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holding that the phrase "[a]ny other relief the circumstances may require" did not provide a specific statutory basis for attorney fees
Summary of this case from Harder v. FosterOpinion
No. 1 CA-CV 14-0617
04-05-2016
ARTHUR SCOTT KING, Personal Representative of the ESTATE OF ARTHUR KING, Plaintiff/Appellee, v. CHRISTINE B. KING, a single woman; and MAHLON ZELLER, a single man, Defendants/Appellants.
COUNSEL The Law Offices of Mary T. Hone, PLLC, Scottsdale By Mary T. Hone Counsel for Plaintiff/Appellee Christine King, Sun City West Defendant/Appellant Mahlon Zeller, Phoenix Defendant/Appellant
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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. CV2012-051164
The Honorable Katherine Cooper, Judge AFFIRMED IN PART, REVERSED IN PART COUNSEL The Law Offices of Mary T. Hone, PLLC, Scottsdale
By Mary T. Hone
Counsel for Plaintiff/Appellee Christine King, Sun City West
Defendant/Appellant Mahlon Zeller, Phoenix
Defendant/Appellant
MEMORANDUM DECISION
Judge Patricia K. Norris delivered the decision of the Court, in which Presiding Judge Jon W. Thompson and Judge Maurice Portley joined. NORRIS, Judge:
¶1 This appeal arises out of a judgment for plaintiff/appellee, Arthur Scott King under Arizona Revised Statutes ("A.R.S.") section 44-1004(A) (2013), voiding fraudulent transfers of real property from his father's former wife, defendant/appellant, Christine King, to her son, defendant/appellant, Mahlon Zeller, and imposing liens on those properties to the extent necessary to collect, on behalf the estate of his father, Arthur King ("Husband"), an outstanding equalization payment of $98,752.76 Christine owed to Husband pursuant to an order entered by the family court. On appeal, Christine and Zeller (collectively, "Appellants") argue, first, res judicata barred this action, second, the judgment is not supported by clear and satisfactory evidence, and third, the fraudulent transfer claim against Zeller was barred by a statutory defense. They also raise several arguments challenging the superior court's exclusion and admission of certain evidence at trial, its handling of the case, its impartiality, and its award of attorneys' fees and costs to Arthur. The record and applicable law support the judgment with the exception of the superior court's decision to award attorneys' fees to Arthur. Thus, we affirm in part and reverse in part.
FACTS AND PROCEDURAL BACKGROUND
¶2 On January 29, 2008, Husband petitioned to dissolve his marriage to Christine ("dissolution case"). The next day, Christine transferred four parcels of real property to Zeller ("the 36th Place Property;" "the Circle Mtn. Rd. Property;" "the Grovers Property;" and "the Gaffney Property"). In its decree of dissolution, the family court awarded Husband an equalization payment of $131,185, secured by a lien on the Gaffney Property. The family court also found that because Husband had agreed the real properties would be transferred to Christine, "it was not improper for her to transfer her interest" in them to Zeller.
¶3 Husband appealed the decree, and as relevant here, argued he was entitled to a larger equalization award. During the pendency of the appeal, Christine transferred another parcel of real property to Zeller ("the Sun City West Property"), and Husband foreclosed his lien on the Gaffney Property, satisfying the original equalization payment. In 2011, this court resolved Husband's appeal and remanded to the family court to recalculate the amount of Christine's equalization payment. On remand, the family court increased the equalization payment by $98,752.76—the amount Arthur seeks to collect in this case.
¶4 After Husband died in July 2011, Arthur, as the personal representative of his father's estate, filed this action, pursuant to the Uniform Fraudulent Transfer Act ("UFTA"), to void Christine's transfers of the 36th Place Property, the Circle Mtn. Rd. Property, and the Grovers Property (collectively, "the Properties") to Zeller, and impose liens on the Properties to the extent necessary to collect the $98,752.76 equalization payment. After a bench trial, the superior court found, as relevant here, Christine "actually intended to defraud [Husband]" in violation of "A.R.S. § 44-1004(A)(1)." Accordingly, the superior court declared the transfers "null and void" and imposed liens on the Properties to the extent "necessary to fully satisfy" the equalization payment.
