Wells Fargo Bank v. Az Laborers

IN THE SUPREME COURT OF ARIZONA
En Banc

WELLS FARGO BANK, a National ) Supreme Court
Banking Association, ) No. CV-00-0062-PR
)
Plaintiff-Counterdefendant- ) Court of Appeals
Appellee, ) No. 1 CA-CV 99-0184
)
) Maricopa County
v. ) Superior Court
) No. CV 97-06648
ARIZONA LABORERS, TEAMSTERS AND )
CEMENT MASONS LOCAL NO. 395 PENSION )
TRUST FUND; ARIZONA LABORERS, TEAM- )
STERS AND CEMENT MASONS LOCAL NO. )
395 DEFINED CONTRIBUTION PENSION )
TRUST FUND; ARIZONA OPERATING )
ENGINEERS DEFINED BENEFIT PENSION )
TRUST FUND; ARIZONA OPERATING ) O P I N I O N
ENGINEERS DEFINED CONTRIBUTION )
PENSION TRUST FUND; ARIZONA STATE )
CARPENTERS PENSION TRUST FUND; )
ARIZONA STATE CARPENTERS DEFINED )
CONTRIBUTION PENSION TRUST FUND; )
McMORGAN & COMPANY, a California )
corporation, as Managing Agent of )
the Funds, )
)
Defendants-Counterclaimants- )
Appellants. )
______________________________________)

Appeal from the Superior Court of Maricopa County

Honorable Steven D. Sheldon, Judge

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED

_________________________________________________________________

Court of Appeals, Division One
AFFIRMED IN PART; VACATED IN PART

_________________________________________________________________
Lewis and Roca LLP Phoenix
by John P. Frank
Peter Baird
Randy Papetti
Barry Willits
Attorneys for Plaintiff-Counterdefendant-Appellee

Morrison & Hecker L.L.P. Phoenix
by Michael C. Manning
James W. Howard
Monty L. Greek
Attorneys for Defendants-Counterclaimants-Appellants

_________________________________________________________________

J O N E S, Chief Justice

I. Facts and Procedural History

¶1 This controversy arises under a triparty agreement

between First Interstate Bank (“the Bank”),1 various union pension

funds (“the Funds”), and Mercado Developers, a partnership headed

by J. Fife Symington, III (“Symington”). In 1987, the Bank funded

a $2.3 million loan to a separate Symington partnership for a strip

mall development named Alta Mesa Village. The Funds were not

involved in the Alta Mesa transaction. Later the same year,

Symington approached the Bank to request financing for a

construction project in downtown Phoenix called the Mercado Project

(“the Mercado”).2 The Bank determined not to provide permanent

1
During the course of this litigation, First Interstate Bank
was purchased by Wells Fargo Bank and now does business under the
latter name.
2
The borrower was Mercado Developers Limited Partnership, an
Arizona general partnership, of which Symington was one of the
general partners. Symington was also a personal guarantor of both

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financing for the Mercado but offered Symington interim

construction financing if he were able to secure permanent

financing from another lender. The Funds agreed to be that lender.

¶2 The Bank’s obligation to fund the construction loan arose

the moment Symington secured a commitment from the Funds (the

“Permanent Commitment”).3 At the Bank’s request, in May 1988, the

Bank, the Funds, and Symington executed a Triparty Agreement

setting forth the rights and obligations of each party. Among

other things, the Agreement provided that the Bank would fund $10

million for construction of the Mercado, but that no later than

June 30, 1990, the Funds would “take-out” the Bank’s interim loan

with permanent financing.4 After the take-out, Symington would be

obligated to the Funds under the Permanent Commitment. The Funds’

obligation was conditioned on review and approval of Symington’s

the Mercado loan and the Alta Mesa loan. Symington is not a party
to this action.
3
Triparty Agreement § 1.3. “Construction Lender, in reliance
upon the Permanent Commitment, has agreed to lend the sum of
$10,000,000.00 as interim financing (the ‘Construction Loan’)
. . . .”
4
Triparty Agreement § 3.5. “Upon the Take-Out Date, provided
all of the terms, conditions and provisions of the Permanent
Commitment shall have been satisfied, or Permanent Lender shall
have waived satisfaction of such conditions or shall have agreed to
fund the Permanent Loan without complete satisfaction of such
conditions . . . Permanent Lender shall fund the Permanent Loan by
disbursing to Construction Lender the sum necessary to repay the
Construction Loan . . . .”

