Singh v. Malhotra

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

RAJEEV SINGH, Plaintiff/Appellant,

v.

RAKESH MALHOTRA, Defendant/Appellee.

No. 1 CA-CV 17-0033
FILED 2-22-2018

Appeal from the Superior Court in Maricopa County
No. CV2014-010941
The Honorable Karen A. Mullins, Judge

REVERSED AND REMANDED

COUNSEL

Al Arpad, Esq., Phoenix
By Alexander R. Arpad
Counsel for Plaintiff/Appellant

Stinson Leonard Street, LLP, Phoenix
By Carrie M. Francis, Lonnie J. Williams, Jr
Counsel for Defendant/Appellee
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MEMORANDUM DECISION

Judge Jon W. Thompson delivered the decision of the Court, in which
Presiding Judge Kenton D. Jones and Judge Patricia A. Orozco 1 joined.

T H O M P S O N, Judge:

¶1 In this action, plaintiff/appellant Rajeev Singh (Singh)
appeals from the trial court’s partial grant of summary judgment, and its
second judgment after a bench trial on the remaining claims, in favor of
defendant/appellee Rakesh Malholtra (Malhotra). For the reasons set forth
below, we reverse and remand for a new trial on all substantive claims,
consistent with this decision.

FACTUAL AND PROCEDURAL HISTORY

¶2 This case concerns two separate matters and incorporates
claims for conversion, intentional interference with contract (or contractual
relationship), breach of fiduciary duty, and unjust enrichment pertaining to
certain alleged assets of Saguaro Medical Associates, P.C. (Saguaro).

¶3 At all relevant times, Saguaro was an Arizona professional
corporation with its primary place of business in Maricopa County,
Arizona. Malhotra was a shareholder, President and director of Saguaro.
Malhotra and another shareholder and director, Satya Atluri, were the only
shareholders involved in the administration of the practice. Saguaro
initiated Chapter 7 Bankruptcy proceedings on October 11, 2012. 2 The

1 The Honorable Patricia A. Orozco, retired Judge of the Court of
Appeals, Division One, has been authorized to sit in this matter pursuant
to Article 6, Section 3, of the Arizona Constitution.

2 Saguaro was under the supervision of the United States Bankruptcy
Court for the District of Arizona at the time the underlying lawsuit was filed
in the state trial court.

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underlying lawsuit was filed by Singh, as successor in interest to Saguaro,3
against Malhotra, in his capacity as President and a director of Saguaro.

¶4 The first matter pertains to the settlement of a federal lawsuit,
brought by Saguaro against Banner Health in February 2008 alleging,
among other claims, breaches of contract (the Hospital Action). 4 Malhotra
filed an amended complaint on Saguaro’s behalf in the action in late July
2008, at the same time asserting individual claims on his own behalf as an
additional plaintiff. The Hospital Action was settled in February 2010.
Malhotra’s only remaining claim at the time of the settlement was for
interference with contractual relations. In the immediate lawsuit, Singh
alleged Malhotra took 100% of the net settlement proceeds from the
Hospital Action for himself, and diverted Saguaro funds to pay his personal
legal fees. Singh asserted claims against Malhotra for conversion, breach of
fiduciary duty, and unjust enrichment.

¶5 The second matter relates to a contract between Havasu
Regional Medical Center (HRMC) and Saguaro (the Lake Havasu Contract).
HRMC initiated discussions with Saguaro to become the exclusive contract
provider of hospitalist services at HRMC, in Lake Havasu, Arizona. On
March 26, 2008, Malhotra obtained a letter of intent from HRMC, awarding
the contract to Saguaro. Saguaro, through Malhotra as its President, signed
the Lake Havasu Contract with HRMC on April 28, 2008. On or about April
30, 2008, Malhotra assigned the Lake Havasu Contract to Polaris Medical
Group, LLC (Polaris), for zero consideration. At the time, Malhotra
retained sole discretion to make decisions on Saguaro’s behalf. 5 The
contract was signed by a representative of HRMC on May 10, 2008.

3 Singh became the successor in interest to Saguaro’s claims through
an assignment from Saguaro’s bankruptcy trustee.

4 Saguaro was under contract to provide Banner Health with
hospitalist/medical services. Banner Health terminated its contract with
Saguaro on or about March 28, 2008.

5 Singh’s complaint alleged that Malhotra did not inform any other
shareholder or director of Saguaro that he had assigned a contract owned
by Saguaro to Polaris. The parties stipulated that as of the beginning of
2008, Saguaro had six shareholders, including Malhotra. Four of the
shareholders, who were also physicians, notified Malhotra of their
resignations on January 18, January 28, January 30 and February 1, of 2008.

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¶6 At the time of the assignment, Polaris had only one member,
Innovative Solutions Consulting, LLC, which only had one member, Abhay
Padgaonkar (Padgaonkar). Padgaonkar was never a member of Saguaro.6
Saguaro could not fully pay its debts as of late May 2008. Malhotra became
a 51% member of Polaris on May 30, 2008. He later assigned his 51%
membership in Polaris to Axis Inpatient Management, LLC (Axis), of which
he was the sole member.