In his complaint, Arthur also attempted to void the transfer of the Sun City West Property. That property is not involved in this appeal.
The superior court also found "constructive fraud in violation of A.R.S. § 44-1004(A)(2)(b)"—Christine's "transfers to her son lacked reasonably equivalent value and left her insolvent." Because we affirm the superior court's finding of actual intent to defraud Husband, we do not need to address Appellants' arguments challenging the superior court's constructive fraud finding.
DISCUSSION
I. Res Judicata
¶5 As an initial matter, Appellants argue res judicata barred Arthur's fraudulent transfer claim because the family court had already determined in the dissolution case that Christine's transfers to Zeller were "not improper" and this case presents nothing more than "the same issues, parties, real properties, and accusation of fraudulent conveyance." This argument is not properly before us because Christine failed to raise it in the superior court, and Zeller only raised it in a motion to vacate and set aside the judgment, filed after trial and entry of judgment. See In re MH 2007-001895, 221 Ariz. 346, 350, ¶ 15, 212 P.3d 38, 42 (App. 2009) ("Typically, legal issues and arguments have to be presented specifically to the trial court, and cannot be argued for the first time on appeal."); Hanrahan v. Sims, 20 Ariz. App. 313, 316, 512 P.2d 617, 620 (1973) ("res judicata is an affirmative defense and must be pleaded and proved . . . failure to raise such defense constitute[s] a waiver") (citation omitted).
Although Appellants filed separate briefs, they raise the same arguments in their briefs. For example, Zeller argues the family court "conclusively ruled there was no fraud committed by [Christine]" and because Husband did not dispute that ruling, the superior court needed to "apply res judicata or collateral estoppel and/or consider the fact that [Zeller] accepted the payment of real property in 'good faith' and for reasonabl[y] equivalent value." Thus, we construe their res judicata arguments to be the same and address them as one.
¶6 Even if not waived, and reviewing the argument de novo, we nevertheless find it inapplicable here. See Pettit v. Pettit, 218 Ariz. 529, 531, ¶ 4, 189 P.3d 1102, 1104 (App. 2008) (res judicata is a question of law appellate court reviews de novo). "Under the doctrine of res judicata, a judgment on the merits in a prior suit involving the same parties or their privies bars a second suit based on the same cause of action." Id. Res judicata "binds the same party standing in the same capacity in subsequent litigation on the same cause of action, not only upon facts actually litigated but also upon those points which might have been litigated." Id. "To determine whether a second cause of action is the same as the first, Arizona follows the 'same evidence' test from the Restatement of Judgments § 61." Id. at 532, ¶ 8, 189 P.3d at 1105. Plaintiffs are "precluded from subsequently maintaining a second action based upon the same transaction, if the evidence needed to sustain the second action would have sustained the first action." Id. (quoting Restatement of Judgments § 61 (1942)).
