdiction because the trial court's order was not final. For the following reasons, we reverse and remand for proceedings consistent with this decision.
FACTS AND PROCEDURAL HISTORY
¶2 In 2003, Dr. Bates was building his vascular and general thoracic surgery practice as a sole practitioner. Because his practice was growing and he wanted to hire another doctor, Dr. Bates talked with recruiters who connected him with Dr. Conn. Before engaging Dr. Conn, however, Dr. Bates hired a business consultant. The consultant recommended that Dr. Bates incorporate his business before adding another physician. Dr. Bates therefore incorporated Tri-State Surgical Associates, P.L.L.C., in January 2004.
¶3 Tri-State's operating agreement provided: "No Member's Interest may be assigned, transferred, encumbered, hypothecated or otherwise disposed of, except upon compliance with the provisions [herein]. Any attempted Transfer absent such compliance . . . , shall be null and void and of no force and effect." To transfer Tri-State's membership interest, the agreement required, among other conditions: (1) the existing member's written consent; (2) the new member's written agreement to be bound by the terms and conditions of the agreement; (3) the execution, acknowledgement, and filing of an amended operating agreement; and (4) any other document necessary to comply with the Arizona Limited Liability Company Act ("LLC Act"), under which Tri-State was formed.
¶4 Drs. Bates and Conn then spoke by telephone about their potential relationship. Dr. Bates offered Dr. Conn the opportunity to work for him as an employee and to later buy an interest in Tri-State. Dr. Bates was adamant, however, that he would be the majority shareholder. In February 2004, Tri-State—although the agreement stated that the employer was "Jim D. Bates, D.O., PLLC"—hired Dr. Conn as an employee under the terms of an "Employment Agreement." The agreement provided that Dr. Conn would receive a yearly salary, vacation days, and year-end bonuses payable regardless whether Tri-State was profitable. The agreement further provided for "equity discussions" between Tri-State and Dr. Conn: "If [Dr. Conn] [was] yet employed by [Tri-State] during the twelve (12) months of the term of this Agreement, then [Tri-State and Dr. Conn] shall use reasonable efforts to successfully negotiate an equity participation by [Dr. Conn] in [Tri-State] pursuant to terms and conditions then to be discussed."
¶5 During Dr. Conn's first two years of employment, he and Dr. Bates did not talk about him acquiring a membership interest in Tri-State. The doctors were focused on growing their practice. They also had personal issues: Dr. Conn's wife gave birth to another child and Dr. Bates was injured and required back surgery.
¶6 At the end of 2005 and beginning of 2006, the doctors had "equity discussions" in "general terms." They discussed that the partnership would be effective February 1, 2006—two years after Dr. Conn joined the practice. They also discussed that Dr. Bates would hold a 51% and Dr. Conn a 49% interest in Tri-State and that Dr. Conn's buy-in would consist of his account receivables and a portion of the practice's hard assets.
¶7 A few months later in March 2006, Drs. Bates and Conn had a meeting with Dr. Bates' business consultant to discuss Dr. Conn's bonus and his "becoming a member of this LLC that Dr. Bates had." The consultant's notes provided that (1) Dr. Bates would retain 51% interest in Tri-State and Dr. Conn would receive 49%; (2) the partnership would be effective February 1, 2006; (3) Dr. Conn's buy-in would consist of his account receivables and 49% of the fair market value of Tri-State's hard assets; (4) Dr. Conn's buy-in would be paid from Dr. Conn's future earnings for the next 3 years; (5) other doctors' joining the practice would dilute Dr. Conn's share; and (6) Dr. Conn would have first right of refusal to Dr. Bates' interest when he retires. Dr. Conn understood that their conversation would be finalized with a purchase agreement and an amended Tri-State operating agreement and that they would exchange and modify various drafts of the agreements. By the end of 2006, however, Dr. Bates had not presented Dr. Conn with a draft purchase agreement or an amended operating agreement.