¶7 Neither Saguaro nor Polaris could service the Lake Havasu
Contract at the time Malhotra assigned it to Polaris. Polaris had no
employees, and Malhotra contended no physicians were willing to work
with Saguaro to fulfill the contract. Following the assignment, Polaris
contracted with or hired various physicians, including Malhotra, to provide
medical services to satisfy the contract. Saguaro stopped providing medical
services around the end of June 2008, even though as of the date of
assignment, it still had approximately 20 employees, comprised of 10
doctors and at least 10 staff.

¶8 In this lawsuit, Singh asserted claims against Malhotra for
intentional interference with an existing contractual relationship between
Saguaro and HRMC, breach of fiduciary duty, and unjust enrichment.
Malhotra filed a motion to dismiss all claims relating to both matters, 7 but
the trial court ultimately denied that motion. Malhotra subsequently filed
a motion for summary judgment on all claims.

¶9 The trial court granted the requested relief as to all claims
related to the Hospital Action, and on the intentional interference with

Pursuant to the shareholder agreements these resignations were to be
effective 90 days after the notifications—April 17, April 27, April 29, and
April 30, of 2008, respectively. Satya Atluri, the other shareholder and
director, resigned in May 2008, effective 90 days later in August 2008.

6 Singh’s complaint asserted that “[i]n order to obtain HRMC’s
approval of the assignment of the Lake Havasu Contract to Polaris,
Padgaonkar, with Malhotra’s knowledge and approval, falsely represented
that Saguaro and Polaris were identical.” It additionally alleged that prior
to the assignment of the Lake Havasu Contract, Malhotra and Padgaonkar
agreed that Malhotra or his designee would later become a member of
Polaris and would share in the benefits of the Lake Havasu Contract.

7 One of Malhotra’s claims was that the action was barred by the
statute of limitations. The trial court concluded otherwise.

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contract (or contractual relationship) claim pertaining to the Lake Havasu
Contract. Two claims—breach of fiduciary duty and unjust enrichment
regarding the Lake Havasu Contract—survived summary judgment and
were tried to the bench with an advisory jury. The advisory jury found
Malhotra liable for $225,000 as to the claim of his breach of a fiduciary duty.
It also found Malhotra had been unjustly enriched, but awarded no
additional damages. The trial court entered judgment in favor of Singh.

¶10 Malhotra filed a post-trial motion challenging the judgment
in Singh’s favor, and the trial court subsequently vacated its original
judgment and reversed itself, ordering judgment for Malhotra on both
claims. The trial court also awarded Malhotra his related taxable costs and
jury fees. Singh timely appealed both the court’s summary judgment
rulings and its second judgment after bench trial. We have jurisdiction
pursuant to Article 6, Section 9, of the Arizona Constitution and Arizona
Revised Statutes (A.R.S.) sections 12-120.21(A)(1) (2018) and -2101(A)
(2018).

DISCUSSION

I. The Trial Court Erred in Granting Partial Summary Judgment to
Malhotra on the Hospital Action Claims, and the Intentional
Interference With Contract (or Contractual Relationship) Claim.

¶11 We review the trial court’s summary judgment rulings de
novo to determine whether any genuine issues of material fact exist and, if
not, whether the trial court erred in applying the law. Bothell v. Two Point
Acres, Inc., 192 Ariz. 313, 316, ¶ 8 (App. 1998). In reviewing the evidence,
we draw reasonable inferences therefrom in the light most favorable to the
party against whom judgment was entered. See Duncan v. Scottsdale Med.
Imaging, Ltd., 205 Ariz. 306, 308, ¶ 2 (2003); Angus Med. Co. v Digital Equip.
Corp., 173 Ariz. 159, 162 (App. 1992). We will affirm a grant of summary
judgment when an appellant has not shown per the pleadings, depositions,
answers to interrogatories, and admissions on file, together with affidavits,
if any, that “there exists evidence of genuine issues for trial,” Molever v.
Roush, 152 Ariz. 367, 370 (App. 1986), and when the trial court was correct
for any reason—either argued below or supported by the evidence, see City
of Tempe v. Outdoor Sys., Inc., 201 Ariz. 106, 111, ¶ 14 (App. 2001).

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A. Claims Pertaining Only to the Hospital Action

1. Conversion

¶12 Arizona courts apply the Restatement (Second) of Torts’
definition of conversion. See Miller v. Hehlen, 209 Ariz. 462, 472, ¶ 34 (App.
2005). In Arizona, “[c]onversion is an intentional exercise of dominion or
control over a chattel which so seriously interferes with the right of another
to control it that the actor may justly be required to pay the other the full
value of the chattel.” Restatement (Second) of Torts § 222A(1) (1965).
Establishing these elements precedes any consideration of the seriousness
of the interference and whether the interfering party must pay full value.
Id. at § 222A(2).

¶13 In his complaint, Singh claimed Malhotra allocated the net
settlement proceeds to himself, including for his attorneys’ fees and costs
in connection with the Hospital Action and his separate Divorce Action. 8
The court ultimately found that Singh’s conversion claim lacked factual
support, and that Malhotra was entitled to summary judgment.

¶14 The court premised its summary judgment conclusion upon
a review of the record which, the court concluded, did not establish
Malhotra had allocated all the proceeds to himself, nor addressed how or
why the relevant allocations were improper. We clarify that Singh’s
argument was as to the net proceeds of the settlement, not all proceeds.