¶7 As discussed, the family court held the transfers from Christine to Zeller were not "improper" because Husband had agreed to transfer the Properties to Christine. The family court did not, however, decide whether Christine had fraudulently transferred the Properties to Zeller in violation of the UFTA. Indeed, in opposing one of Arthur's motions in limine in this case, Appellants recognized this point, asserting the family court had "never addressed" "whether [Christine] owed" Zeller money for selling his home ("the Beverly Property") while he was in prison, and had "not [made] any findings that" Zeller "was adequately compensated for the Beverly property" or "whether [Christine had] received adequate compensation for her transfers of properties to" Zeller. Thus, as Appellants recognized, Arthur's UFTA claim in this case was not the same as the claims decided in the dissolution case—the evidence needed to sustain this fraudulent transfer claim would not have sustained the issues litigated in the dissolution case. II. Sufficiency of the Evidence
¶8 Appellants next argue the superior court's finding of intentional fraud is not supported by clear and satisfactory evidence, citing Gerow v. Covill, 192 Ariz. 9, 17, ¶ 33, 960 P.2d 55, 63 (App. 1998) ("Fraudulent conveyance may be shown by clear and satisfactory evidence of an 'actual intent to hinder, delay or defraud any creditor of the debtor' or of a debtor receiving no reasonable consideration for a transfer or obligation under certain circumstances.") (quoting A.R.S. § 44-1004(A)(1)). Reviewing these findings for "reasonable evidence," Spaulding v. Pouliot, 218 Ariz. 196, 199, ¶ 8, 181 P.3d 243, 246 (App. 2008), and "in the light most favorable to upholding the trial court's decision," we disagree. Double AA Builders, Ltd. v. Grand State Const. L.L.C., 210 Ariz. 503, 506, ¶ 9, 114 P.3d 835, 838 (App. 2005) ("Because this case was tried to the court, we view the evidence in the light most favorable to upholding the trial court's decision"); Spaulding, 218 Ariz. at 199, ¶ 8, 181 P.3d at 246 ("we will not disturb the trial court's findings of fact unless they are clearly erroneous" and we "will affirm the trial court's judgment if there is any reasonable evidence supporting it").
¶9 As discussed, the superior court found Appellants "actually intended to defraud [Husband]" in "violation of A.R.S. § 44-1004(A)(1)." "Actual intent may be shown by direct proof or by circumstantial evidence from which actual intent may be reasonably inferred." Gerow, 192 Ariz. at 17, ¶ 33, 960 P.2d at 63. "The statute provides a non-exclusive list of factors to consider when determining if actual intent to hinder, delay or defraud exists." Id. (citing A.R.S. § 44-1004).
¶10 Here, the superior court found eight factors, or "badges of fraud." Id. at 17, ¶ 34, 960 P.2d at 63. Specifically, the superior court found, first, Christine "transferred four pieces of unencumbered real property to her son, Mahlon Zeller, an insider;" second, she made the transfers the day after Husband petitioned for divorce; third, she "retained possession and control of each of the properties" after the transfers; fourth, she "transferred all of her assets to her son;" fifth, she "was left insolvent as a result of the transfers;" sixth, the "transfers occurred shortly before a substantial debt was incurred;" seventh, "[s]he concealed the transfers from . . . [H]usband;" and eighth, she made the transfers "with no consideration." These facts have "a tendency to show the existence of fraud" and often "a single one of them may establish and stamp a transaction as fraudulent." Id. (discussing the Uniform Fraudulent Conveyance Act, the predecessor to the UFTA) (quoting Torosian v. Paulos, 82 Ariz. 304, 312, 313 P.2d 382, 388 (1957)). When several are found in the same transaction—as here—"strong, clear evidence will be required to repel the conclusion of fraudulent intent." Id. Based on our review of the record, Arthur presented clear and satisfactory evidence of the eight badges of fraud found by the court.
¶11 Appellants nevertheless argue the transfers were made for "past consideration"—to repay Zeller for a preexisting debt of $188,000 owed to him when Husband and Christine sold the Beverly Property. The record contradicts this argument, and furthermore, the court implicitly found Appellants' testimony on this issue not credible.
Although the superior court did not make specific credibility findings, it implicitly rejected Appellants' testimony regarding past consideration. See Premier Fin. Servs. v. Citibank (Arizona), 185 Ariz. 80, 86, 912 P.2d 1309, 1315 (App. 1995) (existence of "badges of fraud" overcomes "presumption of honesty" concerning transactions between parent and child); Sheehan v. Pima Cty, 135 Ariz. 235, 238, 660 P.2d 486, 489 (App. 1982) ("[A] presumption [of honesty] disappears entirely upon the introduction of any contradicting evidence . . . ."). During trial, Appellants' lawyer asked Christine about the sale of the Beverly Property, the alleged resulting debt owed to Zeller, and whether Husband "thought of the money of [the] Beverly [Property] as his money." Arthur's counsel objected to the questioning, arguing the "testimony was in the dissolution trial" and the issue of "[w]hat happened with the Beverly proceeds [was] decided" by the family court. The superior court overruled the objection, stating it was "not going to make . . . any decisions that would be contrary to that [found by the family court,]" and all the questioning went "to credibility in the [c]ourt's view." Thus, it is clear the superior court made credibility findings, albeit implicitly.
