Opinion
No. 1 CA-CV 14-0088
02-26-2015
SONOMA COUNTY CHEVROLET, INC., a California corporation doing business as SONOMA CHEVROLET, Petitioner/Appellant, v. JOHN HARDESTY; ESPOSTI CHEVROLET, INC., a California corporation, Respondents/Appellees.
COUNSEL Ledbetter Law Firm PLC, Cottonwood By James E. Ledbetter Counsel for Petitioner/Appellant Law Office of Richard Groves, Phoenix By Richard N. Groves Counsel for Respondents/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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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 Maricopa County
No. CV2009-039998
The Honorable Michael L. Barth, Judge Pro Tempore
AFFIRMED
COUNSEL Ledbetter Law Firm PLC, Cottonwood
By James E. Ledbetter
Counsel for Petitioner/Appellant
Law Office of Richard Groves, Phoenix
By Richard N. Groves
Counsel for Respondents/Appellees
MEMORANDUM DECISION
Judge Maurice Portley delivered the decision of the Court, in which Presiding Judge Andrew W. Gould and Judge Jon W. Thompson joined. PORTLEY, Judge:
¶1 Sonoma County Chevrolet, Inc. ("Sonoma Chevrolet") appeals from the superior court's decision after an evidentiary hearing denying its request for an order directing John Hardesty to turn over certain property to satisfy a judgment. Sonoma Chevrolet challenges the court's findings that the property Hardesty transferred to his wife, Clara, in 2006 was valid and that Sonoma Chevrolet could not get to the assets of Thermo Dynamics because it was not Hardesty's alter ego. Finding no abuse of discretion, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 Sonoma Chevrolet obtained a judgment against Hardesty in California on January 5, 2009, for $135,680.40. The judgment was domesticated in Arizona on April 12, 2010. After several unsuccessful attempts to collect on the judgment, Sonoma Chevrolet filed a petition for turnover order, seeking an order directing Hardesty to satisfy the debt from certain real and personal property, including his Carefree, Arizona, home and its contents, and various vehicles, including a Ferrari Spider automobile. The petition alleged that Hardesty had fraudulently transferred the Carefree home and its contents to Clara on December 8, 2008, after the California trial, but before formal entry of judgment.
¶3 Hardesty responded that the Carefree property and its contents had been transferred to Clara in May 2006 for estate planning purposes via a handwritten quit claim deed witnessed by his long-time estate planning attorney. He also explained that the Ferrari had been purchased in the name of Thermo Dynamics, Inc., and was still owned by the company of which he was the president and Clara the owner, by virtue of Hardesty's transfer of stock to Clara in the same May 2006 deed.
¶4 Sonoma Chevrolet challenged Hardesty's assertions. It argued that Hardesty was using his wife and family company to shield his assets from collection while maintaining possession and control of the property, and that his transfer of the assets was fraudulent. Sonoma Chevrolet also argued that Thermo Dynamics was merely an alter ego of Hardesty.
¶5 The trial court conducted a one-day bench trial to consider the validity of the 2006 transfer of the Carefree home and whether Hardesty was the alter ego of Thermo Dynamics in order to allow Sonoma Chevrolet to execute on the Ferrari. Sonoma Chevrolet did not present any evidence, but submitted its exhibits and rested its case. The exhibits included a recorded quit claim deed dated December 8, 2008, by which Hardesty purportedly transferred the Carefree house to Clara.
¶6 Hardesty testified that the 1998 Ferrari Spider had been purchased by and had always been titled in the name of Thermo Dynamics. He described Thermo Dynamics as a corporation, owned by Clara since 2006 and run by his son, which holds Clara's assets and trades in synthetic quartz. Hardesty claimed to have "very little" to do with the company, although he was the President. He explained that as a subchapter S corporation the earnings of the corporation were included in Clara's personal tax return.
¶7 Hardesty also testified that he gave his wife the Carefree house and its contents as well as the stock for Thermo Dynamics on May 16, 2006, because he was twenty years older than his wife and wanted to get his estate in order so she would be taken care of and would not have to deal with probate when he died. The May 16, 2006 document transferred to Clara the house, its contents, and the shares of Thermo Dynamics and declared that the conveyed assets were to be considered her property under their marital property agreement. It was signed by Hardesty and Hardesty's estate planning counsel, Trude McMahon, as a witness. The document and the stock certificates were given to Clara. Neither Hardesty nor Clara recorded the conveyance of the house. Hardesty recorded a quit claim deed for the transfer of the house in December 2008 at the direction of counsel. Hardesty referred to the property as his wife's residence, and testified that both he and his wife considered the title, control, and interest in the Carefree house to have been transferred in 2006. Hardesty acknowledged that he had unrestricted access to and within the Carefree home as well as unrestricted access to the 1998 Ferrari owned by Thermo Dynamics, that he had a Thermo Dynamics credit card, and that the corporation had paid more than $100,000 in charges for him and issued more than $300,000 in checks to him personally in 2009.
