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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
PHOENIX-TUCSON RANCH, LLC, an Arizona limited liability company,
Plaintiff/Appellant,
v.
ROBERT CHARLES ENGELSTAD and DOLORES ANN ENGELSTAD
REVOCABLE TRUST; GERALD L. and CAROL A. DEETZ, husband and
wife; MARILYN A. GALLAGHER REVOCABLE TRUST; STERLING
TRUST COMPANY, Custodian fbo Gary Frank Klingl a/c 85739; ROBERT
C. ENGELSTAD, a married man; GARY F. KLINGL, a married man; and
PATRICK E. GALLAGHER, a married man, Defendants/Appellees.
__________________________________________________________________
HIDDEN VALLEY RANCH I, LLC, Plaintiff/Appellant,
v.
ROBERT CHARLES ENGELSTAD and DOLORES ANN ENGELSTAD
REVOCABLE TRUST, et al., Defendants/Appellees.
__________________________________________________________________
GARY KLINGL, as beneficiary of Sterling Trust Co. FBO Gary Frank
Klingl; GERALD L. DEETZ and CAROL A. DEETZ, husband and wife, as
a marital community; ROBERT ENGELSTAD and DOLORES ANN
ENGELSTAD, husband and wife, as trustees of the Robert & Dolores Ann
Engelstad Revocable Trust; PATRICK E. GALLAGHER and MARILYNN
A. GALLAGHER, husband and wife, as trustees of the First Amended &
Restated Patrick E. Gallagher Revocable Trust Agreement and the First
Amended & Restated Marilynn A. Gallagher Revocable Trust Agreement;
and WINSTON C. LISTER and ROSIE LISTER, husband and wife, as
trustees for the Lister Family Revocable Trust, Claimants/Appellees,
v.
HIDDEN VALLEY RANCH I, LLC, an Arizona limited liability company;
HIDDEN VALLEY RANCH II, LLC, an Arizona limited liability company;
PHOENIX-TUCSON RANCH, LLC, an Arizona limited liability company;
and PRIME EARTH DEVELOPMENT COMPANY, LLC, an Arizona
limited liability company, Respondents/Appellants.
Nos. 1 CA-CV 14-0780
1 CA-CV 15-0212
1 CA-CV 16-0075
(Consolidated)
FILED 3-28-2017
Appeal from the Superior Court in Maricopa County
Nos. CV2014-003680
CV2014-003681
CV2015-003361
The Honorable David O. Cunanan, Judge
The Honorable Robert H. Oberbillig, Judge
The Honorable David B. Gass, Judge
AFFIRMED
COUNSEL
Theobald Law, PLC, Phoenix
By Scott M. Theobald, Mark A. Nickel
Counsel for Plaintiffs/Appellants
Polsinelli PC, Phoenix
By Paul J. Roshka, Jr., Craig M. Waugh
Counsel for Defendants/Appellees
MEMORANDUM DECISION
Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Randall M. Howe and Judge Jon W. Thompson joined.
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PHOENIX-TUCSON v. DEETZ et al.
Decision of the Court
W I N T H R O P, Judge:
¶1 Phoenix-Tucson Ranch, LLC (“PTR”), Hidden Valley Ranch I,
LLC (“HVRI”), and Prime Earth Development Company, LLC (“PEDCO”)
appeal the superior court’s orders compelling arbitration of their
declaratory actions against five of their investor members (“Five
Members”). Additionally, PTR, HVRI, PEDCO, and Hidden Valley Ranch
II, LLC (“HVRII”) appeal the superior court’s confirmation of the
arbitrator’s awards. For the following reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 PTR, HVRI, HVRII, and PEDCO (collectively, “Appellants”)
are limited liability investment companies that purchase unimproved land
for investment purposes. PEDCO manages PTR, HVRI, and HVRII. The
Five Members are a group who, individually or through trusts, collectively
invested approximately $1.4 million in one or more of the Appellant LLCs.
¶3 Several years after investing in the companies, the Five
Members made multiple requests to examine the LLCs’ business records.
Appellants made certain records available, but refused to provide others.
¶4 On June 9, 2014, the Five Members filed a demand for
arbitration before the American Arbitration Association, seeking an award
compelling Appellants to provide certain business records to the Five
Members, in accordance with the LLCs’ relevant operating agreements1 and
Arizona Revised Statute (“A.R.S.”) section 29-607 (2014).2 That same day,
1 The parties’ operating agreements included a clause stating that
“any dispute arising out of this Agreement shall be resolved through
arbitration . . . .”