¶8 In January 2007, Dr. Bates' accountant did some tax planning for the proposed Tri-State membership interest sale. He obtained an extension for the filing deadline because of the ongoing negotiations between Drs. Bates and Conn. Although the sale transaction had not closed, the accountant prepared for Dr. Conn a draft Form 1065, which was a partnership income tax return. Because Tri-State was a professional LLC, the company itself did not pay taxes; individual members paid the company's taxes by reporting their incomes on their individual tax returns. The company provided the income amount by issuing to members a Schedule K-1. The accountant also prepared a draft Schedule K-1 for Dr. Conn, based on the business' estimated 2006 financial numbers.
¶9 The accountant concluded that Dr. Conn would be liable for additional taxes if he acquired an interest in Tri-State and therefore proposed that both Drs. Bates and Conn make estimated tax payments for the 2006 tax year. The accountant proposed that both individuals pay $50,000 to the Internal Revenue Service and $10,000 to the Arizona Department of Revenue. Tri-State therefore issued a check to Dr. Conn for $60,000 for him to make the payments; the check was an advance against future income Dr. Conn would earn as a member after the sale closed and had the written memo "draw." Dr. Conn accordingly paid the Internal Revenue Service and the Department of Revenue.
¶10 For the 2006 tax year, however, Dr. Bates reported Tri-State as a single member LLC on his Schedule C. Neither doctors were issued Schedule K-1s, but Dr. Conn's 2006 tax returns reported $159,600 as "nonpassive income from a Schedule K-1" from Tri-State. Dr. Conn and his accountant reached the $159,600 amount based on the estimated $60,000 taxes Dr. Conn had paid before. On his 2007 tax returns, Dr. Conn reported $80,000 in "nonpassive income from a Schedule K-1" from Tri-State. Tri-State had issued Dr. Conn a 1099-MISC for $80,000, which included $60,000 and $20,000 advances against future earnings Dr. Conn was expected to receive as a member.
¶11 In early 2007, Dr. Bates presented Dr. Conn with draft purchase agreements and amended operating agreements between Drs. Bates and Conn as "Members of TRI-STATE." At a subsequent meeting in March 2007 with Drs. Bates and Conn and Dr. Bates' business consultant, Dr. Conn expressed concerns about two provisions in the draft operating agreement. Dr. Conn was surprised by the draft because it was "graphically in contrast to the verbal and conversational understandings that Dr. Bates and [he] had had from the very outset of [their] relationship." Dr. Bates agreed to eliminate both provisions and prepared a new draft.
¶12 In August 2007, Drs. Bates and Conn had not reached an agreement for the membership interest sale. Dr. Conn sent a letter to an accountant, asking for advice on whether to enter the partnership with Dr. Bates. Dr. Conn wrote that he was associated with Dr. Bates for "the first two years as an employee of his practice and since February 2006, at least in theory, as a partner." He also stated that the operating agreement "to define this partnership—as an LLC with myself and him as members—[was] currently in [the] process of being negotiated."
¶13 Dr. Conn further stated that Dr. Bates had presented him with an "unacceptable" partnership agreement and that his attorney was preparing "the outline of a counter-proposal." Dr. Conn asked the accountant to examine his "financials and recent tax return and give [him] help with deciding whether a buy-in offer [was] reasonable, and help [him] protect [himself] financially in a proposed relationship with Dr. Bates." Unbeknownst to Dr. Conn, Tri-State and Dr. Bates' attorney had sent Dr. Conn's attorney a letter three days earlier withdrawing all previous offers to Dr. Conn for his entry as a member of Tri-State.
¶14 In October, Dr. Bates notified Dr. Conn that his employment was terminated effective December 31, 2007. Dr. Bates also stated that based on Dr. Conn's bonus calculation, Dr. Conn was not entitled to a bonus for the term February 1, 2006, to January 31, 2007. But Dr. Conn did not believe that his employment was terminated because he "was in partnership with Dr. Bates, and [he] was employed by an entity, [and thus] Dr. Bates did not have the right to terminate [his] employment." Dr. Conn told Dr. Bates that he would disassociate himself from the practice after January 31, 2008; Dr. Bates agreed.
