FILED BY CLERK
IN THE COURT OF APPEALS OCT 20 2011
STATE OF ARIZONA
COURT OF APPEALS
DIVISION TWO DIVISION TWO
BRUCE A. SHOLES; RUSSELL R. )
SHOLES and MARY L. SHOLES, ) 2 CA-CV 2010-0216
husband and wife, ) 2 CA-CV 2010-0217
) (Consolidated)
Plaintiffs/Counterdefendants/ )
Appellants, ) DEPARTMENT A
)
v. ) OPINION
)
ELEANOR FERNANDO and NIHAL J. )
FERNANDO, wife and husband; JUDY )
FERNANDO-SHOLES; and RAYNU )
FERNANDO, )
)
Defendants/Counterclaimants/ )
Appellees. )
)
APPEAL FROM THE SUPERIOR COURT OF PIMA COUNTY
Cause No. C20063454
Honorable Ted B. Borek, Judge
AFFIRMED
Bruce A. Sholes Cortaro
In Propria Persona
Russell R. Sholes Cortaro
In Propria Persona
Mary L. Sholes Cortaro
In Propria Persona
Mesch, Clark & Rothschild, P.C.
By Michael J. Crawford and Paul A. Loucks Tucson
Attorneys for
Defendants/Counterclaimants/
Appellees
B R A M M E R, Judge.
¶1 Russell, Mary, and Bruce Sholes (collectively “the Sholes”) appeal from
the trial court‟s judgment determining the parties‟ ownership interests in Oasis at Wild
Horse Ranch, LLC (Oasis) and in two residential properties. The Sholes argue there was
insufficient evidence to support the court‟s determination that Judy Fernando-Sholes and
Raynu Fernando each owned an interest in Oasis, the court erred in allocating ownership
among the parties, the court erred in determining Bruce had “abandoned” the cash he
asserted he had contributed as capital in Oasis, and the court lacked jurisdiction to
determine ownership of the property known as the Camino Verde house.1 We affirm.
Factual and Procedural Background
¶2 “We view the facts in the light most favorable to upholding the trial court‟s
ruling.”2 Hammoudeh v. Jada, 222 Ariz. 570, ¶ 2, 218 P.3d 1027, 1028 (App. 2009).
1
The Sholes‟ opening brief identifies numerous other “sub-issues” not argued or
supported in the argument section—including issues regarding interest on capital
contributions, judgment for non-party creditors, jury instructions, closing arguments, and
others. Because these issues were not argued sufficiently, we do not address them. See
Polanco v. Indus. Comm’n, 214 Ariz. 489, n.2, 154 P.3d 391, 393-94 n.2 (App. 2007)
(failure to develop and support argument waives issue on appeal).
2
The Sholes‟ statement of facts fails to make appropriate citations to the record as
required by Rule 13(a)(4), Ariz. R. Civ. App. P., and we therefore have disregarded it.
See State Farm Mut. Auto. Ins. Co. v. Arrington, 192 Ariz. 255, n.1, 963 P.2d 334, 336
n.1 (App. 1998). Instead, we rely on the Fernandos‟ statement of facts and our review of
2
Oasis was formed in 1999 when articles of organization were filed with the Arizona
Corporation Commission listing four parties each owning an interest twenty percent or
greater: Judy, Raynu, their parents Nihal and Eleanor Fernando (collectively
“Fernandos”), and Bruce‟s parents Russell and Mary Sholes. Bruce and Judy, who were
planning to marry, and Judy‟s brother Raynu, attended an auction and made the
successful bid on a guest ranch property on behalf of Oasis. Money to purchase that
property came from various sources the parties disputed at trial. After the property was
acquired, Raynu and Judy were responsible for most of the day-to-day management of
Oasis.
¶3 In 2006, the Sholes and the Fernandos began litigation involving multiple
claims and counterclaims regarding Oasis‟s ownership and management. The trial court
granted directed verdicts on some claims and granted partial summary judgment in favor
of the Sholes ruling that Eleanor and Nihal had no interest in Oasis. By the time of trial,
the claims had been reduced to who owned Oasis as between Russell and Mary, Bruce,
Raynu, and Judy.