2 We cite a statute’s current version absent material revisions after the
relevant date. Section 29-607(A) requires a limited liability company to
keep certain records, including financial information, at its place of
business. See A.R.S. § 29-607(A)(5), (6). Members of limited liability
companies may inspect and copy those records and “[i]nspect and copy
other information regarding the affairs of the limited liability company as
is just and reasonable for any purpose reasonably related to the member’s
interest.” A.R.S. § 29-607(B)(1), (2).
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PHOENIX-TUCSON v. DEETZ et al.
Decision of the Court
Appellants PTR, HVRI, and HVRII filed declaratory actions against the Five
Members, requesting, among other things, that the superior court limit the
Five Members’ access to the records. Several days later, PEDCO filed its
separate declaratory action after purporting to modify its operating
agreement to preclude arbitration for matters involving declaratory relief.3
¶5 The Five Members then moved to compel arbitration of the
declaratory actions. The superior court granted the motions to compel
arbitration in each of the four separate declaratory actions. The superior
court entered final orders in the PTR and HVRI actions, and PTR and HVRI
immediately appealed those orders to this court.4
¶6 All four declaratory relief actions were addressed in a single
arbitration hearing in October 2014 before a single arbitrator. The arbitrator
issued an interim award in November 2014, finding that PEDCO’s
attempted amendment to its operating agreement was null and void; that
the Five Members were permitted to amend their pleadings to indicate
which parties were serving in their capacities as trustees, rather than as
individuals;5 that the matters presented were arbitrable and enforceable in
accordance with the LLCs’ operating agreements; and that Appellants were
required to make available for inspection and copying certain business
records for the three years prior to the date of the original written request
3 PEDCO’s original operating agreement provided, “The parties agree
that any dispute arising out of this Agreement shall be resolved through
arbitration . . . .” As amended, the clause provided, “Except for actions or
proceedings filed in federal or state courts seeking declaratory relief, any
dispute arising out of this Agreement shall be resolved through
arbitration . . . .”
4 This court stayed those appeals pending the superior court’s
resolution of Appellees’ later-filed motion requesting confirmation of the
arbitration awards.
5 At the conclusion of the hearing, the Five Members amended their
pleadings and Appellants did not object to the accuracy of the amended
caption. The arbitrator consequently deemed that issue moot.
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PHOENIX-TUCSON v. DEETZ et al.
Decision of the Court
of any one of the Five Members.6 Three months later, the arbitrator issued
a final award, granting the Five Members costs and attorneys’ fees.
¶7 In March 2015, the Five Members moved the superior court to
confirm the arbitration awards, alleging Appellants had refused to comply
with the awards. In response, Appellants moved to vacate the arbitration
awards, and the court heard oral argument on both parties’ motions.
¶8 In July 2015, the superior court issued a detailed ruling
denying Appellants’ challenges to the arbitrator’s awards, and later issued
an order denying Appellants’ motion to vacate and granting the Five
Members’ motion to confirm the arbitration awards. The court also
awarded the Five Members attorneys’ fees and costs.
¶9 In January 2016, the superior court entered a final judgment
confirming the arbitration awards. Appellants timely appealed, and this
court consolidated that appeal with the already pending appeals previously
filed by PTR and HVRI, which challenged the superior court’s orders
granting the Five Members’ motions to compel arbitration. Additionally,
this court stayed the portion of the superior court’s judgment requiring
Appellants to disclose the requested business records.
¶10 In September 2016, the superior court entered a final order
dismissing all claims in the PEDCO action, and PEDCO separately
appealed that decision to this court. See Prime Earth v. Engelstad, et al., 1 CA-
CV 16-0636.7
6 The interim award directed Appellants to make available financial
statements, complete tax returns and reports, and basic supporting
documentation, including the entities’ general subsidiary ledgers and
journals.
7 A motions panel of this court previously denied PEDCO’s motion to
consolidate its appeal in 1 CA-CV 16-0636 with this consolidated appeal.
But we are not bound by decisions made by the motions panel, see State ex
rel. Brnovich v. Culver, 240 Ariz. 18, 20 n.4, ¶ 12, 375 P.3d 83, 85 n.4 (App.
2016), and in reviewing PEDCO’s opening brief in 1 CA-CV 16-0636 and
PEDCO’s March 1, 2017 motion for clarification, the court recognizes that
PEDCO’s claim regarding the enforceability of its amended operating
agreement was ripe for consideration in this consolidated appeal because
the trial court issued a final decision in that matter in September
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PHOENIX-TUCSON v. DEETZ et al.