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financial status.5 The Funds could refuse the loan if contract

conditions were not met or if the Funds were dissatisfied with

Symington’s financial condition. For example, the Funds could

terminate the Permanent Commitment if Symington were to become

insolvent, make an assignment for the benefit of creditors, or fail

to pay debts as they matured.6 In addition, pursuant to the terms

of the Triparty Agreement, the Funds were entitled, on request, to

receive financial information from the Bank on the status of the

5
Permanent Commitment ¶ 28. “FINANCIAL STATEMENTS/CREDIT
REPORTS: Within thirty (30) days following acceptance of this
Commitment letter, Borrower and Borrower’s partners shall provide
Lender with satisfactory and current financial statements and
credit reports (dated not more than six (6) months prior to the
date hereof) demonstrating to Lender’s complete satisfaction the
Borrower’s financial stability and creditworthiness. Borrower and
Borrower’s partners shall provide Lender with updated statements
and reports (dated not more than six (6) months prior to the Loan
Funding Date) . . . .”
6
Permanent Commitment ¶ 29. “FINANCIAL CONDITION: Lender
may terminate this Commitment by written notice to you in the event
that (i) the Borrower, any partner of Borrower, any guarantor of
Borrower’s obligation, or any affiliate of Borrower . . . whose
activities have material effect on the financial capabilities of
Borrower, . . . (collectively referred to in this paragraph as
‘Debtor’) shall make an assignment for the benefit of creditors;
(ii) an application or petition is filed for the appointment of a
custodian, trustee, receiver or agent to take possession of the
real estate or any other property of Debtor; (iii) Debtor is
generally not paying Debtor’s debts as such debts become due; (iv)
Debtor becomes ‘insolvent’ as that term is defined in . . . the
‘Bankruptcy Code’. . .; (v) Debtor shall file a petition with the
bankruptcy court under the Bankruptcy Code, or commence any
proceeding relating to Debtor under any bankruptcy or
reorganization statute or under any arrangement . . . .”

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Mercado construction loan.7 The Bank was not required to volunteer

information to the Funds;8 Symington, however, was expressly

obligated to provide specific financial information to the Funds.

¶3 By early 1989, the Phoenix real estate market began to

experience a catastrophic decline, and Symington’s real estate

endeavors were not immune from the trauma. The loan balance on

Symington’s Alta Mesa development came due in March 1989, and

because of the project’s lackluster performance, Symington was

unable to satisfy the obligation. The loan appeared on the Bank’s

“Watch Report” for the first time in March 1989. The Watch Report

is an internal bank document that monitors problem loans. In

exchange for a fee, the Bank extended the loan until September 1,

1989. The loan was subsequently twice extended: on September 1

and December 1, 1989.9 When the obligation ultimately matured on

7
Triparty Agreement § 2.1. “. . . Construction Lender will
provide Permanent Lender with copies of architect’s certifications,
builder’s certifications, certificates of occupancy issued by any
municipality, lien waivers, and such other documents or information
relating to the Construction Loan as Permanent Lender may
reasonably request, provided that Construction Lender shall have
obtained such items in the normal course of its administration of
the Construction Loan, or can obtain such items without undue
expense . . . .”
8
Triparty Agreement § 5.1. “. . . Construction Lender shall
have no obligation to comply with any of the terms, conditions and
provisions of Permanent Commitment but may, at its election,
satisfy such requirements on behalf of Borrower in any manner not
inconsistent with this Agreement.”
9
The September 1, 1989, loan extension request included a
printout of Symington’s related commitments to the Bank, including
the Mercado loan.