¶4 After a nine-day jury trial, the advisory jury found that Raynu, Judy, and
Russell and Mary had agreed to make capital contributions to Oasis. It also found that
Judy and Raynu collectively had contributed over $300,000 in services to Oasis. The
the record. Additionally, we disregard those portions of the Sholes‟ reply brief to the
extent not “confined strictly to rebuttal of points urged in the appellee‟s brief.” Ariz. R.
Civ. App. P. 13(c).
3
advisory jury concluded that Russell and Mary owned fifty percent of Oasis and that
Raynu and Judy each owned twenty-five percent of Oasis.
¶5 After considering the record, including the evidence presented at trial, and
the advisory jury verdicts, the trial court ruled that Oasis was owned: fifty percent by
Russell and Mary, twenty-five percent by Raynu, and twenty-five percent by Judy. The
court further concluded “that portion of ownership attributable to the Sholes to be
$170,000, and that portion attributable to Raynu Fernando to be $85,000, and that portion
attributable to Judy Fernando to be $85,000.” It found Bruce Sholes had no ownership
interest in Oasis. The court also found “Bruce Sholes attempted to avoid his creditors by
holding various assets in the name of Russell and Mary Sholes, including . . . [the
residence known as] the Camino Verde House.” As a result, the court found that Russell
and Mary held title to one half the Camino Verde house in a constructive trust as to any
claims of Bruce‟s creditors and the other half in a resulting trust for Judy. The Sholes
filed a motion for a new trial, which the court denied. This appeal followed.
Discussion
Ownership of Oasis
¶6 The Sholes argue there was insufficient evidence to support the trial court‟s
ruling that Judy and Raynu each owned a twenty-five percent interest in Oasis. We defer
to a trial court‟s factual findings and will not set them aside on appeal “unless they are
clearly erroneous or not supported by substantial evidence.” Nordstrom, Inc. v. Maricopa
Cnty., 207 Ariz. 553, ¶ 18, 88 P.3d 1165, 1170 (App. 2004); see also Ariz. R. Civ. P.
52(a) (“Findings of fact . . . shall not be set aside unless clearly erroneous, and due regard
4
shall be given to the opportunity of the trial court to judge the credibility of witnesses.”).
“To the extent the parties presented facts from which conflicting inferences could be
drawn . . . , it was for the trial court, not this court, to weigh those facts.” Ruesga v.
Kindred Nursing Ctrs., L.L.C., 215 Ariz. 589, ¶ 27, 161 P.3d 1253, 1261 (App. 2007).
Moreover, any additional findings necessary to sustain the judgment are implied if they
are reasonably supported by the evidence and not in conflict with the court‟s express
findings. Gen. Elec. Capital Corp. v. Osterkamp, 172 Ariz. 191, 193, 836 P.2d 404, 406
(App. 1992). However, we are not bound by a trial court‟s conclusions of law, which we
review de novo. See Flying Diamond Airpark, LLC v. Meienberg, 215 Ariz. 44, ¶ 9, 156
P.3d 1149, 1152 (App. 2007).
Law of the Case
¶7 The Sholes first argue the “law of the case” doctrine bound the trial court to
a ruling issued by a judge previously assigned to the case. They argue that judge ruled
during a hearing concerning the ownership interests of Eleanor and Nihal Fernando that a
written agreement signed by all members of the limited liability company (LLC) was
required before services rendered the LLC by a member could have been considered a
valid capital contribution.
¶8 The “law of the case” doctrine refers to “„the judicial policy of refusing to
reopen questions previously decided in the same case by the same court or a higher
appellate court.‟” Hall v. Smith, 214 Ariz. 309, ¶ 28, 152 P.3d 1192, 1200 (App. 2007),
quoting Jimenez v. Wal-Mart Stores, Inc., 206 Ariz. 424, ¶ 12, 79 P.3d 673, 677 (App.