Decision of the Court
¶11 We have jurisdiction pursuant to Article 6, Section 9, of the
Arizona Constitution and A.R.S. sections 12-2101(A)(1) (2016) and 12-
120.21(A)(1) (2016).
ANALYSIS
I. The Superior Court Did Not Err in Compelling Arbitration of the
Declaratory Actions
¶12 “The trial court’s review on a motion to compel arbitration is
limited to the determination as to whether an arbitration agreement exists.”
Nat’l Bank of Ariz. v. Schwartz, 230 Ariz. 310, 311, ¶ 4, 283 P.3d 41, 42 (App.
2012); see also A.R.S. § 12-3006(B) (2016) (“The court shall decide whether an
agreement to arbitrate exists or a controversy is subject to an agreement to
arbitrate.”). “[T]he fundamental prerequisite to arbitration is the existence
of an actual agreement or contract to arbitrate.” Schoneberger v. Oelze, 208
Ariz. 591, 595, ¶ 17, 96 P.3d 1078, 1082 (App. 2004), superseded by statute,
2008 Ariz. Sess. Laws, ch. 247, § 16 (2d Reg. Sess.) (current version at A.R.S.
§ 14-10205 (2012)). Such an agreement is valid and enforceable “except on
a ground that exists at law or in equity for the revocation of a contract.”
A.R.S. § 12-3006(A).
¶13 Absent clear error, we defer to the factual findings upon
which the trial court’s conclusions are based. Estate of Decamacho ex rel.
Guthrie v. La Solana Care & Rehab, Inc., 234 Ariz. 18, 20, ¶ 8, 316 P.3d 607, 609
(App. 2014). But we review the trial court’s conclusions of law de novo. Id.
¶14 Appellants challenge the trial court’s orders compelling
arbitration on a number of grounds. First, Appellants argue the trial court
in the PEDCO action erred in declining to apply and enforce PEDCO’s
amendment to the operating agreement, which purported to preclude
2016. Accordingly, we have granted the motion for clarification in part, and
will address below PEDCO’s separately-raised issue concerning the
applicability and enforceability of the arbitration provision in its amended
operating agreement. The other issues PEDCO raises in 1 CA-CV 16-0636—
whether the trial court erred in compelling arbitration despite the incorrect
identification of certain individuals in the pleadings and whether the trial
court’s determination that the level of “dispute” between the parties was
sufficient to compel arbitration—are also addressed in this memorandum
decision. Our resolution of these issues, therefore, moots PEDCO’s
separate appeal in 1 CA-CV 16-0636, and an order of dismissal will issue in
that appeal.
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PHOENIX-TUCSON v. DEETZ et al.
Decision of the Court
arbitration of actions for declaratory relief. But PEDCO did not attempt to
modify the arbitration agreement until after the Five Members had already
filed a demand for arbitration. Appellants contend PEDCO was entitled to
amend its operating agreement because arbitration is a “creature of
contract,” but they have not cited any authority to support the argument
that amendments to arbitration agreements made after the initiation of
litigation can apply retrospectively. Appellants also argue the trial court
should have held an evidentiary hearing to determine whether arbitration
was appropriate, however “a trial court is not required to hold an
evidentiary hearing if the facts produced in support of the claim or defense
have so little probative value, given the quantum of evidence required, that
reasonable people could not agree with the conclusion advanced by the
proponent of the claim or defense.” Brake Masters Sys., Inc. v. Gabbay, 206
Ariz. 360, 365, ¶14, 78 P.3d 1081, 1086 (App. 2003) (internal citations and
quotations omitted). Further, Appellants’ claim that “the Members of
PEDCO, by a Super-Majority vote, affirmed that they did not want a AAA
Arbitration to proceed,” was called into question by the arbitrator, who
noted in his award that there was “conflicting testimony as to whether all
of [PEDCO’s] members were properly noticed of the proposed
amendment,” and found, both factually and as a matter of law, that such
amendment was untimely and unenforceable. Accordingly, we conclude
on this record that the trial court did not err in determining arbitration was
appropriate in the PEDCO action.