¶8 Trude McMahon testified that in 2005 and 2006 she had had discussions with Hardesty regarding how best to provide for Clara, witnessed the May 16, 2006 transfer document, and had advised Hardesty to have it recorded. The court noted that Sonoma Chevrolet had not contested the transfer of the Thermo Dynamics stock and found that the Ferrari was owned by the corporation, and that the corporation was not the alter ego of Hardesty given that his wife was the owner. The court also found Hardesty's testimony to be credible regarding the circumstances of the 2006 transfer, noting that his testimony was corroborated by Trude McMahon, whom the court also found credible. The court found the 2006 transfer to be valid. The court did not consider Sonoma Chevrolet's argument that the 2008 transfer was a fraudulent transfer because the parties had agreed that the issue need not be addressed if the court found the 2006 transfer to be valid.
¶9 Sonoma appealed. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(A)(1) (Supp. 2014).
DISCUSSION
¶10 On appeal from a bench trial, we are bound by the court's findings of fact unless they are demonstrated to be clearly erroneous. Sabino Town & Country Estates Ass'n v. Can, 186 Ariz. 146, 149, 920 P.2d 26, 29 (App. 1996). We view the evidence and reasonable inferences therefrom in the light most favorable to the prevailing party. Inch v. McPherson, 176 Ariz. 132, 136, 859 P.2d 755, 759 (App. 1993). We do not reweigh conflicting evidence, but determine only if the record contains substantial evidence to support the trial court's decision. In re Estate of Pouser, 193 Ariz. 574, 579, ¶ 13, 975 P.2d 704, 709 (1999). We defer to the trial court's determination of witness credibility. Gutierrez v. Gutierrez, 193 Ariz. 343, 347-48, ¶ 13, 972 P.2d 676, 680-81 (App. 1998).
I. The Validity of the 2006 Transfer Deed
¶11 Married couples in Arizona may determine the status of their property and convey their separate and community property interests to one another. Bender v. Bender, 123 Ariz. 90, 93, 597 P.2d 993, 996 (App. 1979). Such a conveyance between spouses must be in writing and accompanied by conduct demonstrating intent that the receiving spouse have the property. Id. The giver must show clear intent to give the property and must in fact give full possession and control over the property. O'Hair v. O'Hair, 109 Ariz. 236, 239, 508 P.2d 66, 69 (1973). See also In re Marriage of Berger, 140 Ariz. 156, 163, 680 P.2d 1217, 1224 (App. 1983) (intent to make gift must be shown by clear and sufficient evidence). Whether a gift has been made presents a question of fact. Hrudka v. Hrudka, 186 Ariz. 84, 92, 919 P.2d 179, 187 (App. 1995) superseded by statute on other grounds as stated in Myrick v. Maloney, 235 Ariz. 491, 494, ¶ 8, 333 P.3d 818, 821 (App. 2014).
¶12 Sonoma Chevrolet argues that the trial court wrongly concluded that Hardesty's 2006 conveyance of the Carefree home and its contents was valid. Sonoma Chevrolet argues that Hardesty's testimony that he made the transfer to provide for his wife in the event of his death and the fact that he failed to formally record the document at the time shows that the transfer was intended to take effect upon his death. Sonoma Chevrolet contends that no clear and convincing evidence demonstrated a present intent to give the property to Clara.