2003). However, the rule is “„one of procedure, not of substance‟” and “„[a] court does
5
not lack the power to change a ruling simply because it ruled on the question at an earlier
stage,‟” especially where a substantial change has occurred in the evidence. Id. ¶¶ 28-29,
quoting Love v. Farmers Ins. Grp., 121 Ariz. 71, 73, 588 P.2d 364, 366 (App. 1978). The
doctrine is not absolute, does not have the same binding effect as the doctrine of res
judicata, and should not be applied “„when it would result in a manifestly unjust
decision.‟” Lennar Corp. v. Transamerica Ins. Co., 227 Ariz. 238, ¶ 12, 256 P.3d 635,
640 (App. 2011), quoting Dancing Sunshines Lounge v. Indus. Comm’n, 149 Ariz. 480,
482, 720 P.2d 81, 83 (1986).
¶9 Although the Sholes do not cite the portion of the record that purportedly
contains the “law of the case” ruling as they have stated it, they refer generally to the
hearing challenging the trial court‟s grant of partial summary judgment determining that
Eleanor and Nihal had no ownership interest in Oasis. The court granted the motion
because Eleanor and Nihal had not “come forward with . . . competent evidence to
support any capital contributions made or to be made by them pursuant to A.R.S.
§ 29-701.” Even assuming, without deciding, that the court‟s comments at the hearing
“decided” the requirements that Eleanor and Nihal were required to meet pursuant
to § 29-701, see Hall, 214 Ariz. 309, ¶ 28, 152 P.3d at 1200, the issue before the court as
to Judy and Raynu was substantially different and, as the court noted, “distinguished due
to factual differences between Judy and Raynu as contrasted with their parents, Eleanor
and Nihal.” The Sholes do not dispute that Judy and Raynu presented competent
evidence they had made capital contributions to Oasis, in direct contrast to the court‟s
finding that Eleanor and Nihal had not presented evidence of “any capital contributions
6
made.” Therefore, to the extent the court reopened any previously raised question, it was
within its power to do so. See Lennar Corp., 227 Ariz. 238, ¶ 12, 256 P.3d at 639-40
(law of case applies where “facts, issues and evidence are substantially the same as those
upon which the first decision rested”).
Evidence of Ownership
¶10 The Sholes also argue A.R.S. §§ 29-701(A) and 29-702(A) compel the
conclusion that Judy and Raynu could not have acquired an ownership interest in Oasis in
exchange for services rendered because they did not “come forward with a writing signed
by them at any point in time” promising to make such a contribution. Section 29-701
provides:
A. An interest in a limited liability company may be issued in
exchange for a capital contribution or an enforceable promise
to make a capital contribution in the future, or both.
B. Except as otherwise provided in an operating agreement,
the agreement or consent of all of the members is necessary to
fix or modify the amount and character of the capital
contributions that a member shall make or shall promise to
make in exchange for an interest in the limited liability
company.
A capital contribution may include “services rendered or any other valuable
consideration.” A.R.S. § 29-601(3).
¶11 “The primary rule of statutory construction is to find and give effect to
legislative intent.” Mail Boxes, Etc., U.S.A. v. Indus. Comm’n, 181 Ariz. 119, 121, 888
P.2d 777, 779 (1995). We first look to the plain language of the statute as the best
reflection of the legislature‟s intent. See id. If the statute‟s language is unambiguous, we
7
give effect to it and do not employ other rules of statutory construction to determine its
meaning. Janson ex rel. Janson v. Christensen, 167 Ariz. 470, 471, 808 P.2d 1222, 1223
(1991). Sections 29-701(A) and 29-601(3) provide that an interest in an LLC may be
issued in exchange for services or for an enforceable promise to provide services in the
future. Section 29-701(B) provides that LLC members must “agree[] or consent” to the
amount and character of those contributions. In this case, the trial court considered
evidence including the parties‟ intent to distribute ownership as described in the original
articles of organization and the advisory jury‟s finding that Raynu, Judy, and Russell and
Mary had agreed to make capital contributions to Oasis. As discussed below, substantial
evidence in the record supports the court‟s determination that Judy and Raynu each
owned a twenty-five percent interest in Oasis pursuant to § 29-701.