¶15 Next, Appellants contend the trial court erred in compelling
arbitration because the caption and pleadings initially incorrectly identified
certain people as members of the LLCs in their individual capacities instead
of identifying them as members of the LLCs in their capacities as trustees
of trusts. Appellants maintain that the incorrectly identified individuals
were not proper parties and therefore no agreement to arbitrate existed
between Appellants and those individuals. Before the issuance of the
arbitrator’s interim award, however, the Five Members amended the
captions and their pleadings to reflect, where necessary, which individuals
were serving in their capacity as trustees of trusts. Appellants did not object
to the accuracy of the amended pleadings, and do not do so now. Rather,
they argue they were “harmed” by having to proceed with arbitration
despite the error in the pleadings. We reject this argument as unsupported
and moot. “Failure to formally amend [] pleadings will not affect a
judgment based upon competent evidence.” Elec. Advert., Inc. v. Sakato, 94
Ariz. 68, 71, 381 P.2d 755, 756-57 (1963). Further, the pleading error was
corrected and accepted by the arbitrator before the interim award was
issued. The final award that was appealed to the superior court and to this
court accurately reflects the parties in their proper capacities. And,
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PHOENIX-TUCSON v. DEETZ et al.
Decision of the Court
Appellants do not explain how the presentation of the matter to the
arbitrator would have been different without the technical pleading error.
Most importantly, the arbitrator found that competent evidence supported
an award in favor of the Five Members.
¶16 Finally, Appellants argue the trial court erred in compelling
arbitration because, at the time the declaratory actions were filed, there was
no “dispute” between the parties.8 Appellants claim that the filing of
declaratory actions constitutes insufficient evidence of a “dispute,” and, by
filing the declaratory actions here, they merely intended to seek guidance
from the superior court as to whether the LLCs’ operating agreements
entitled the Five Members to the records they requested.
¶17 As support for their argument, Appellants cite cases from the
Seventh and Ninth Circuit Appellate Courts.9 The cases Appellants rely on,
however, are inapposite. In those cases, one party was attempting to
impute an interpretation of a contract to another party for the purpose of
creating an issue for arbitration. See Chicago Typographical Union No. 16 v.
Chicago Sun-Times, Inc., 860 F.2d 1420, 1425 (7th Cir. 1988) (stating that one
party’s “unsupported suspicions” about how the other party might
interpret a contract was insufficient evidence of a dispute); Alpha Beta Co. v.
Retail Store Emps. Union, Local 428, 671 F.2d 1247 (9th Cir. 1982) (holding no
dispute existed where an employer merely suspected that a union would
adopt a different interpretation of a clause in a contract between the
parties).
¶18 Here, however, neither party was imputing an interpretation
of the LLCs’ operating agreements to the other party. Rather, at the time
Appellants filed the declaratory actions, both parties had already espoused
contradictory interpretations of the operating agreements in letters to each
other and through counsel. Further, in their requests for declaratory relief,
Appellants confirmed the existence of a dispute by stating, “Defendants are
not entitled to inspect or copy . . . Plaintiff’s financial records. . . .
Notwithstanding the foregoing, Defendants continue to claim that they are
8 The parties’ operating agreements specify that “any dispute arising
out of this Agreement shall be resolved through arbitration . . . .” (emphasis
added).
9 If on point, federal precedent may be instructive, but is not binding
on this court. See, e.g., State v. Mitchell, 234 Ariz. 410, 418, ¶ 29, 323 P.3d 69,
77 (App. 2014) (“[D]ecisions of the Ninth Circuit, although persuasive, are
not binding on Arizona courts.”).
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PHOENIX-TUCSON v. DEETZ et al.
Decision of the Court
entitled to inspect and copy Plaintiff[‘]s financial records . . . .” Thus, the
record clearly demonstrates the existence of a dispute.
¶19 Moreover, in Arizona, courts generally resolve doubts about
the arbitrability of disputes in favor of arbitration. See Sun Valley Ranch 308
Ltd. P’ship ex rel. Englewood Properties, Inc. v. Robson, 231 Ariz. 287, 292, ¶ 13,
294 P.3d 125, 130 (App. 2012). And, as the trial court in the HVRI action
recognized, the arbitration clause in the parties’ operating agreements in
this case “is broad and applies to any dispute.”
¶20 Accordingly, the record supports the trial court’s orders
compelling arbitration.
II. The Superior Court Did Not Err in Confirming the Arbitrator’s
Awards
¶21 Pursuant to A.R.S. § 12-3023(A)(4) (2016), an arbitrator’s
award may be vacated where the arbitrator exceeded his powers. “[The]
party attacking the award has the burden of showing that the arbitrator[]
exceeded [his] powers under the [agreement].” Smitty’s Super-Valu, Inc. v.