¶15 In 2008, the Conns sued Tri-State and the Bateses for damages to put them back in the position they would have been had Dr. Bates not offered "an ownership interest in Tri-State." The Conns brought claims for breach of contract, breach of fiduciary duty, fraud in the inducement and in factum, negligent misrepresentation, unjust enrichment, declaratory relief, dissociation of partner, dissolution of partnership, and accounting. The Bateses counter-claimed seeking damages of $80,000 and alleged breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and money had and received.
¶16 After much intervening litigation, the Conns moved to bifurcate the issue whether a partnership existed, and if one did, to appoint a special master to conduct an accounting to resolve the remaining claims. The trial court granted the motion and held a trial to determine whether a partnership existed. There, Dr. Conn testified, consistent with his deposition testimony, that he and Dr. Bates never signed a purchase agreement or an amended operating agreement. Dr. Conn stated that although Dr. Bates never referred to him as having a membership interest in Tri-State or that they were negotiating such an arrangement, Dr. Bates referred to Dr. Conn as his "partner" in several professional situations, including at a business Christmas party in 2005. Dr. Conn further testified that he did not claim a membership interest in Tri-State and that an interest in Tri-State was conveyed to him verbally. Tri-State's accountant testified that Dr. Conn did not pay anything towards the buy-in of an interest in Tri-State.
¶17 The court found that an oral partnership existed between TriState—directly or through Dr. Bates—and Dr. Conn because they were associated to carry on as co-owners of a business for profit. The court noted that although no other element was necessary to establish a partnership, the parties agreed that (1) the partnership's effective date was February 1, 2006; (2) Dr. Bates had 51% and Dr. Conn had 49% interest in Tri-State; (3) Dr. Conn's buy-in was $120,000; (4) the repayment would be over a 3-year-period; (5) other physicians joining the practice would dilute Dr. Conn's share; and (6) Dr. Conn had the right of first refusal on Dr. Bates' share.
¶18 The court then appointed a special master to conduct an accounting of the amounts owed, if any, by either party arising out of the partnership from February 1, 2006, to January 31, 2008. The special master concluded, among other things, that Tri-State owed Dr. Conn $113,005, which was Dr. Conn's share of the company's available cash distribution, $283,805, less the amount Dr. Conn owed Dr. Bates for taxes paid for the 2007 year and his buy-in, $170,800. The Conns moved to adopt the report as a full and complete accounting of the parties' monetary damages, and the court granted the motion.
¶19 Both parties subsequently applied for attorneys' fees and taxable costs. The trial court granted the Conns' motion for fees and costs and allowed a supplemental fee request. The court then entered judgment in favor of the Conns for $113,005 and attorneys' fees and costs and against the Bateses. The Bateses timely appealed; the Conns timely cross-appealed.
DISCUSSION
1. Jurisdiction
¶20 Because the Conns' argument on cross-appeal could dispose of this action, we address it first. The Conns argue that this Court lacks jurisdiction because the trial court did not enter a final judgment. They contend that the trial court's judgment did not dispose of their breach of fiduciary duty, negligent misrepresentation, fraud, breach of contract, dissociation of a partner, and dissolution of partnership claims. We review de novo whether a trial court's judgment is final. Madrid v. Avalon Care Ctr.-Chandler, L.L.C., 236 Ariz. 221, 223 ¶ 3, 338 P.3d 328, 330 (App. 2014). We have jurisdiction in appeals "taken . . . [f]rom a final judgment," A.R.S. § 12-2101(A)(1), which is a judgment that disposes of all claims and parties, Baker v. Bradley, 231 Ariz. 475, 479 ¶ 9, 296 P.3d 1011, 1015 (App. 2013), written and signed by the trial court, Ariz. R. Civ. P. 58(a).
Because of our disposition of this appeal, we need not address the Conns' remaining cross-appeal issues.
¶21 Here, we have jurisdiction because the trial court's order resolved all of the parties' claims by finding that a partnership existed between the parties and by adopting the special master's report resolving the remaining claims. The court first entered an order concluding that a partnership existed between Dr. Conn and Tri-State, directly or through Dr. Bates. The court then adopted the special master's report—on the Conn's motion—"as a full and final accounting of the monetary damage claims of the parties" and determined that "no remaining unadjudicated claims" remained. Consequently, because the trial court disposed of all the parties' claims, its judgment was final, and this Court has jurisdiction.