¶13 The language of the May 16, 2006 document itself demonstrates a present intent to gift the property. In its first sentence, Hardesty stated, "I hereby transfer to you," which indicates a simultaneous action. The second paragraph expressly stated that the assets conveyed "are to be considered from this date as your property per our Marital Property Agreement." Hardesty testified that he was seventy-two years old, twenty years older than his wife, and that at the time he executed the transfer had been through prostate cancer. Hardesty's explanation that he conveyed the property to provide for his wife in the event of his death is not inconsistent with an immediate transfer and does not establish that he did not intend to transfer ownership as suggested by Sonoma Chevrolet. In addition, McMahon testified that: Hardesty presented the 2006 document during the period they had been discussing estate planning for Clara; McMahon had explained to him that the document would transfer the property to Clara; and that Hardesty had indicated he wanted an uncomplicated way to provide for his wife. The document was witnessed by McMahon, and Hardesty testified that the document was given to Clara, who holds it with her other legal documents. The intent that the document be immediately effective is also shown by the fact that stock certificates representing the shares of stock that were also conveyed by the instrument were given to Clara at that time. The conveyance is therefore in writing and supported by additional evidence showing that Hardesty intended Clara to have the property as required for a gift between spouses. As for the failure to record the conveyance, Hardesty testified that he intended to make the formal transfer, but that because of various circumstances and events, it "fell through the cracks." The court found Hardesty's and McMahon's testimony credible regarding the circumstances of the 2006 transfer, and we defer to the court's assessment of credibility.
¶14 Sonoma Chevrolet also argues that no clear and convincing evidence was presented that the property and its contents were irrevocably delivered to Clara. Whether a gift has been delivered depends on the nature of the gift and the circumstances of the parties. Arizona Title Guarantee & Trust Co. v. Wagner, 75 Ariz. 82, 88, 251 P.2d 897, 901-02 (1952).
¶15 Sonoma Chevrolet argues that no delivery was made of the Carefree property to Clara because Hardesty acknowledges that he continues to have unfettered access to and use of the property and its contents. Hardesty testified that both he and Clara believed that he had transferred title, control, and interest in the Carefree house and its contents to Clara in 2006. The trial court found that the fact that Hardesty continued to live at and enjoy the benefits of the house after the transfer was just as consistent with his being married to the owner and his wife giving him permission to use the premises as it was to Hardesty's not parting with control of the property. We find no error in the court's determination. Given that Hardesty and his wife live together, Hardesty's ability to come and go unhindered from the marital home does not establish that he failed to relinquish ownership through the transfer and the court accepted as credible his testimony that he considered the property to belong to Clara.
¶16 Sonoma Chevrolet also contends that the 2006 conveyance was void as to creditors because it was not recorded. Sonoma Chevrolet asserts that the conveyance was not a transfer under A.R.S. § 44-1006, which defines a transfer as made "when the transfer is so far perfected that a good faith purchaser of the asset from the debtor . . . cannot acquire an interest in the asset that is superior to the interest of the transferee." A.R.S. § 44-1006(1)(a) (2013). The definition applies, however, for purposes of the Uniform Fraudulent Transfer Act, A.R.S. §§ 44-1001 to -1010. Sonoma Chevrolet has not alleged that the 2006 transaction was fraudulent under the Act. Sonoma Chevrolet also argues that by statute all unrecorded conveyances of real property are void as to creditors. A.R.S. § 33-412(A) (2014). But, as the trial court noted, Sonoma Chevrolet was not a creditor when the transfer occurred.
¶ 17 Sonoma Chevrolet also contends it would be against public policy to allow Hardesty to avoid payment where the elements of a gift have not been established. After an evidentiary hearing, however, the court found that the elements of a gift had been established. Sonoma Chevrolet asserts that finding the transfer valid despite not being recorded would punish "the innocent bona fide purchaser" who relies on public information. Sonoma Chevrolet is, however, not a bona fide purchaser, but a judgment creditor. Unlike a bona fide purchaser, who relies on the recorded documents in purchasing property, a judgment creditor does not rely on the recorded title in obtaining its judgment. See Hunnicutt Constr., Inc. v. Stewart Title & Trust of Tucson Trust No. 3496, 187 Ariz. 301, 305, 928 P.2d 725, 729 (App. 1996). What effect these circumstances might have in a case involving a bona fide purchaser is not before us.
Sonoma Chevrolet also argued for the first time at the appellate oral argument that the 2006 transfer was inadequate because it was not attested pursuant to A.R.S. § 33-401. Because we do not find that the argument was made to the trial court or in the opening brief, the argument is waived. See Cont'l Lighting & Contracting, Inc. v. Premier Grading & Utils., LLC, 227 Ariz. 382, ¶ 12, 258 P.3d 200, 204 (App. 2011) (failure to raise below waives argument on appeal).
II. The Alter Ego Claim
¶18 Sonoma Chevrolet argues that the court wrongly found that Thermo Dynamics was not the alter ego of Hardesty and that Sonoma Chevrolet, therefore, could not take possession of the 1998 Ferrari owned by the corporation.