¶15 The only evidence in the record as to the allocation of the
settlement proceeds was Malhotra’s deposition testimony and answers to
interrogatories. The court highlighted that Malhotra testified that of the
proceeds,

$292,000 would be paid to New York Life Insurance Company
to repay the loan ‘on the life insurance policy that was held
by the pension plan for benefit of [Defendant] of the marital
community,’ that the loan had been used in part to pay legal
fees and expert witness fees for the Hospital Action, and that
$658,000 was paid to Defendant and his attorney, consisting
of $125,000 for economic damages and $533,000 for emotional
damages.

8 Matters regarding the Divorce Action have not been briefed on
appeal.

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¶16 Malhotra argued this was a proper allocation of the proceeds,
and that Singh had no evidence to the contrary. Singh offered the affidavit
of his attorney expert, Douglas Tobler, in his response to Malhotra’s motion
for summary judgment. Tobler opined that “at most ten percent (10%) of
the net Hospital Action settlement proceeds could reasonably have been
allocated to Dr. Malhotra’s sole surviving personal claim against the
Hospital.”

¶17 On appeal, Singh argues the trial court erred in granting
summary judgment on this record because, as a preliminary matter,
Malhotra did not carry his initial burden of production to show no genuine
issue of material fact, as Malhotra merely asserted that Singh had “no
evidence” the allocation of the settlement proceeds was improper. To this
point, Singh contends that even assuming the life insurance loan had been
used to pay legal fees, the remaining amount of the proceeds, “the total
net,” “whatever [they] were,” was taken by Malhotra for himself. Singh
additionally argues the court erred by ignoring his expert opinion evidence.

¶18 Even though Singh had the ultimate burden of proof on the
conversion claim, we agree that Malhotra was entitled to summary
judgment only if he, as the moving party, satisfied the initial burden of
production to show there is no genuine issue of material fact. See Nat’l Bank
of Ariz. v. Thruston, 218 Ariz. 112, 114-15, ¶ 12 (App. 2008). The moving
party carries his burden of production by either producing evidence
negating an essential element of the nonmoving party’s claim or defense,
or by showing that the non-moving party does not have enough evidence
of an essential element to carry its ultimate burden of persuasion at trial.
Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Companies, Inc., 210 F.3d 1099, 1102
(9th Cir. 2000). To be clear however, the movant’s burden remained with
Malhotra throughout summary judgment. Nat’l Bank, 218 Ariz. at 115-116,
¶¶ 16, 17 (citations omitted). Furthermore, “where the evidence or
inferences would permit a [reasonable trier of fact] to resolve a material
issue in favor of either party, summary judgment is improper.” United Bank
of Ariz. v. Allyn, 167 Ariz. 191, 195 (App. 1990)

¶19 Here, Malhotra’s testimony regarding the allocation of the
settlement proceeds does not clearly negate the conversion claim. The mere
allocation testimony does not refute that Malhotra’s personal exercise over
Saguaro’s funds seriously interfered with the corporation’s right to control
those funds. See Nat’l Bank, 218 Ariz. at 117, ¶ 21 (indicating that while a
party may point to discovery to show there is no evidence to support a
claim, “conclusory statements will not suffice”). At oral argument,
Malhotra’s appellate attorney conceded that nothing in the record shows

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that the proceeds were allocated by the settlement agreement.
Additionally, the stated allocation does not foreclose the possibility that
Malhotra failed to personally pay for a share of the associated litigation
costs, thereby leaving the corporation to pay the entire bill. Accordingly,
even if Malhotra may be deemed to have met his initial burden, Tobler’s
affidavit estimating Malhotra’s sole remaining personal claim to be worth
10% of the net proceeds, revived the material issue before the court.
Tobler’s opinion created a genuine issue of clearly material fact as to
Malhotra having taken a lopsided amount of the net proceeds to Saguaro’s
detriment and, implicitly, that Malhotra, in his individual capacity, took
monies to which Saguaro was entitled.

¶20 Because we conclude that a genuine issue of material fact
existed, we reverse the trial court’s grant of summary judgment on the
conversion claim.

2. Fiduciary Duty and Unjust Enrichment Pertaining to
the Hospital Action

¶21 As to his corporation, a corporate officer is obligated to serve
the purpose of his trust with fidelity, and is forbidden from doing any act
“by which the assets of the corporation are wrongfully diverted from
corporate purposes.” Masters Records, Inc. v. Backman, 133 Ariz. 494, 499
(1982) (quoting 3A W. Fletcher, Cyclopedia of the Law of Private Corporations
§ 1102 (rev. perm. ed. 1975) (footnotes omitted)). Malhotra, as president of
Saguaro, owed such fiduciary obligations to the corporation. 9 See, e.g.,
Kadish v. Phx.-Scotts. Sports Co., 11 Ariz. App. 575, 579 (1970).

¶22 “Unjust enrichment occurs when one party has and retains
money or benefits that in justice and equity belong to another.” Trustmark
Ins. Co. v. Bank One, Ariz., NA, 202 Ariz. 535, 541, ¶ 31 (App. 2002). A claim
of unjust enrichment requires proof of five elements: “(1) an enrichment, (2)
an impoverishment, (3) a connection between the enrichment and
impoverishment, (4) the absence of justification for the enrichment and
impoverishment, and (5) the absence of a remedy by law.” Wang Elec., Inc.
v. Smoke Tree Resort, LLC, 230 Ariz. 314, 318, ¶ 10 (App. 2012) (quotation
omitted).