2. The Relationship Between Tri-State and Dr. Conn
The Bateses argue that Dr. Conn did not acquire a membership interest in Tri-State or with it under the Arizona Limited Liability Company Act or the revised Uniform Partnership Act. We review the interpretation and application of statutes de novo, but defer to the trial court's factual findings unless they are clearly erroneous. First Fin. Bank, N.A. v. Claassen, 238 Ariz. 160, 162 ¶ 8, 357 P.3d 1216, 1218 (App. 2015). In interpreting a statute, we look to its plain language as the most reliable indicator of its meaning. Vortex Corp. v. Denkewicz, 235 Ariz. 551, 557 ¶ 19, 334 P.3d 734, 740 (App. 2014). Because Dr. Conn did not acquire a membership interest in Tri-State and because no partnership existed between him and Tri-State, either directly or through Dr. Bates, we reverse the trial court's entry of judgment in favor of the Conns and remand the matter for proceedings consistent with this decision.
2a. The Arizona Limited Liability Company Act
¶22 The Bateses first argue that the trial court erred in finding that Dr. Conn acquired a membership interest in Tri-State. In Arizona, the transfer of a membership interest in a professional LLC must comply with the Arizona LLC Act. See A.R.S. §§ 29-601 to -857. Under the Act, admission of a member occurs "on the terms provided in an operating agreement or, if an operating agreement does not so provide, on the approval or consent of all members." A.R.S. § 29-731(B)(2); see also A.R.S. § 29-732(A) (regarding transferability of professional LLC interest). Tri-State's operating agreement required at minimum (1) the existing member's written consent; (2) the new member's written agreement to be bound by the operating agreement's terms and conditions; (3) the execution, acknowledgement, and filing of an amended operating agreement; and (4) any other document necessary to comply with the LLC Act. Unless these requirements were met, the transaction "shall be null and void and of no force and effect." Further, if a new member acquired an interest greater than 20%, then the Act had additional requirements, including the filing of an amended articles of organization with the Arizona Secretary of State. A.R.S. § 29-633(B)(3).
The Bateses also argue that the trial court erred in finding that the parties had agreed on the terms to form a partnership agreement necessary for the existence of an enforceable contract. But we reject this argument because it requires circumventing the LLC Act's formalities to transfer Tri-State membership interest.
¶23 Here, Dr. Conn did not acquire a membership interest in Tri-State. The record included no written consent by Dr. Bates, no written consent by Dr. Conn to be bound by the operating agreement's terms and conditions, no amended operating agreement or amended articles of organization filed with the Secretary of State. In fact, Dr. Conn testified that he and Dr. Bates never signed a purchase agreement or an amended operating agreement and that he never acquired a membership interest in Tri-State. Accordingly, under the operating agreement's plain language, because the requirements were not met, any proposed transaction between Drs. Bates and Conn was null and void and of no force and effect.
¶24 The Conns counter that the parties were not required to follow the operating agreement because the agreement post-dated Dr. Conn's employment agreement; the parties put little weight on the operating agreement; Dr. Conn was not provided the operating agreement; and Dr. Bates as sole member of Tri-State had the duty to file the amended operating agreement and articles of organization. The Conn's argument fails, however, because the parties signed Dr. Conn's employment agreement after Dr. Bates formed Tri-State and because they attempt to circumvent the LLC Act's statutory requirements. Nowhere does the Act provide that parties may forgo its requirements, and nowhere does the Act or case law provide that the actions the Conns assert are necessary to transfer a professional LLC's membership interest.