¶12 However, the Sholes argue the phrase “enforceable promise” in
§ 29-701(A) means a member can never receive an ownership interest in exchange for
services without providing evidence of a written agreement because § 29-702(A)
provides that “[a] promise by a member to make a capital contribution to the limited
liability company is not enforceable unless set out in writing and signed by the member.”
They argue that otherwise the word “enforceable” in § 29-701(A) is rendered
superfluous.
¶13 We disagree with the Sholes‟ contention that § 29-702(A) required Judy
and Raynu to present a written agreement to the trial court in order to prove an ownership
interest in Oasis. Section 29-702 first states a promise to make a capital contribution is
enforceable only if “set out in writing and signed by the member.” § 29-702(A). It then
8
outlines the remedies available to the LLC when a member fails to deliver a promised
capital contribution, including a right to the cash value of the promised capital
contribution or to initiate “legal action for damages for breach of contract or for specific
performance.” § 29-702(B), (D). Section 29-702 is irrelevant where no promise has
been breached, where promised services already have been rendered, and where the sole
issue remaining is whether the members of an LLC originally intended that such services
were to be in exchange for an ownership interest. Therefore, it does not impose a written
agreement requirement in this case.
¶14 Moreover, this interpretation of § 29-701 is consistent with A.R.S.
§ 29-854(B), which provides that “[t]he law of estoppel . . . appl[ies] to this chapter.”
Promissory estoppel provides an equitable remedy that renders a promise enforceable,
Double AA Builders, Ltd. v. Grand State Constr. L.L.C., 210 Ariz. 503, ¶¶ 45, 48, 114
P.3d 835, 843, 844 (App. 2005), where a promise has been made “which the promissor
should reasonably foresee would cause the promisee to rely, [and] upon which the
promisee actually relies to his detriment,” Contempo Constr. Co. v. Mountain States Tel.
& Tel. Co., 153 Ariz. 279, 282, 736 P.2d 13, 16 (App. 1987); see also Restatement
(Second) of Contracts § 90 (1981). The Sholes‟ suggested interpretation of § 29-701(A)
as limited by § 29-702(A) would have the absurd result of prohibiting a court from
exercising its equitable powers to provide a remedy under the principle of promissory
estoppel where, as in this case, the only way to avoid an injustice is to enforce the
9
promise.3 See Restatement § 90; see also A.R.S. § 29-856 (where situation not covered
by statutes governing LLC‟s, “the rules of law and equity . . . govern”).
¶15 The trial court‟s determination that Judy and Raynu each own a twenty-five
percent interest in Oasis is supported by substantial evidence in the record. The original
recorded articles of organization for Oasis stated that Judy and Raynu were two of four
parties who each would “own[] a twenty-percent . . . or greater interest in the capital or
profits of the company.” Evidence at trial showed that Bruce had named Raynu as a
shareholder in a complaint in previous litigation involving Oasis. Raynu testified he and
Judy were “supposed to build the company and create a business with our service” in
exchange for an ownership interest, and he would not have agreed to work at Oasis
merely as an employee. Judy testified she “would have walked away” from Oasis if her
ownership interest had been eliminated. Although the Sholes contend other testimony
disputed those representations, they do not provide supporting citations to the relevant
portion of the record. Moreover, even where conflicting evidence exists, this court will
not reweigh the evidence and “we affirm the trial court‟s ruling [if] substantial evidence
supports it.” See Double AA Builders, Ltd., 210 Ariz. 503, ¶ 41, 114 P.3d at 843 (“due
regard” given to trial court‟s ability to judge credibility of witnesses). The advisory jury
found that Raynu, Judy, and Russell and Mary came to an agreement to make capital
3
The Sholes also argue awarding “sweat equity” to Judy and Raynu without a
written agreement is contrary to law because the Sholes have not benefitted from the
arrangement. However, the argument fails to make any citations to the record or to
relevant authority. Therefore, the argument is waived. See Ariz. R. Civ. App. P.