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March 15, 1990, Symington was still unable to pay, and the loan

defaulted at the conclusion of business that day.

¶4 The events that occurred between late 1989 and July 1990,

and the effect of those events on the Funds’ ultimate decision to

fund the Mercado permanent loan are at the core of this lawsuit.

The Funds claim that, during these months, actions were carried out

by Symington and the Bank that were intended to cloak Symington

with a false appearance of financial vigor and to deprive the Funds

of any reason to refuse to fund the Permanent Commitment. The

Bank, of course, was concerned and anxious to obtain repayment of

the $10 million Mercado construction loan. The Bank contends what

it did to ensure the permanent loan was lawful, that by securing

the take-out, it was merely protecting its own interests, that it

was unaware of any fraudulent behavior by Symington, and that in

any event, it had no legal duty to the Funds to inform them of

anything.

¶5 Prior to March 1990, the Bank explored the option of

foreclosing the defaulted Alta Mesa loan, selling the property, and

issuing a deficiency notice to Symington. The Bank discussed this

proposal with Symington and asked him to submit a Business Plan

with recommendations for handling the troubled loan. In response,

on March 16, 1990, one day after the latest Alta Mesa loan

extension expired, Symington aide James Cockerham sent a letter to

the Bank suggesting that the Bank should take a cooperative

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approach to stabilize the Alta Mesa loan because “[f]oreclosure by

FIB [First Interstate Bank] and/or an assignment for the benefit of

creditors could have a detrimental impact to both the Partners and

FIB.” In his deposition, Cockerham acknowledged that one potential

detrimental impact would be to give the Funds a basis on which to

refuse to fund the permanent Mercado loan.

¶6 While Symington was attempting to salvage Alta Mesa, the

June 30, 1990, date on which the Funds were required to retire the

Mercado construction loan drew nearer. On or about May 4, 1990, as

part of his obligation under the Permanent Commitment, Symington

provided a certified financial statement to the Funds, current

through December 31, 1989. According to the Funds, they later

learned that the financial statement was false and included

exaggerated values and omissions, giving Symington a specious

appearance of solvency. Among other things, the financial

statement did not mention the financial troubles afflicting Alta

Mesa, nor did it mention the three extensions on that loan. In

fact, Symington asserted the same personal equity in the Alta Mesa

project that he reported on the statement given the Funds in 1987

to secure the permanent commitment.

¶7 On May 21, 1990, Doug Hawes, the Bank’s Alta Mesa loan

officer, requested approval once again to extend the Alta Mesa

loan, this time through July 1, 1990 -– one day after the Funds

were required to take-out the Bank’s interim loan on Mercado. One

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reason given by Hawes for the requested forbearance was to “[a]llow

time for finalization of the Mercado loan pay-off . . . .” On

May 25, the Bank consented to Hawes’ request and executed, in

Symington’s favor, a forbearance agreement on the Alta Mesa loan

until July 1, 1990.

¶8 Less than two weeks later, on June 7, 1990, Jeff White,

the Bank’s Mercado loan officer, submitted a memo to the Bank’s

Senior Loan Committee detailing Symington’s deteriorated financial

condition and requesting authority to charge off $1.2 million of

the Mercado construction loan that would not be paid by the Funds.10

White’s memo indicated that property values listed on Symington’s

most current financial statements “do not accurately reflect the

current market” and that “[c]ontingent debt also appears not to

have been fully accounted for on his recent statement.” Ward

Wilson, a member of the Senior Loan Committee, testified that the

Bank was concerned about intentional misstatements by Symington.

Before agreeing to accept less than the full $10 million, the Bank

requested an updated financial statement from Symington. In fact,

in an attempt to avoid the $1.2 million shortfall, the Bank

convened a meeting the next day, June 8, 1990, attended by, among

10
The shortfall occurred after the Funds exercised their right
to hold back nearly $1.2 million for tenant improvements and
interest reserves. Symington remained liable to the Bank for the
shortfall, so the Bank asked the Funds for a subordinate third lien
on the Mercado property to secure the shortfall. The Funds agreed
but demanded that Symington extend his personal guarantee to them
for another six years.