¶25 Instead, because Tri-State is a statutorily-created professional LLC formed pursuant to the LLC Act, Tri-State's members must follow the Act's formalities. See A.R.S. § 29-846 ("[Professional LLC] shall be governed by the laws applicable to other limited liability companies except insofar as such laws shall be limited or enlarged by or contrary to the provisions of this article, in any of which events this article shall be controlling."); TM2008 Invs., Inc. v. Procon Capital Corp., 234 Ariz. 421, 424 ¶ 13, 323 P.3d 704, 707 (App. 2014) ("[LLCs] are statutorily-created entities, designed primarily to provide the personal liability protection found in a corporate structure, while allowing the LLC members the state and federal tax benefits generally provided in a partnership setting."). Consequently, because the LLC Act's formalities were not met, Dr. Conn did not acquire a membership interest in Tri-State.
2b. The Revised Uniform Partnership Act
¶26 The Bateses next argue that the trial court erred in finding that Dr. Conn and Tri-State, either directly or through Dr. Bates, formed a partnership under RUPA. Pursuant to RUPA, a "partnership" is "an association or entity formed under § 29-1012, a predecessor law or a comparable law of another jurisdiction." A.R.S. § 29-1001(11). Section 29-1012(A) provides that "the association of two or more persons to carry on as co-owners of a business for profit forms a partnership, whether or not the persons intend to form a partnership." "Person" is "a natural person, partnership, . . . limited partnership, . . . association, corporation or entity." A.R.S. § 29-301(11).
In addressing this issue, the Conns rely on case law analyzing the Uniform Partnership Act, but that Act has been repealed, see A.R.S. §§ 29-201 to -270, and replaced with RUPA, see A.R.S. §§ 29-1001 to -1111. --------
¶27 However, A.R.S. § 29-1012 "does not apply to create a new association—specifically a partnership—when the parties intended or attempted to change their business structure but did not express an intent to create a partnership." Vortex Corp., 235 Ariz. at 557 ¶ 19, 334 P.3d at 740; see also Revised Uniform Partnership Act cmt. 2 § 202 ("[B]usiness associations organized under other statutes are not partnerships. Those statutory associations include corporations, limited partnerships, and limited liability companies. That continues the [Uniform Partnerships Act] concept that general partnership is the residual form of for profit business association, existing only if another form does not."). Accordingly, the residual general partnership form may be created only "when the parties do not already have an established form of business entity or association." Vortex Corp., 235 Ariz. at 557 ¶ 19, 334 P.3d at 740; see also A.R.S. § 29-1012(B) ("An association formed under a statute other than this chapter, a predecessor statute or a comparable statute of another jurisdiction is not a partnership under this chapter." (emphasis added)).
¶28 Here, Dr. Conn and Tri-State—either directly or through Dr. Bates—did not associate as co-owners of a business for profit. The record shows that Dr. Conn entered into an employment agreement with Tri-State to provide services as an employee of Tri-State in exchange for wages in the form of a salary, vacation days, and bonuses computed in accordance with the formula in the Employment Agreement. Under the employment agreement, Dr. Conn was entitled to his salary and bonus regardless of Tri-State's profitability and shared no risk of loss. Therefore, Dr. Conn did not share in the profits for the purposes of RUPA. Instead, he received wages and other forms of compensation, including paid vacation days, which disposes of any presumption that Dr. Conn was a partner because he received a share of profits. See A.R.S. § 29-1012(C)(3)(b) (providing that a person who receives a share of profits is presumed to be a partner, except when the profit is received in payment of wages and other compensation).
¶29 Most importantly, the Employment Agreement did not purport or propose to create a partnership between Tri-State and Dr. Conn. The agreement provided that Tri-State and Dr. Conn would "use reasonable efforts to successfully negotiate an equity participation by Employee in Employer." (Emphasis added.) The language of the agreement itself shows that the agreement did not create a new association in the form of a partnership between Tri-State and Dr. Conn; rather, it sought to provide a means to modify the already existing business relationships between the parties by allowing Dr. Conn to gain a membership interest in Tri-State.