¶12 According to Christine, Zeller owned the Beverly Property even though it was titled in her name, she was the borrower under the mortgage, and she used community funds to pay off the mortgage. Even assuming Zeller actually owned the Beverly Property, he testified he was fully compensated for the debt owed from its sale when Christine transferred the Gaffney Property to him. Thus, any "past consideration" owed to Zeller was repaid when he received the Gaffney Property.
¶13 Additionally, Christine offered contradictory reasons for transferring the Properties to Zeller, undercutting her credibility. At the dissolution proceedings she testified she transferred the Properties for probate purposes. In this case, as discussed, she testified she transferred the Properties to compensate Zeller for the sale of the Beverly Property, but also admitted the transfers were "over the top."
¶14 Thus, the record supports the superior court's finding Christine transferred the Properties to Zeller for no consideration. The record also supports the other badges of fraud found by the superior court and, accordingly, its determination that the transfers were fraudulent as to Husband. III. Statutory Defense
¶15 Appellants also argue Zeller accepted the Properties "in good faith and for reasonable consideration," and thus is protected by A.R.S. § 44-1008(A) (2013), which states a "transfer . . . is not voidable . . . against a person who took in good faith and for a reasonably equivalent value." We reject this argument.
¶16 Here, as discussed, Arthur presented clear and satisfactory evidence showing the eight badges of fraud. Given this evidence, Appellants carried the burden to provide a sufficient explanation to dispel the inference of fraud. Based on the record, they failed to meet that burden. Appellants did not present any evidence that Zeller took the Properties in good faith. And even if he did take the Properties in good faith, Christine testified the transfers were "over the top," and Zeller testified he had been repaid for the debt owed to him when he received the Gaffney Property. Thus, the transfers were not for reasonably equivalent value. Accordingly, the record does not support the statutory defense. IV. The Admission/Exclusion of Evidence
¶17 Appellants also challenge the superior court's exclusion and admission of certain evidence at trial. Reviewing for an abuse of discretion, we reject these arguments. See Bogard v. Cannon & Wendt Elec. Co., Inc., 221 Ariz. 325, 332, ¶ 20, 212 P.3d 17, 24 (App. 2009) (superior court's rulings "on the exclusion or admission of evidence will not be disturbed on appeal unless a clear abuse of discretion or legal error appears and prejudice results").
¶18 Appellants first argue the superior court should not have barred one of their witnesses from testifying regarding "overhearing [Husband and Christine] discuss money owed [to Zeller] and the reason the [P]roperties were transferred." The superior court precluded the testimony as hearsay.
The superior court also precluded the testimony as "cumulative because [there had been] a lot of testimony about . . . what the plan was for [the] Beverly [Property] and who lived there and when it was sold and the compensation aspect with the transfer of the other [P]roperties." Because we agree with the superior court that the testimony was hearsay, we need not decide whether it was also cumulative.
¶19 Hearsay is a statement "the declarant does not make while testifying at the current trial or hearing" and is offered "in evidence to prove the truth of the matter asserted in the statement." Ariz. R. Evid. 801(c). Here, the record reflects Appellants sought to introduce this witness's testimony to prove the truth of the matter asserted—that Husband either agreed to or understood he and Christine owed money to Zeller. Thus, the court correctly concluded Appellants were seeking to introduce hearsay. Nevertheless, as we read their briefs, Appellants argue an exception to the hearsay rule applied because the statements attributed to Husband were contrary to his interests. See generally Ariz. R. Evid. 804(b)(3)(A). We reject this argument. First, Appellants failed to argue in the superior court that Rule 804(b)(3)(A) applied, and thus have waived this argument on appeal. See Canyon Ambulatory Surgery Ctr. v. SCF Arizona, 225 Ariz. 414, 418, ¶ 10 n.11, 239 P.3d 733, 737 (App. 2010) ("We generally do not consider issues raised for the first time on appeal."). Second, Appellants did not present evidence at trial meeting the requirements of this rule.