13(a)(6); Polanco, 214 Ariz. 489, n.2, 154 P.3d at 393-94 n.2.
10
contributions to Oasis, and the Sholes do not dispute the jury‟s finding that Judy and
Raynu in fact contributed over $300,000 in services to Oasis. Therefore, the court did not
err in determining that Raynu and Judy each owned twenty-five percent of Oasis.
Calculation of Ownership Percentage
¶16 The Sholes argue the trial court erred in allocating the percentage of
ownership interests in Oasis by not crediting the Sholes with an ownership interest that
equals the amount of cash they paid toward the purchase of Oasis, including an additional
$4,500 plus a $25,000 earnest money payment. They do not cite any portion of the
record to support the “undisputed facts at trial” that allegedly reveal the source of the
earnest money payment. More importantly, they do not refer to any evidence suggesting
the additional amounts were intended to be capital contributions or otherwise address the
court‟s finding that Russell and Mary “agreed to advance $340,000 to consummate the
purchase of Oasis upon the understanding that $170,000 would be repaid.”4 Nor do they
provide any authority to support the suggestion that ownership interests must be allocated
according to the amount of cash paid toward a purchase, rather than by the amount
intended as a capital contribution in exchange for an ownership interest as provided in
§ 29-701(B). Therefore, they have waived this argument on appeal and we do not
address it further. See Ariz. R. Civ. App. P. 13(a)(6) (appellate brief argument shall
4
In its ruling on the Sholes‟ motion for a new trial, the trial court noted it had
considered “numerous arguments on the capital contributions made,” including “that
$170,000 was a premarital gift from Bruce to Judy as a contribution for the Fernandos,
and second, that it was a loan from [Russell and Mary] to Judy on behalf of the
Fernandos.”
11
contain “citations to the authorities, statutes and parts of the record relied on”); Polanco
v. Indus. Comm’n, 214 Ariz. 489, n.2, 154 P.3d 391, 393-94 n.2 (App. 2007) (appellant‟s
failure to develop and support argument waives issue on appeal).
Bruce’s Abandonment of Ownership Interest
¶17 The Sholes next argue the trial court erred in ruling that Bruce had
“„abandoned‟ $163,511[] of cash capital” contributed to Oasis. However, the court did
not find Bruce ever had made any capital contributions to Oasis with an agreement to
exchange those for an ownership interest—only that he had paid $163,511 amount
toward the ranch property‟s purchase price. As discussed above, § 29-701(B) provides
one must prove the members of the LLC agreed or consented to exchange a capital
contribution for an interest in the LLC. Substantial evidence supports the conclusion that
Bruce had no such agreement and therefore no interest in Oasis. The original articles of
organization for Oasis did not list Bruce as an interest-owning member. And, Bruce
testified at trial that he had “never been a member” of Oasis and that he had filed
affidavits in previous lawsuits stating he was not an owner because he had “never been
on any of the paperwork as an owner.” Therefore, the court did not err in ruling Bruce
has no ownership interest in Oasis.
Camino Verde House
¶18 The trial court determined title to the Camino Verde house was held by
Russell and Mary one-half in a constructive trust for the claims of Bruce‟s creditors and
one-half in a resulting trust for Judy. The Sholes argue the court did not have jurisdiction
to determine ownership of the Camino Verde house because the issue never was raised in
12
the pleadings.5 However, “[w]hen issues not raised by the pleadings are tried by express
or implied consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings.” Ariz. R. Civ. P. 15(b).