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others, Sam Coppersmith, counsel for the Funds. Discussion of the

shortfall was had but the meeting appears to have been unsuccessful

from the Bank’s standpoint.

¶9 At the Bank’s request, Symington resubmitted his

financial statement on June 26, 1990. With minor revisions, this

statement contained the same numbers that appeared on the May 4,

1990 statement. Ward Wilson testified the Bank’s concern was

“heightened” at this point, and when asked whether the Bank knew

Symington had provided the same financial numbers to the Funds,

Jeff White testified that he “would hope so.”

¶10 Evidence also disclosed significant banking

irregularities, allegedly in violation of federal banking

regulations and the established internal procedure within the Bank.

The Funds’ banking expert, Jeffrey Gaia, provided a declaration

that the Bank’s forbearance from enforcement of the Alta Mesa loan

was contrary to prudent banking practice for purposes of securing

the Mercado take-out. Robert Lee Creed, the Bank’s own employee,

testified that a forbearance not accompanied by a credit

authorization request is unusual if, as here, it extends the

maturity of the loan. The Alta Mesa forbearance was not

accompanied by a credit authorization request. In addition, the

Bank failed to report Symington’s false representations to federal

banking officials as required by federal regulations, where the

Bank was admittedly knowledgeable of the false financial statement.

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See 31 C.F.R. ¶ 103.18 (2001).

¶11 Finally, on June 29, 1990, against the background of a

real estate market suffocating from defaulted loans and

foreclosures and with Symington’s financial condition in grave

difficulty, the Funds complied with the terms of the Permanent

Commitment and funded the Mercado loan. Symington defaulted on the

loan in 1992. In 1993, the Funds foreclosed on Mercado and wiped

out the subordinate lien held by the Bank. The Funds obtained

judgment against Symington personally in 1995, after which he filed

for bankruptcy.11

¶12 The Funds later accused the Bank of wrongdoing, and the

Bank filed a complaint seeking a declaratory judgment that it had

complied with and performed all of its contractual obligations.

The Funds counterclaimed, charging the Bank with (1) aiding and

abetting fraud, (2) breach of the implied contractual covenant of

good faith and fair dealing, (3) intentional interference with

contractual relations, (4) fraudulent concealment, and (5) civil

conspiracy. The trial court entered summary judgment for the Bank

on all claims and awarded fees, finding that the Bank owed no

11
On February 16, 2001, U.S. Bankruptcy Court Judge George B.
Nielsen issued an order that Symington’s debt to the Funds will not
be discharged by his declaration of personal bankruptcy. Judge
Nielsen upheld the Funds’ claim that Symington submitted false
financial statements. The judge’s finding preserves Symington’s
liability for the debt. See In re J. Fife Symington, III, B-95-
08397-PHX-GBN; Norwest Bank (Minnesota), N.A. v. J. Fife Symington,
III, Adv. No. 96-523-GBN (February 16, 2001, order).

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fiduciary or contractual duty to the Funds to disclose information

about Symington’s financial condition. The court of appeals

affirmed. The Funds petitioned this court and we granted review.

We have jurisdiction pursuant to Arizona Constitution article VI,

section 5(3).

II. Analysis

A. Summary Judgment Standard

¶13 This court reviews de novo a grant of summary judgment,

views the evidence and reasonable inferences in the light most

favorable to the party opposing the motion, and the inferences must

be construed in favor of that party. Thompson v. Better-Bilt

Aluminum Prod. Co., Inc., 171 Ariz. 550, 558, 832 P.2d 203, 211

(1992).

¶14 Summary judgment is appropriate only if no genuine issues

of material fact exist and the moving party is entitled to judgment

as a matter of law. Ariz. R. Civ. P. Rule 56(c); Orme School v.

Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). Thus, in

the case at bar, summary judgment should have been granted on the

Bank’s motion only if the facts produced in support of the Funds’

claims “have so little probative value [given the quantum of

evidence required] . . . that reasonable people could not agree

with the conclusion advanced” by the Funds. Baker v. Stewart Title

& Trust of Phoenix, Inc., 197 Ariz. 535, 540, 5 P.3d 249, 254 ¶15

(App. 2000) (quoting Orme School, 166 Ariz. at 309, 802 P.2d at

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1008). We review the claims presented in the instant case pursuant

to the foregoing standard.

B. The “Duty” Concept

¶15 The Funds assert five distinct tort claims. On page 6 of

the trial court’s final order dated October 13, 1998, awarding

summary judgment to the Bank on all claims, the court reasoned that

no “special relationship” was created that placed an
affirmative duty upon the Bank to disclose its
“suspicions” or “speculations” about Symington’s
financial condition or commercial real estate
“adventures” to a third-party, sophisticated lender which
clearly had potential conflicting financial interests to
the Banks [sic].

The trial court relied on Kesselman v. National Bank of Arizona,

188 Ariz. 419, 937 P.2d 341 (App. 1996).

¶16 The court of appeals followed similar reasoning, finding

that the Bank’s duty to disclose information regarding the Alta

Mesa loan existed only to the extent that the Permanent Commitment

and Triparty Agreement allowed the Funds to obtain that information

by request from Symington and the Bank. The appellate court

resorted to a lack of duty to disclose rationale to affirm summary

judgment on all five of the Funds’ claims, even though it

specifically applied that lack of duty analysis only to the Funds’

allegations on two of the five, fraudulent concealment and

conspiracy.

¶17 We conclude that the lower courts erred. This is a case

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alleging intentional conduct and thus not a duty case in the

traditional sense. It was improper to award summary judgment to

the Bank on that basis.

1. Duty Not Required For Intentional Torts

¶18 All claims alleged by the Funds constitute intentional

torts. Cases relied on by the court of appeals to require a duty

to disclose were either negligence cases or cases of simple

nondisclosure. California Architectural Bldg. Prods. v. Franciscan

Ceramics, Inc., 818 F.2d 1466, 1472 (9th Cir. 1987) (failure to

disclose); Smith v. American Nat’l Bank and Trust Co., 982 F.2d 936

(6th Cir. 1992) (nondisclosure); Banco Espanol de Credito v.

Security Pac. Nat’l Bank, 973 F.2d 51, 56 (2d Cir. 1992), cert.

denied, 509 U.S. 903 (1993) (nondisclosure). Although the Funds’

counterclaim included an allegation of nondisclosure, summary

dismissal of that claim was apparently not appealed to the court of

appeals, nor was that claim raised in the Funds’ petition for

review to this court.

¶19 Negligence and nondisclosure claims differ from the

intentional tort claims on review here; each has different elements

and different requirements of proof. For example, numerous

decisions expressly distinguish between mere nondisclosure and

intentional concealment. See United States v. Colton, 231 F.3d

890, 899 (4th Cir. 2000). Unlike simple nondisclosure, a party may

be liable for acts taken to conceal, mislead or otherwise deceive,

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even in the absence of a fiduciary, statutory, or other legal duty

to disclose. Id. at 898; see also W. PAGE KEETON, ET AL., PROSSER AND

KEETON ON TORTS § 106 (5th ed. 1984) (“Prosser V”).

¶20 Moreover, duty, in the traditional sense, is a specific

concept applicable to the law of negligence, not to intentional

torts. See DAN B. DOBBS, THE LAW OF TORTS ch. 3, § 26, pp. 50-51

(2000) (“Intent and negligence are entirely different concepts.”).

One of the basic elements of a negligence cause of action is that

the defendant owed the plaintiff a duty of care. Id. at ch. 6,

§ 114, p. 269. Case law is replete with illustrations of this

basic concept. See Purvis v. Hamwi, 828 F. Supp. 1479, 1483 (D.