¶20 Next Appellants argue the superior court should not have admitted certified copies of recorded deeds showing when Christine originally acquired certain of the Properties because the deeds had not been timely disclosed. As Arthur points out, the deeds merely "laid the foundation for testimony elicited from Christine King later in the trial regarding the transfers to her son and then the son's subsequent transfers back to his mother." Moreover, the information in the deeds—that Christine acquired the Properties—was not disputed. The untimely disclosure was, therefore, harmless. See Ariz. R. Civ. P. 37(c)(1) ("A party who fails to timely disclose information . . . shall not, unless such failure is harmless, be permitted to use as evidence at trial . . . the information . . . not disclosed.") (emphasis added). The superior court did not abuse its discretion in admitting these deeds into evidence. V. Superior Court's Alleged Violation of Procedural Rules and Bias
Appellants also appear to argue the superior court was generally prejudiced against them. We reject this argument. The record does not reflect any prejudice. In re Aubuchon, 233 Ariz. 62, 66, ¶ 14, 309 P.3d 886, 890 (2013) ("We presume that a judge is impartial, and 'the party seeking recusal must prove bias or prejudice by a preponderance of the evidence.'") (citation omitted).
¶21 Appellants argue the superior court "violated the Arizona Constitution . . . and the Rules of Judicial Conduct" by "taking 125 days to rule on [their] motion for a new trial" and by signing the judgment "before the motion for a new trial was ruled on." We reject this argument.
¶22 On March 24, 2014, the superior court issued a ruling on the merits of the underlying action and directed Arthur to file an application for attorneys' fees. Arthur then filed his application for attorneys' fees. On April 15, 2014, Appellants simultaneously filed a motion for new trial and a notice of appeal from the March 24, 2014 minute entry. The superior court entered a signed minute entry judgment on May 5, 2014, awarding Arthur attorneys' fees. In an unsigned minute entry filed May 23, 2014, the superior court mistakenly concluded that Appellants' notice of appeal divested it of jurisdiction over the case.
¶23 Subsequently, this court entered an order on August 1, 2014, explaining the March 24, 2014 minute entry was not final or appealable because the superior court had not resolved the attorneys' fees issue and the order did not contain a determination of finality pursuant to Arizona Rule of Civil Procedure 54(b). This court further explained that the motion for new trial was pending when Appellants filed the notice of appeal, and thus this court lacked jurisdiction over the appeal. Subsequently, on August 18, 2014, the superior court denied the motion for new trial, concluding Appellants "failed to demonstrate that any of [the] rulings complained of materially affected their right to a fair trial."
¶24 Based on this procedural history, it is clear the superior court promptly ruled on the motion for new trial after determining it had jurisdiction over the case. Further, the superior court was authorized by rule to sign the judgment before ruling on the new trial motion. See Ariz. R. Civ. P. 59(b) ("On a motion for a new trial in an action tried without a jury, the court may open the judgment if one has been entered . . . .").