¶19 In the joint pretrial statement the Fernandos submitted contested issues of
law, including: “Are Russell and Mary Sholes holding the Camino Verde home as
nominees for Bruce and/or Judy?” In response, the Sholes filed a “legal memorandum
re[garding] the Fernandos‟ nominee theory” recognizing the Fernandos had alleged
Russell and Mary held various properties as nominees for Bruce and explaining why jury
instructions on resulting trusts were appropriate. The Sholes proposed jury instructions
on the principle of resulting trusts, and the jury was instructed on the principles of
resulting and constructive trusts. The jury also was provided with a verdict form asking it
to determine whether Russell and Mary “hold the Camino Verde House for the benefit of
Bruce and Judy.” The Fernandos argued the purchase money for the Camino Verde
house came from Bruce‟s law office and the mortgages and taxes were paid by Bruce and
Judy.
¶20 The trial court determined Russell and Mary held title to the Camino Verde
house in a constructive trust for Bruce‟s creditors as to half and a resulting trust as to the
other half for Judy because Bruce had “attempted to avoid his creditors by holding
5
The Sholes raise numerous sub-issues related to the Camino Verde house
determination that are unsupported with citation to authority or the record. We confine
ourselves to addressing the arguments as they are presented in the argument section of the
opening brief and are supported properly, as all other issues are waived. See Ariz. R.
Civ. App. P. 13(a)(6); Polanco, 214 Ariz. 489, n.2, 154 P.3d at 393-94 n.2.
13
various assets in the name of Russell and Mary.” This determination followed from the
issue raised by the Fernandos and presented in the jury instructions and interrogatories.
See Turley v. Ethington, 213 Ariz. 640, ¶ 10, 146 P.3d 1282, 1285 (App. 2006)
(imposition of constructive trust appropriate when property acquired such that holder of
title may not in good conscience retain interest); Toth v. Toth, 190 Ariz. 218, 220, 946
P.2d 900, 902 (1997) (resulting trust arises in favor of person furnishing purchase money
for property purchased in name of another).
¶21 In their oral motion for summary judgment on the nominee theory, the
Sholes argued the nominee theory did not “apply to this case at all,” arguing in the
alternative that the jury should be instructed on resulting trust theory. And when the
Fernandos argued that “if the court is going to give instructions on resulting trusts . . . the
court will have to give an instruction on constructive trust,” the Sholes did not object to
giving a constructive trust instruction. By requesting jury instructions on the principle of
resulting trusts and arguing its applicability, the Sholes consented to trying the issue of
whether Russell and Mary held the Camino Verde house for the benefit of Bruce and
Judy as if it had been raised in the pleadings. See Ariz. R. Civ. P. 15(b). Therefore, we
agree with the trial court that any error regarding the Camino Verde house “was either
waived or induced by [the Sholes].” See Schlecht v. Schiel, 76 Ariz. 214, 220, 262 P.2d
252, 256 (1953) (“[O]ne who deliberately leads the court to take certain action may not
upon appeal assign that action as error.”).
¶22 The Sholes also argue that “only the Dissolution Court ha[d] the
jurisdiction to determine whether the interests acquired by [Judy or Bruce] in the Camino
14
Verde House are separate or community in nature” because that issue was raised by Judy
in her petition for dissolution. However, the trial court did not determine whether Bruce
or Judy hold their interests in the Camino Verde house as separate or community
property. Moreover, the Sholes have not explained how the court‟s determination that
Russell and Mary hold the Camino Verde house in trust for Bruce and Judy prevents the
dissolution court from characterizing Bruce and Judy‟s interests as community or
separate. See Ariz. R. Civ. App. P. 13(a)(6); Polanco, 214 Ariz. 489, n.2, 154 P.3d at
393-94 n.2. Therefore, we find no error.
Disposition
¶23 For the foregoing reasons, we affirm. The Fernandos request an award of
attorney fees pursuant to A.R.S. § 12-341.01. We grant their request upon compliance
with Rule 21, Ariz. R. Civ. App. P.
/s/ J. William Brammer, Jr.
J. WILLIAM BRAMMER, JR., Judge
CONCURRING:
/s/ Joseph W. Howard
JOSEPH W. HOWARD, Chief Judge
/s/ Garye L. Vásquez
GARYE L. VÁSQUEZ, Judge
15