9 Malhotra improperly claims he cannot owe a fiduciary duty to a
corporation where he is its sole shareholder.

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¶23 As noted, the trial court also granted summary judgment on
Singh’s fiduciary duty and unjust enrichment claims related to the Hospital
Action. Singh had grounded these two claims on separate bases:
Malhotra’s alleged payment of personal legal fees with corporate funds,
and Malhotra’s purported misappropriation of the Hospital Action
settlement funds. As to the first, the court found “Plaintiff has conceded
that it cannot prove its damages claim in regard to the payment of
Malhotra’s personal legal expenses.” We ultimately find the court
nonetheless erred in granting summary judgment as there remained a
material dispute on the misappropriation basis. Based upon our reasoning
supra ¶ 19, we conclude that a material issue existed as to whether Malhotra
engaged in wrongful conduct and was unjustly enriched in regard to the
net proceeds of the Hospital Action.

¶24 In sum, we reverse the trial court’s grant of summary
judgment in Malhotra’s favor on the conversion, fiduciary duty and unjust
enrichment claims pertaining to the Hospital Action settlement proceeds.

B. Intentional Interference With the Lake Havasu Contract, or
Contractual Relationship, Between Saguaro and HRMC 10

¶25 To establish a prima facie claim for intentional interference
with a contractual relationship, “a plaintiff must show ‘the existence of a
valid contractual relationship or business expectancy; the interferer’s
knowledge of the relationship or expectancy; intentional interference
inducing or causing a breach or termination of the relationship or
expectancy; and resultant damage to the party whose relationship or
expectancy has been disrupted.’” Safeway Ins. Co., Inc. v. Guerrero, 210 Ariz.
5, 10 (2005); Miller v. Hehlen, 209 Ariz. at 471, ¶ 32 (quoting Wallace v. Casa
Grande Union High Sch. Dist. No. 82 Bd. of Governors, 184 Ariz. 419, 427 (App.
1995)). “One who intentionally and improperly interferes with the
performance of a contract . . . between another and a third person by
inducing or otherwise causing the third person not to perform the contract,
is subject to liability to the other for the pecuniary loss resulting to the other
from the failure of the third person to perform the contract.” Restatement
(Second) of Torts § 766 (1979).

10 Contrary to Malhotra’s position on appeal and the trial court’s
conclusion in footnote one of its summary judgment ruling minute entry,
we do not find that Singh did not address the interference argument in
responding to the motion for summary judgment and thus waived it.

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¶26 In granting summary judgment to Malhotra as a matter of
law, the trial court found that “Defendant, as President of Saguaro, caused
a contract between Saguaro and Havasu Regional Medical Center, LLC, to
be assigned from Saguaro to Polaris.” The court then concluded Malhotra
thus, “did not, as a matter of law, cause a third party not to perform a
contract with another nor did he cause a third party not to enter into or
continue a business relation with another.” This conclusion was based
upon the principle that “[a] party cannot be held liable in tort for intentional
interference with its own contract.” Campbell v. Westdahl, 148 Ariz. 432, 438
(App. 1985). The court appears to have conflated its consideration of
Malhotra and Saguaro as a single entity. In doing so, the court erred given
the facts of the case.

¶27 It is axiomatic that, generally, individual officers and
directors of a corporation are legally separate and distinct entities from the
corporation itself. While the two may merge, such as when an officer or
director acts on behalf of his corporation, whether Malhotra was acting for
the corporation, as opposed to himself personally, was the very issue
underlying the court’s reason for denying summary judgment, in the same
minute entry, on the fiduciary duty and unjust enrichment claims
pertaining to the Lake Havasu Contract. See S. Union Co. v. SW Gas Corp.,
165 F. Supp. 2d 1010, 1038 (D. Ariz. 2001) (“[W]hen a defendant is both an
agent of a party to the contract and the person accused of tortious
interference, a plaintiff may assert the cause of action by additionally
proving the defendant acted so contrary to the principal’s interests that his
actions could only have been motivated by personal interests.”) (Alteration
in original) (quotation and citations omitted). Further, as suggested in our
Lake Havasu Contract fiduciary duty review, beginning infra ¶ 33, the
evidence before the court at trial, may likely indicate that in transferring the
contract to Polaris without consideration having been paid for its
acquisition by Polaris, Malhotra cannot be deemed to have acted on behalf
of Saguaro.

¶28 Accordingly, we reverse and remand for a new trial on this
claim.

II. The Trial Court Erred in Re-entering Judgment on the Remaining
Claims That Were Tried, and Its Re-entered Judgment Was Not
Supported by Substantial Evidence.

¶29 In an equitable action, a trial court is not bound by an
advisory jury’s findings, and its findings supersede the jury’s
determinations as the basis for its judgment. Wooldridge Const. Co. v. First

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Nat’l Bank of Ariz., 130 Ariz. 86, 88 (App. 1981) (citations omitted).
Additionally, a trial court is not presumed to have adopted an advisory
jury’s findings merely by not making separate findings, where no findings
were requested. Estate of Olivas, 132 Ariz. 61, 63 (App. 1982).