Pasqualetti, 22 Ariz. App. 178, 182, 525 P.2d 309, 313 (App. 1974). “We
review the superior court’s decision to confirm an arbitration award in the
light most favorable to upholding the decision and will affirm unless the
superior court abused its discretion.” RS Industries, Inc. v. Candrian, 240
Ariz. 132, 135, ¶ 7, 377 P.3d 329, 332 (App. 2016).
¶22 Here, Appellants argue the superior court erred in confirming
the arbitrator’s awards because the arbitrator exceeded his powers by (1)
finding that PEDCO’s amendment to its operating agreement was null and
void and (2) requiring Appellants to produce their business information to
the Five Members without protecting its confidentiality.10 Appellants,
10 The Five Members contend that Appellants are statutorily barred
from challenging the arbitrator’s interim award because they did not file a
motion to vacate, modify, or correct the award within ninety days of
receiving notice of the award. See A.R.S. §§ 12-3023(B), 12-3024(A) (2016).
Although the arbitrator stated the interim award was a “full settlement of
all claims and counterclaims,” he did not indicate the award was
immediately appealable. Further, the award’s designation as an “interim
award” suggested that a final, appealable award would follow. See A.R.S.
§ 12-3008(B)(1) (2016) (“The arbitrator may issue such orders for interim
remedies, including interim awards, as the arbitrator finds necessary to
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PHOENIX-TUCSON v. DEETZ et al.
Decision of the Court
therefore, do not argue that the arbitrator exceeded his powers because he
lacked the power to rule on the issues presented for review. Instead, they
argue the arbitrator exceeded his powers by ruling incorrectly. However,
“the arbitrator’s decisions are final and binding as to both issues of fact and
law, regardless of the correctness of the decision,” Atreus Cmties. Grp. of
Ariz. v. Stardust Dev., Inc., 229 Ariz. 503, 506, ¶ 13, 277 P.3d 208, 211 (App.
2012), and we will not review the merits of an arbitrator’s factual findings
or legal conclusions.
¶23 Accordingly, because Appellants have failed to show that the
arbitrator exceeded his powers under the law and the parties’ operating
agreements, the superior court did not abuse its discretion in confirming
the awards.
III. Attorneys’ Fees
¶24 The LLCs’ operating agreements provide that “[t]he
prevailing party shall be entitled to all costs incurred in connection with the
arbitration proceeding, including the fees of the arbitrator, its reasonable
attorneys’ fees, witness fees and other costs as determined by the
arbitrator.” Because this appeal results from the superior court’s orders
compelling arbitration and confirming the arbitrator’s awards, we conclude
the appeal was taken “in connection with the arbitration proceeding.”
Accordingly, we award the Five Members their costs and reasonable
attorneys’ fees on appeal, subject to compliance with ARCAP 21.11 See also
A.R.S. § 12-341.01(A) (2016) (“In any contested action arising out of a
contract, express or implied, the court may award the successful party
protect the effectiveness of the arbitration proceeding and to promote the
fair and expeditious resolution of the controversy, to the same extent and
under the same conditions as if the controversy were the subject of a civil
action.”). Appellants’ failure to appeal the interim award within ninety
days therefore does not constitute waiver. Accordingly, we address
Appellants’ arguments challenging the interim award on their merits. Cf.
Adams v. Valley Nat’l Bank of Ariz., 139 Ariz. 340, 342, 678 P.2d 525, 527 (App.
1984) (stating courts prefer to decide cases upon their merits rather than to
dismiss summarily on procedural grounds).
11 The Five Members also seek fees pursuant to A.R.S. § 12-349 (2016),
contending Appellants’ appeal lacks substantial justification. However,
based on our interpretation of the parties’ operating agreements, we need
not reach that issue.
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PHOENIX-TUCSON v. DEETZ et al.
Decision of the Court
reasonable attorney fees.”); A.R.S. § 12-341 (2016) (“The successful party to
a civil action shall recover from his adversary all costs expended or incurred
therein unless otherwise provided by law.”).
CONCLUSION
¶25 The superior court’s orders compelling arbitration and
confirming the arbitration awards are affirmed, and the interim stay
previously entered by this court relative to the production of documents is
hereby lifted. We further award the Five Members their costs and
reasonable attorneys’ fees incurred on appeal.
AMY M. WOOD • Clerk of the Court
FILED: AA
11