Colo. 1993) (“[A] finding of duty is necessary only for

. . . claims in negligence; . . . claims for intentional torts

require no traditional finding of duty . . . .”); see also Almand

v. Benton County, Ark., 145 B.R. 608, 617 (W.D. Ark. 1992) (an

attorney would be liable for negligence only to those to whom he

owed a duty but would be liable for intentional misrepresentation

or fraud to anyone); Taylor v. California State Auto. Ass’n Inter-

Ins. Bureau, 240 Cal. Rptr. 107, 113 (App. 1987) (distinguishing

negligent infliction of emotional distress from intentional

infliction of emotional distress, as the former must be predicated

on the existence of a duty); Waters v. Autuori, 676 A.2d 357, 367

(Conn. 1996) (Berdon, J., dissenting) (“Duty is an element of

negligence, but is not an element of an intentional tort.”), citing

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PROSSER V § 30 (italics in original); Smith v. Calvary Christian

Church, 592 N.W.2d 713, 721 (Mich. App. 1998) (plaintiff need not

prove duty in proving intentional torts), appeal granted, 607

N.W.2d 721 (Mich. 2000), judgment rev’d on other grounds, 614

N.W.2d 590 (Mich. 2000).

¶21 As the Purvis court most appropriately stated, “[I]t

would be anomalous to invoke a lack of a specific duty in

dismissing a complaint for an intentional act . . . . The duty, if

it must be so named, is obviously to refrain from intentional harm

to others. At the level of intent, reference to duty becomes

. . . needlessly academic . . . .” 828 F. Supp. at 1483-84.

2. Kesselman Is Inapposite and Distinguishable

¶22 The primary case relied on by the lower courts,

Kesselman, dealt solely with negligence-based claims that required

a predicate legal duty and is thus not applicable to the

intentional tort claims raised by the Funds. Kesselman, 188 Ariz.

at 419, 937 P.2d at 341. Moreover, Kesselman is distinguishable on

its facts.

¶23 Kesselman involved no intentional tort claims. It held

simply that a bank, under a negligence standard, is under no duty

to private investors to take affirmative measures to avoid loss

caused by check kiting by the bank’s customer, absent a special

relationship between the bank and the investors. Id. at 423-24,

937 P.2d at 345-46.

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¶24 The Kesselman plaintiffs cited several cases in support

of their argument that the bank owed them a duty of disclosure.

The court found these cases unhelpful to the plaintiffs’ argument,

pointing out that the “key distinguishing factor in all of the

cases [where a duty to disclose was found] . . . is that the banks

were directly involved with the third parties in the transactions

that were the subject of litigation. This involvement satisfied

the necessary relationship giving rise to the duty of disclosure.”

Id. at 423, 937 P.2d at 345 (emphasis added). The facts of

Kesselman disclosed no such relationship. In contrast, the

Triparty Agreement, which the Bank insisted upon in the case at

bar, provides clear, direct involvement between the Bank and the

Funds.

¶25 Moreover, while the court in Kesselman expressed no

opinion on whether the bank owed a duty to any regulatory agency to

report irregularities observed in its customer’s account, the court

did recognize, albeit in dictum, that fraudulent practices by a

customer have “a very damaging effect on innocent persons, and a

bank’s failure to put an end to the practice contributes to such

damage.” Id. at 424, 937 P.2d at 346.

¶26 Even if the Funds’ claims were dependent on a duty to

disclose, Kesselman itself cited a Minnesota case that more

accurately contemplates the facts presented here. See Richfield

Bank & Trust Co. v. Sjogren, 244 N.W.2d 648 (Minn. 1976). There,

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the Minnesota Supreme Court recited the rule that generally a party

to a transaction has no duty to disclose material facts to the

other party unless a “special circumstance” exists. Id. at 650.

The court acknowledged that special circumstances are typically

those where there is a fiduciary or confidential relationship, or

where one party has special knowledge of material facts to which

the other party has no access, or where one party has spoken, but

has not said enough to prevent his words from being misleading.

Id.