¶30 The court rendered two separate judgments in this matter
pertaining to Singh’s Lake Havasu Contract fiduciary duty and unjust
enrichment claims, which were tried with an advisory jury. Its original
judgment, regarding both claims, was rendered consistent with the
advisory jury’s verdict in favor of Singh. That judgment was rendered
without accompanying findings and conclusions of law. 11 Malhotra then
submitted a post-trial motion, which he proffered as a “Renewed Motion
for Judgment as a Matter of Law, to Vacate or Amend the Judgment, or
Alternatively for a New Trial.” He made this motion pursuant to Rules
50(b), 52(b), and 59(a)(8), (b), (c)(4) and (1). The court ultimately ordered a
different judgment, granting Malhotra’s motion.

¶31 The court’s second judgment purported to be a review of the
evidence’s sufficiency. That judgment includes findings and reweighs the
evidence which had been submitted at trial and vacates the court’s prior
judgment in Singh’s favor. The court did not specify the rule under which
it had acted, but we conclude, to the extent the court ordered judgment in
accord with Malhotra’s motion, it intended to do so pursuant to Rule
52(b). 12

¶32 We note that most of the trial court’s findings implicate mixed
questions of law and fact, or are legal conclusions. We are not restricted to
favorably construe the evidence to support such a judgment, and may draw
our own legal conclusions from the facts found or inferred in the trial

11 Neither party had requested findings.

12 Rule 52(b) permits a court, upon motion, to amend findings
requested under Rule 52(a) or make additional findings, and to amend
judgment accordingly. Rule 50(b) allows judgment as a matter of law,
which foreclosed the court from reweighing evidence and making findings,
as it did here. See Mcbride v. Kieckhefer Assocs., Inc., 228 Ariz. 262, 265, ¶ 11
(App. 2011). Rule 59 authorizes modifying, amending, or vacating a
judgment upon grant of a new trial motion. Here, prior to vacating the first
judgment, the court stated that “a new trial is unnecessary as the Court has
already heard all of the evidence and the jury verdict was merely advisory.”

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court’s judgment, and are not bound by its findings. Estate of Musgrove, 144
Ariz. 168, 170 (App. 1985). We review a judgment following a bench trial
to determine whether it is supported by substantial evidence 13, Wooldridge,
130 Ariz. at 88 (citing Mullins v. Horne, 120 Ariz. 587, 591 (App. 1978)), and
review a trial court’s decision to vacate its own judgment and re-enter
judgment for an abuse of discretion, Grant v. Ariz. Pub. Serv. Co., 133 Ariz.
434, 455-56 (1982), supp. op.

A. Fiduciary Duty Pertaining to the Lake Havasu Contract

¶33 As previously noted, Malhotra, as Saguaro’s director, was
under a fiduciary duty to serve the corporation with fidelity, and to avoid
engaging in any act “by which the assets of the corporation are wrongfully
diverted from corporate purposes.” Masters Records, Inc., 133 Ariz. at 499.

¶34 Such fiduciary duties generally exist in tandem with the
business judgment rule, which presumes a director has acted in good faith
in making a business decision. See United Dairymen of Ariz. v. Schugg, 212
Ariz. 133, 140, ¶ 31 (App. 2006) (citation omitted). That rule “precludes
judicial inquiry into actions taken by a director in good faith and in exercise
of honest judgment in the legitimate and lawful furtherance of a corporate
purpose.” Shoen v. Shoen, 167 Ariz. 58, 65 (App. 1990). A plaintiff may rebut
the presumption only by showing the absence of good faith by clear and

13 Quoting In re CVR 1997 Irrevocable Trust, 202 Ariz. 174, 177 (App.
2002), Malhotra argues that we must “presume that the trial court found
every fact necessary to support its ruling and affirm if any reasonable
construction of the evidence supports the decision.” He argues the
applicability of this premise to this case on the basis that the court made no
specific findings in rendering judgment. Appearing to draw no meaningful
distinction between the court’s first judgment and its second judgment,
Malhotra further argues that because “the trial court made no findings of
fact or conclusions of law and . . . the parties requested none, all inferences
supported by the evidence must be drawn in favor of Malhotra and the two
judgments.” However, as already noted, the court’s original judgment after
trial was in Singh’s favor. That judgment, with no associated findings or
conclusions, and to which all necessary factual findings would therefore be
presumed, is not the judgment directly appealed. The court’s second
judgment included findings and conclusions. We consider these findings
and conclusions, see Wooldridge, 130 Ariz. at 88, and will not presume the
court made findings it did not articulate.

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convincing evidence. See A.R.S. § 10-830(D) (2004) (historical and statutory
notes).

¶35 The rule, however, implicitly recognizes that inherent in a
director’s fiduciary obligations is a prohibition against self-dealing, or other
actions indicating the absence of good faith. 14 Moreover, this court held in
Shoen that

[o]nce there is a prima facie showing that a director is
personally interested in a corporate transaction, the business
judgment rule does not apply, and the burden shifts to the
director to show that the decision with respect to a particular
transaction is fair and serves the best interests of the
corporation and the shareholders.

Shoen, 167 Ariz. at 65.15

¶36 Singh argues that the evidence shows Malhotra was acting for
his own interest and Polaris’s interest, not Saguaro’s corporate interests,
when he transferred the Lake Havasu Contract to Polaris without any
compensation to Saguaro. Consequently, Singh argues the business
judgment rule did not apply and Malhotra could not benefit from its
presumption of good faith. Malhotra asserts that Singh makes this
“exception” to the business judgment rule argument for the first time on
appeal. Our review of the record shows Singh first raised this argument in

14 Black’s Law Dictionary defines good faith as “[a] state of mind
consisting in (1) honesty in belief or purpose, (2) faithfulness to one’s duty
or obligation, (3) observance of reasonable commercial standards of fair
dealing in a given trade or business, or (4) absence of intent to defraud or
to seek unconscionable advantage.” Black’s Law Dictionary 713 (8th ed.
2004).