¶25 Appellants also argue the superior court "clearly showed partiality to the Plaintiff" by denying their emergency motion for order to cancel a sheriff's sale "two days prior to the [s]heriff's [s]ale," "without an objection from [Arthur]," and "on the same day the new trial motion was denied." This argument misstates the record. Appellants moved to cancel the sheriff's sale on August 6, 2014. Arthur objected to the motion on August 11, 2014. Two days later, Appellants filed their reply, and the superior court denied the motion on August 18, 2014. Thus, the record clearly shows Arthur objected to the motion, and Appellants were aware of the objection as evidenced by their filing of a reply. VI. Attorneys' Fees in the Superior Court
¶26 Finally, Appellants argue the superior "court abuse[d] its discretion by awarding attorney fees to" Arthur because he "cited an erroneous rule in [his] application to the [c]ourt for attorney fees claiming [he] had a right to fees as the prevailing party." Although Appellants assert we review the award for an abuse of discretion, they raise an issue of law—Arthur's legal entitlement to fees—which we review de novo. See Newman v. Select Specialty Hosp.-Arizona, Inc., 238 Ariz. 59, ¶ 16, 356 P.3d 345, 349 (App. 2015) ("We review the court's award [of attorneys' fees] for an abuse of discretion but examine issues of law de novo."). After review, we agree Arthur did not rely on a statute that specifically authorized an award of attorneys' fees under the UFTA, and therefore reverse that part of the judgment.
¶27 Arthur applied for attorneys' fees pursuant to A.R.S. § 44-1007(A)(4)(c) (2013), which states:
In an action for relief against a transfer or obligation under this article, a creditor, subject to the limitations in sections 44-1008 and 441009, may obtain one or more of the following remedies:
* * * *
4. Subject to applicable principles of equity and in accordance with applicable rules of civil procedure:
* * * *
(c) Any other relief the circumstances may require.
¶28 Arizona follows the American Rule, which, as relevant here, provides that attorneys' fees "are not recoverable unless they are expressly provided for . . . by statute." Kaufmann v. Cruikshank, 222 Ariz. 488, 490, ¶ 7, 217 P.3d 438, 440 (App. 2009); see also In re McConnell's Estate, 101 Ariz. 538, 542, 421 P.2d 895, 899 (1966) (attorneys' fees can only be collected "when specifically authorized by statute"). Although A.R.S. § 44-1007(A)(4)(c) allows a creditor to obtain "[a]ny other relief the circumstances may require," subject to applicable principles of equity and rules of civil procedure, this general language does not expressly authorize attorneys' fees. See Morris v. Askeland Enters., Inc., 17 P.3d 830, 832-33 (Colo. App. 2000) (attorneys' fees not recoverable under Colorado UFTA); but see Kenneth C. Kettering, The Uniform Voidable Transactions Act; or, the 2014 Amendments to the Uniform Fraudulent Transfer Act, 70 Bus. Law 777, 788-90 (2015) ("any other relief" provision of UFTA may "invite" courts to award attorneys' fees). Given Arizona's long-standing adoption of the American Rule, we cannot construe A.R.S. § 44-1007(A)(4)(c) as providing a specific statutory basis for attorneys' fees. Thus, we reverse the award of attorneys' fees.
We note A.R.S. § 44-1010 (2013) supplements the UFTA with "the principles of law and equity, including the law merchant and the law relating to principle and agent, estoppel, laches, fraud, misrepresentation, duress, coercion, mistake, insolvency or other validating or invalidating cause." Some states have recognized that under their state-specific exceptions to the American Rule, this section of the UFTA may justify an award of attorneys' fees. See Volk Const. Co. v. Wilmescherr Drusch Roofing Co., 58 S.W.3d 897, 901 (Mo. Ct. App. 2001) (finding attorneys' fees justified under Missouri's "special circumstances" exception to the American Rule, "which includes situations where a party is shown to have engaged in intentional misconduct"); Gardiner v. York, 153 P.3d 791, 795 (Utah Ct. App. 2006) (third-party litigation exception to the American Rule "is retained from common law and may be applied to causes of action that arise under the UFTA"). Arthur did not argue that any common law exception to the American Rule applied in this case, and we express no opinion on the issue. --------
CONCLUSION
¶29 For the foregoing reasons, we affirm the superior court's judgment on the merits, but reverse the award of attorneys' fees to Arthur. We deny Arthur's request for attorneys' fees on appeal under A.R.S. § 44-1007(A)(4)(c), but, as the prevailing party, we award him costs on appeal, pursuant to A.R.S. § 12-341 (2003), contingent upon his compliance with Arizona Rule of Civil Appellate Procedure 21.