¶27 The court explained that there were situations beyond

those enumerated which would constitute special circumstances

giving rise to an obligation to disclose. Id. The court held that

one of those “special circumstances” arises when a bank has actual

knowledge of the fraudulent activities of a customer and that if a

bank has actual knowledge of the fraud, it has a concomitant

“affirmative duty to disclos[e] those facts” before it engages in

transactions with the customer which “further[] the fraud.” Id. at

652; see also Barnett Bank of West Florida v. Hooper, 498 So. 2d

923 (Fla. 1986) (special circumstance requiring disclosure may be

found where bank has actual knowledge of fraud being perpetrated).

¶28 Similarly, we have previously held that an escrow agent,

notwithstanding the duty of confidentiality, must disclose

information when the agent “‘knows that a fraud is being

committed.’” Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 353,

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813 P.2d 710, 718 (1991) (quoting Berry v. McLeod, 124 Ariz. 346,

352, 604 P.2d 610, 616 (1979). Although the agent does not have a

duty to investigate, she must disclose where she has “substantial

evidence” of fraud. Burkons at 355, 813 P.2d at 720.

¶29 In Lombardo v. Albu, 199 Ariz. 97, 100, 14 P.3d 288, 291

¶13 (2000), we held explicitly that a buyer’s agent in a real

estate transaction must disclose to the seller evidence known to

him that is material to buyer’s inability to perform. Here, the

Funds allege and have presented evidence that the Bank knew

Symington was advancing false and misleading financial information,

both to the Bank and to the Funds, regarding his ability to perform

the permanent loan obligations.

¶30 Thus, it was error for the lower courts to dismiss all of

the Funds’ intentional tort claims by citing Kesselman and relying

on the Bank’s alleged lack of duty to make disclosure.

III. The Funds’ Tort Claims

A. Aiding and Abetting Fraud

¶31 Arizona recognizes aiding and abetting as embodied in

Restatement § 876(b), that a person who aids and abets a tortfeasor

is himself liable for the resulting harm to a third person.

Gemstar Ltd. v. Ernst & Young, 183 Ariz. 148, 159, 901 P.2d 1178,

1189 n.7 (App. 1995), vacated on other grounds, 185 Ariz. 493, 917

P.2d 222 (1996); Gomez v. Hensley, 145 Ariz. 176, 178, 700 P.2d

874, 876 (App. 1984); see also RESTATEMENT (SECOND) OF TORTS § 876(b)

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(1977).

¶32 The aiding and abetting claim here was not specifically

addressed in the court of appeals decision, but summary judgment

was affirmed on the basis that the Bank had no duty to disclose

under Kesselman.

¶33 “[A]iding and abetting liability does not require the

existence of, nor does it create, a pre-existing duty of

care . . . . Rather, aiding and abetting liability is based on

proof of a scienter . . . the defendants must know that the conduct

they are aiding and abetting is a tort.” Witzman v. Lehrman,

Lehrman & Flom, 601 N.W.2d 179, 186 (Minn. 1999); Pacific Mut. Life

Ins. Co. v. Ernst & Young & Co., 10 S.W.3d 798, 804 (Tex. App.

2000) (to the extent that duty may be considered a part of the

scienter element of a fraud claim, such duty extends to all persons

the fraud defendant intends or has reason to expect will rely on

its misrepresentations (citing RESTATEMENT (SECOND) OF TORTS § 531)),

judgment rev’d, 51 S.W.3d 573 (Tex. 2001).

¶34 Claims of aiding and abetting tortious conduct require

proof of three elements:

(1) the primary tortfeasor must commit a tort that
causes injury to the plaintiff;

(2) the defendant must know that the primary
tortfeasor’s conduct constitutes a breach of duty;
and

(3) the defendant must substantially assist or
encourage the primary tortfeasor in the achievement

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 of the breach.

Gomez, 145 Ariz. at 178, 700 P.2d at 876 (citing RESTATEMENT (SECOND)

OF TORTS § 876(b)).

¶35 The Funds allege that Symington misrepresented material

facts by submitting false financial statements. Such proof, if

introduced by the Funds, will establish primary, tortious conduct

by Symington.