15 See also Kadish, 11 Ariz. App. at 578 (stating “[w]here the acts of an
officer or director smack of self-dealing . . . the officer or director has the
burden of proving the fairness of the transaction to the corporation to which
they owe a fiduciary duty”); F.D.I.C. v. Jackson, 133 F.3d 694, 700 (9th Cir.
1998) (under Arizona law, when the business judgment rule applies to
conduct of a corporation’s director, a showing of gross negligence is
necessary to strip the director of the business judgment rule’s protection;
however, when threshold requirements of the rule are not met, showing of
simple negligence can be sufficient to impose liability on director).

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response to Malhotra’s motion to dismiss in the trial court, although
without reference to Shoen.

¶37 We additionally consider the possibility that Singh may have
waived the argument by failing to request a burden shifting jury
instruction. In AMERCO v. Shoen, this court refused to address an
argument premised on Shoen v. Shoen, as to “whether the burden of proof
should have been shifted . . . because plaintiffs failed to preserve [the] issue
for appeal []” by not requesting a final instruction in that regard. 184 Ariz.
150, 160-61 (App. 1995). AMERCO is inapplicable to this case as it was
considered in the context of a jury trial. See Fuentes v. Fuentes, 209 Ariz. 51,
57, ¶¶ 31-32 (App. 2004) (unlike a jury, the trial judge in a bench trial is
presumed to know the law and to have applied it in making her decision).

¶38 As to the legal standing of the Shoen decision, both parties
alert this court to the possibility that the “exception” may have been
narrowed or limited by A.R.S. § 10-830 et seq. which codified the duties of
corporate directors and officers in 1996, subsequent to the issuance of Shoen.
Singh additionally points out that the extent or possibility of such
narrowing or limiting “has not been determined by Arizona courts.”
Nothing in the relevant statute shows an intent to eviscerate, limit, or even
address the reasoning and holding of Shoen. See A.R.S. § 10-830. Shoen
remains good law, and as such the trial court is presumed to know it and
apply it in rendering a decision.

¶39 Here, the court’s final judgment appears to allow Malhotra to
benefit from the business judgment rule without considering Shoen, albeit
finding that “Plaintiff cast doubt as to whether Defendant Malhotra acted
in good faith or in the exercise of honest judgment in the legitimate and
lawful furtherance of a corporate purpose.” The court’s judgment does not
address, perhaps because the court failed to assess, whether Singh’s
evidence that casts “doubt” would amount to a prima facie showing of
personal interest, thereby transferring the burden to Malhotra to prove he
acted fairly and to serve Saguaro’s best interests. See Shoen, 167 Ariz. at 65.
Accordingly, we find the court erred in granting judgment, without
undertaking all legal considerations attendant to this determination.

¶40 The court’s judgment is additionally wanting in applying the
benefit of the business judgment rule. In vacating and reentering judgment,
the court found that “Plaintiff has not, by clear and convincing evidence,
rebutted the presumption that Defendant acted in accordance with his
fiduciary duties.”

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¶41 Appearing to find the issue of whether Malhotra had selfish
or personal motives overriding his proffered business rationalization
dispositive, the court concluded Singh had not offered sufficient evidence
to overcome the presumption. The court’s sufficiency finding is partly
based upon its reasoning that “affirmative evidence is needed to establish
a personal motive in order to meet the clear and convincing standard and
such evidence was not offered.” As a result, the court concluded,
Malhotra’s transfer of the Lake Havasu Contract from Saguaro to Polaris,
without consideration, was protected by the business judgment rule.

¶42 First, it is unclear what the court’s affirmative evidence
requirement means in the context of this case. The court made the subject
“affirmative evidence” statement following a sentence concluding that
Singh’s “Item no. 5” which he highlights in his responsive brief to
Malhotra’s post-trial motion, “is not sufficient to establish that Defendant
Malhotra’s motivation was personal rather than corporate.” Item no. 5 was
part of a section in Singh’s brief offering evidence presented at trial,
“contradict[ing] Malhotra’s self-serving post-hoc rationalization that he
acted honestly and in good faith with the genuine goal of helping Saguaro
. . . .” The item, standing alone, provides: “Malhotra’s testimony . . . that he
personally had ‘no place else to go’ but to work the Havasu contract—
suggesting that his motivation was personal rather than corporate.”

¶43 It is unclear why the court did not consider this statement by
Malhotra to be “affirmative evidence;” the court did not highlight what in
the record negated it. To be clear, affirmative evidence is defined as
evidence “[t]hat supports the existence of certain facts.” Black’s Law
Dictionary (7th ed. 1999). The use of the word “support” in the definition
suggests that while the evidence must be undisputed (not negated or
incredible), it need not be conclusive to be deemed affirmative.