¶30 The Conns counter that although Tri-State "hired Dr. Conn pursuant to a written contract signed by the parties, the Employment Agreement was replaced by the verbal partnership agreement, the terms of which were affirmed in the notes of [Tri-State's business consultant] as the actual partnership after the parties entered into the Employment Agreement." The Conn's argument is mistaken on two grounds. First, to have a valid oral partnership in Arizona, the evidence must support that the parties were associated to carry on as co-owners of business for profit. See A.R.S. § 29-1012(A). Here, as mentioned before, the record clearly demonstrates that Tri-State and Dr. Conn had no such relationship. While Tri-State and Dr. Conn were in an ongoing relationship as employer-employee, Drs. Bates and Conn were in an ongoing negotiation for Dr. Conn to acquire an interest in Tri-State and therefore become partners with Dr. Bates, not Tri-State. Second, the consultant's notes did not affirm the terms of Tri-State and Dr. Conn's relationship; they merely detailed the parties' continuing discussion about those terms. This is corroborated by the parties' failure to ever sign either a purchase agreement or an amended operating agreement finalizing their negotiations and by their continual exchange of drafts of the agreements.
2c. The Joint Venture Theory
¶31 At oral argument, the Conns argue that Tri-State and Dr. Conn did not form an oral partnership, but rather an oral joint venture. We disagree because all the elements of a joint venture do not exist. "A joint venture requires an agreement, a common purpose, a community of interest, and an equal right of control." Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 540, 647 P.2d 1127, 1138 (1982); see also Black's Law Dictionary (10th ed. 2014) ("The necessary elements are (1) an express or implied agreement; (2) a common purpose that the group intends to carry out; (3) shared profits and losses; and (4) each members' equal voice in controlling the project."). A joint venture differs from a partnership principally because it is usually limited to a single transaction. Rubi v. Transamerica Title Ins. Co., 131 Ariz. 403, 406, 641 P.2d 891, 894 (App. 1981).
¶32 Here, the elements of a joint venture are not met. As an initial matter, Tri-State and Dr. Conn's interactions were not limited to a single transaction. Instead, they were involved in a continuing business relationship regarding a vascular and general thoracic surgery practice that spanned four years. Also, the parties never agreed on their relationship. Dr. Conn alleged that they had agreed on the terms of their relationship as evidenced by Tri-State's business consultant's notes. The notes merely detailed the parties' continuing discussion, however, as the continuous exchange of amended operating agreement and purchase agreement drafts show. Moreover, Dr. Conn himself expressed that the parties had not finalized their agreement when he wrote in a letter to an accountant, asking for advice on whether he should join a partnership with Dr. Bates. He specifically stated in the letter that Dr. Conn had presented him with unacceptable agreements and that his attorney was preparing a counterproposal. This was in August 2007, a month before Tri-State proposed to terminate Dr. Conn's employment, and one-year and four months after Tri-State's business consultant wrote his notes.
¶33 Further, Tri-State and Dr. Conn did not share in profits or losses. Dr. Conn's bonus formula shows that his yearly bonus was 50% of his revenue, less his allocated overhead, his base salary and benefits, and non-shared costs. No evidence in the record shows that that the formula was no longer valid. Finally, the parties did not share equal right of control: Dr. Bates would be the majority interest holder, retaining 51% interest in Tri-State and selling to Dr. Conn 49%. Consequently, the record shows that Dr. Conn and Tri-State, either directly or through Dr. Bates, did not enter into a joint venture.
3. Attorneys' Fees on Appeal
¶34 The Conns request attorneys' fees on appeal pursuant to A.R.S. § 12-341.01. Because they are not the successful parties, we deny their request. The Bateses request attorneys' fees incurred before the trial court and on appeal pursuant to A.R.S. § 12-341.01(A). Because the Bateses are the successful parties, we award them fees incurred on appeal upon compliance with Arizona Rule of Civil Appellate Procedure 21.
CONCLUSION
¶35 Because Dr. Conn did not acquire a membership interest in Tri-State and because no partnership existed between Dr. Conn and Tri-State, either directly or through Dr. Bates, the trial court erred in concluding otherwise. Accordingly, we reverse the trial court's judgment in favor of the Conns and vacate the trial court's adoption of the special master's report resolving the remaining claims and the court's award of attorneys' fees and costs to the Conns. We remand the matter for proceedings consistent with this decision, including resolving the Bateses' counter-claims and determining whether the Bateses are entitled to attorneys' fees incurred before the trial court.