¶ 19 A corporation is an independent entity and, as a consequence, the assets of individual stockholders are generally protected from the debts of the corporation, and the assets of the corporation are protected from the debts of individual shareholders. Standage v. Standage, 147 Ariz. 473, 475-76, 711 P.2d 612, 614-15 (App. 1985). The "corporate veil" may be pierced when the corporation is the alter ego or business conduit of a person and when observing the corporate form would be unjust. Id. at 476, 711 P.2d at 615. "The alter ego status is said to exist when there is such a unity of interest and ownership that the separate personalities of the corporation and the owners cease to exist." Ize Nantan Bagowa, Ltd. v. Scalia, 118 Ariz. 439, 442, 577 P.2d 725, 728 (App. 1978) (citations omitted).
¶20 Sonoma Chevrolet does not dispute that Hardesty had transferred his stock in Thermo Dynamics to his wife in 2006 as evidenced by the 2006 transfer deed and the contemporaneous issuance of stock certificates in Clara's name and that, therefore, Hardesty has not been an owner of the corporation since that time. Nevertheless, Sonoma Chevrolet asserts that Thermo Dynamics is the alter ego of Hardesty and therefore liable for his individual debt.
¶21 The Arizona cases Sonoma Chevrolet cites in support of its contention that Thermo Dynamics may be held liable for the individual debt of non-owner Hardesty do not support that proposition. Ize Nantan Bagowa, Ltd., and Honeywell, Inc. v. Arnold Constr. Co., Inc., both involve shareholders against whom a claim was being made for a corporate debt. Ize Nantan Bagowa, Ltd., 118 Ariz. at 443, 577 P.2d at 729; Honeywell, 134 Ariz. 153, 159, 654 P.2d 301, 307 (App. 1982). Rhoads v. Harvey Publications, Inc., and Maloof v. Raper Sales, Inc., addressed whether a plaintiff could hold officers, directors or shareholders personally liable for torts committed by the corporation. Rhoads, 124 Ariz. 406, 409, 604 P.2d 670, 673 (App. 1979); Maloof, 113 Ariz. 485, 488, 557 P.2d 522, 525 (1976).
¶22 In State v. Easton, a case Sonoma Chevrolet asserts is factually analogous, the New York Supreme Court, a trial court, ruled that the State of New York could hold two corporations liable for a judgment incurred by their non-owner corporate officer. 647 N.Y.S.2d 904, 905 (Sup. Ct. 1995). In that case, the corporate officer had used the two companies to commit fraud for his own benefit resulting in the judgment the state was seeking to collect. Id. at 907. In authorizing the "reverse piercing," the court recognized that piercing the corporate veil required a showing that the officer had exercised complete dominion and control over the corporation and had used that dominion and control to commit fraud or a wrong against the party claiming injury. Id. at 908.
The court noted that traditional piercing involved holding corporate owners liable for corporate obligations, while reverse piercing attempts to hold a corporation liable for the debts of it owners. Easton, 647 N.Y.S.2d at 908-09.
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¶23 That case is clearly distinguishable from the facts here. No evidence suggests that Hardesty exercised dominion and control over Thermo Dynamics in such a manner as to injure Sonoma Chevrolet or that the judgment Sonoma Chevrolet is seeking to satisfy was in any way related to Thermo Dynamics. Rather, Sonoma Chevrolet is seeking to collect an asset of Thermo Dynamics to satisfy an unrelated judgment against Hardesty, who has no ownership interest in the corporation. Sonoma Chevrolet's authorities do not persuade us that the corporate veil may be pierced in these circumstances to hold a corporation liable for the debt of a non-owner officer where the corporation had no part in causing the injury resulting in the debt.
III. Attorneys' Fees
¶24 Hardesty seeks attorneys' fees pursuant to A.R.S. § 12-341.01, which authorizes an award of attorneys' fees to the successful party in a contested action arising out of contract. A.R.S. § 12-341.01(A) (Supp. 2014). In this action, Hardesty defended against a petition for turnover order after the domestication of a foreign judgment. The action does not arise out of contract, and A.R.S. § 12-341.01 does not apply. As the successful party on appeal, Hardesty is entitled to his costs upon compliance with ARCAP 21(b). A.R.S. § 12-341 (2003).
CONCLUSION
¶25 The superior court's judgment is affirmed.