¶44 Moreover, “[a]n objective determination of the state of mind
possessed by an actor in connection with [his] conduct is usually
accomplished by examining all the circumstances surrounding the
conduct.” Estate of Gordon, 207 Ariz. 401, 406, ¶ 24 (App. 2004). “[A] court
should not diminish the probative value of evidence only because it is
circumstantial.” State v. New Phoenix Auto Auction, Ltd., 185 Ariz. 302, 306
(App. 1996). When reviewed in its entirety, the section containing “Item
no. 5” highlights Malhotra’s statements, actions, and inactions, which Singh
argued showed Malhotra’s absence of good faith, and his motivation to act
for personal reasons rather than with the intent to further a corporate
purpose.

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¶45 The section consisted of the following items:

1. Malhotra’s remarkably honest 9/24/15 deposition
testimony (acknowledged at trial) that he didn’t change the
name and structure of Saguaro in order to fulfill the Havasu
contract because “yeah, because I didn’t want to.” See Ex A
hereto.

2. Malhotra’s 5/30/08 contemporaneous testimony in his
divorce case (acknowledged at trial—Ex. 1 to Motion for New
Trial, p. 25:18-23) that his motivation for using a different
entity to fulfill the Havasu contract was “I am shedding all the
baggage and starting life afresh”—rather than that Saguaro
couldn’t handle the contract so he saved the company from
the responsibility.

3. Malhotra’s testimony in various disputes with his enemies
(discussed at trial—Ex. 1 to Motion for New Trial, p. 26, 31-34
and missing pages) concealing the fact that a contract between
Saguaro and Havasu (rather than between Polaris and
Havasu) ever existed.

4. Malhotra’s trial testimony (beginning at Ex. 1 to the
Motion for New Trial, p. 26 and continuing onto pages not
provided) confirming that he had no problem providing
seriously misleading information under oath, which may
have affected the jury’s and Court’s judgment of his
credibility.

5. Malhotra’s testimony (Ex. 1 Motion for New Trial, p.
104:10-11) that he personally had ‘no place else to go’ but to
work the Havasu contract—suggesting that his motivation
was personal rather than corporate.

¶46 The statements by Malhotra indicating his impetus for the
transfer to Polaris should have been considered within the totality of the
circumstances. Instead, the court considered certain statements, such as
those expressed in item nos. 1 and 2, as merely examples of Malhotra’s
“irascible nature,” having “no real evidentiary value.” In addition to
appearing to disregard or diminish evidence it deemed to not be
“affirmative evidence,” the court’s final judgment improperly considered
the evidence Singh highlighted in a piecemeal, item-by-item fashion. To
be sure, the circumstances involved a transfer of all value from the Lake
Havasu Contract to Polaris, and (at least partly) back to Malhotra—given

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his 51% ownership interest in Polaris—through Axis of which Malhotra
was sole owner. The transaction took place within the context of Malhotra’s
expressed belief, which he repeats on appeal, that he could breach no
fiduciary obligation to Saguaro, as he was the corporation’s sole
shareholder.

¶47 Beyond the court’s tenuous lack of “affirmative evidence”
rationale underlying its evidentiary assessment, we note the court’s key
findings in its second (or final) judgment presents a stark reversal of its
summary judgment findings. We consider this to put the court’s final
judgment in perspective.

¶48 At summary judgment, the court found:

Although there is a presumption that an officer has acted in
conformity with his duties, that presumption may be rebutted
by clear and convincing evidence. See A.R.S. § 10-842(A), (D).
Here, however, there is no evidence that any compensation
was paid to Saguaro for the assignment of the Havasu
Regional Medical Center [contract] to Polaris, in which
Defendant had an interest, and there is no evidence that any
corporate purpose was served in assigning that contract
without compensation. Moreover, Plaintiff has offered
evidence that under the assigned contract, Polaris provided
services to Havasu Regional Medical Center and obtained
significant compensation for those services.

¶49 After trial, in reviewing its initial judgment, the court
acknowledged it had previously considered “Malhotra’s failure to obtain
some consideration from the assignment of the contract from Saguaro to
Polaris to be significant,” toward indicating Malhotra had not acted in
furtherance of a corporate purpose. However, the court then went on to
minimize the lack of efficacy in Malhotra not having obtained any
consideration for Saguaro. In this regard, the court found that “Malhotra’s
testimony that he could not find physicians to work under the Saguaro
name given the Banner Health litigation supports his argument that the
contract had no value.” Malhotra had argued that because Saguaro, as it
was, “could not provide the professional services required under that
contract,” the contract had no value to Saguaro and therefore “was not an

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asset” that could be “‘wrongly diverted’ by being transferred to Polaris,”
and Saguaro “was not and could not have been damaged by the transfer.”16

¶50 While the evidence affirms that Saguaro, as it existed at the
time of contracting, 17 could not have provided services, the essential
premise underlying the “no value” argument is faulty. As Singh pointed
out within his responsive brief to Malhotra’s post-trial motion and briefs on
appeal, the Lake Havasu Contract was not rendered valueless, and
therefore could not generate funds with which debt might be paid, merely
because the contract was not assignable after it was made, or because
Saguaro might have been unable to service it. “An asset, corporate or
otherwise, is generally defined as ‘property of any kind, whether real or
personal, tangible or intangible, legal or equitable, which can be made
available for the payment of debts.’” Master Records, Inc., 133 Ariz. at 499
(quoting Harris v. United States, 431 F. Supp. 1173, 1178 (E.D. Va. 1977)).
Singh argued Malhotra could have contracted to pay Saguaro a percentage
of the profits it realized on the Lake Havasu Contract. In this regard,
Singh’s counsel had the following exchange with Malhotra at trial:

Q. (BY MS. HUMPREY:) So your position is people didn’t
want to work with Saguaro as of April 30, 2008, correct?

A. In fact, even prior to that, none of the physicians that I
approached within or outside of Saguaro wanted to work
with Saguaro or under Saguaro.

...

16 The court made no finding or reference regarding Malhotra’s
argument that its decision to transfer the contract to Polaris was in
Saguaro’s best interests because Polaris assumed Saguaro’s potential
liability under the contract, given that Saguaro could not have serviced the
contract. The court also found Malhotra’s testimony that HRMC expressed
reservations about entering into a service contract with Saguaro could not
be corroborated.

17 Singh argued Malhotra could have reconstructed Saguaro to enable
it to service the contract. Malhotra’s retort was that putting “lipstick on a
pig ain’t going to make it fly.”

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Q. And your position is also that if you had signed a
contract between Polaris and Saguaro so Saguaro would get
paid a percentage of the profits, that those doctors would
have refused to work for Polaris on the ground that this
contract existed?[18]

A. I think that—that’s the question that you haven’t asked
before. So I don’t quite know how to answer that.

Q. Have you not thought about that?

A. Thought about what?

Q. Okay. Are any of the doctors who worked for Polaris
going to come in and testify and say that they would never
have worked for Polaris if they had known it had a contract
to pay a percentage of profits to Saguaro?

A. They had no business of knowing what contract
Polaris had with anything or anybody, so—

...

Q. It was none of their business if Polaris had a contract
with Saguaro, was it?

A. No.

¶51 Given these considerations, we cannot conclude the court
properly evaluated the evidence before it, or that its decision was supported
by substantial evidence. For this reason, and the trial court’s failure to

18 While Malhotra testified that the other member of Polaris, Mr.
Padgaonkar, wanted nothing to do with Saguaro, he did not state that
Padgaonkar expressly objected to paying a portion of the Lake Havasu
Contract’s profits to Saguaro, as they were earned. Additionally, Singh’s
counsel questioned Malhotra, about whether he could have contracted
between Access—which he owned 100 percent of and which held a 51
percent ownership interest in Polaris—and Saguaro where Access pays
Saguaro a percent of the profits it received from the Havasu contract. To
this inquiry, Malhotra responded: “Based on what logic? Based on what
percent? I—this is—I don’t know.”

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properly apply Shoen, we reverse the trial court’s fiduciary duty ruling and
remand for a new trial on the claim.

B. Unjust Enrichment Pertaining to the Lake Havasu Contract

¶52 Within its final judgment favoring Malhotra, the court found
that “Plaintiff has failed to establish the fourth element of Count Two,
Unjust Enrichment, i.e. a lack of justification for the enrichment and the
impoverishment.” This finding appears to be based upon many of the same
facts and conclusions underlying the court’s fiduciary duty ruling, and its
finding that Malhotra’s conduct was not improper based upon the business
judgment rule. 19 Because we consequently are unable to deduce the extent
to which the court’s legal error and seemingly incomplete evidentiary
evaluation imbued its unjust enrichment finding, this finding is likewise
deemed impaired, and we additionally reverse and remand for a new trial
on this claim.

III. Issues Relating to Exclusion of Evidence Are Moot.

¶53 On appeal, Singh argues the trial court erroneously excluded
certain evidence. First, Singh contends the trial court improperly excluded
Singh’s supplementary value (or damages) expert report based upon an
erroneous interpretation of Arizona Rule of Civil Procedure (Rule) 26.1.
Second, Singh’s argues that the court’s “[e]limination of the Hospital Action
claim[s] excluded evidence on the dispositive issue from the trial on the
Lake Havasu Contract claim [(i.e., Malhotra’s selfish motive)].” Because we
conclude the trial court’s substantive rulings in both the Hospital Action
and the Lake Havasu Contract Action cannot be sustained on appeal, and
accordingly reverse and remand the case for a new trial of all claims, the
issues asserted as to the exclusion of evidence are moot.

IV. Award of Costs

¶54 On appeal, Malhotra requests an award of his reasonable
expenses and costs pursuant to A.R.S. § 12-341 (2018) and Arizona Rules of
Civil Appellate Procedure 21. Singh did not request an award of costs or
fees. Because we reverse and remand the claims, there is not yet a
successful party, as required by A.R.S. § 12-341, allowing for an award of
costs. Cf. Henry v. Cook, 189 Ariz. 42 (App. 1996) (reversed upon certain
claims on appeal, but not remanded, with a determined successful party);
see Drozda v. McComas, 181 Ariz. 82, 85 (App. 1994) (explaining that the

19 The parties agree on this much.

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“successful party” is the party who wins the lawsuit); see also McEvoy v.
Aerotek, Inc., 201 Ariz. 300, ¶ 9 (App. 2001) (citation omitted) (indicating that
an award of costs is not mandatory until a party has been determined to be
successful). We accordingly defer as to the awarding of costs until there is
a successful party in this matter. At that time, the trial court may consider
the award of costs incurred on appeal.

CONCLUSION

¶55 For the reasons stated above, we reverse the trial court’s grant
of partial summary judgment and its final judgment on the two claims that
were tried. We remand for a new trial, consistent with this decision.

AMY M. WOOD • Clerk of the Court
FILED: AA

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