¶36 Because aiding and abetting is a theory of secondary

liability, the party charged with the tort must have knowledge of

the primary violation, and such knowledge may be inferred from the

circumstances. See In re American Continental Corp./Lincoln Sav.

and Loan Sec. Litig., 794 F. Supp. 1424, 1436 (D. Ariz. 1992)

(“American Continental”). Unquestionably, the Bank was aware of

Symington’s duty under the Permanent Commitment to provide accurate

financial information to the Funds. The Triparty Agreement

references the requirements of the Permanent Commitment in several

sections.

¶37 Evidence supporting the inference that the Bank had

knowledge of Symington’s fraud is contained, among other places, in

the financial statements Symington provided to the Bank on May 4

and June 21, 1990. Those statements contained information the Bank

knew was false: (1) Symington overstated the value on Alta Mesa by

$2 million and understated his personal liability on Alta Mesa by

$1 million. The Bank knew Alta Mesa was worth $1 million less as

-20-
a result of an appraisal conducted by the Bank in November 1989,

which reduced the property’s value by one-half;12 (2) Symington

represented $791,000 in “readily marketable securities.” The Bank

knew these securities were actually in spendthrift trusts and thus

inaccessible to creditors; (3) Symington responded “no” to the

question on the financial statement: “Are there any suits,

judgments, tax deficiencies, or other claims pending or in prospect

against you?” (Emphasis added). The Alta Mesa loan had been in

technical default since March 15, 1990, and the Bank obviously knew

it.

¶38 The Funds’ banking expert set forth several aspects of

Symington’s financial statement the Bank knew were false. Jeffery

P. Gaia Declaration at ¶ 44.13 The Bank’s knowledge of Symington’s

12
O. Jeffrey White [former Wells Fargo employee] admitted the
inconsistency between the value of Alta Mesa and the value
represented on Symington’s financial statement in his August 7,
1998 deposition:
Q. From 61, Exhibit 61, it looks like Mr.
Symington has an obligation of about $1
million to the Bank under his guarantee.
A. True.
Q. How does that square with him showing that he
has $250,000 of equity?
A. I believe –
MR. CARDENAS: Objection, asked and answered.
A. I believe I answered that. It doesn’t.
13
Gaia’s declaration was based upon his experience and
expertise as a banker, his personal knowledge of market conditions
and banking practices, his review of certain deposition testimony,
and his review of documents and records of First Interstate Bank
concerning the Alta Mesa and Mercado loans. Gaia has been
professionally employed in the banking industry since 1979. His
experience involved commercial, corporate, and real estate loans,

-21-
false and misleading representations is also reflected in the

Bank’s own memoranda. On June 7, 1990 (23 days before the take-

out), Jeff White’s memo to the Bank’s Senior Loan Committee

requesting authority to charge off the $1.2 million shortfall on

the Mercado loan described Symington’s then-existing financial

condition. A financial statement was provided to the Senior Loan

Committee with White’s memo. The memo demonstrates the Bank’s

knowledge:

Symington’s stated net worth is almost entirely vested in
commercial real estate, indicated market values of which
he has stated do not accurately reflect the current
market. Contingent debt also appears not to have been
fully accounted for on his recent statement. Marketable
securities shown on the statement are held in an
irrevocable family trust of which Symington is the
beneficiary. Trustor is unknown, trustee is Mellon Bank,
and Symington claims that the asset cannot be liquidated
or pledged.

(Emphasis added). White later testified that he determined that

the listed real estate values were inaccurate. Thus, the Bank had

knowledge of these matters.

¶39 When White received Symington’s May 4, 1990 financial

statement, he knew the Funds were also entitled to receive a

financial statement under the terms of the Permanent Commitment.

The Funds produced evidence affirming that the Bank understood the

Funds received the same false financial statements that it did.

White testified:

including experience with workouts for problem loans. See Gaia
Declaration at ¶¶ 2, 4, 6, and 7.

-22-
 Did you expect that Mr. Symington would have submitted
the same numbers reflecting his financial conditions to
both First Interstate Bank and to the pension funds?

A: I would hope so, yes.

This statement raises the inference that the Bank knew that fraud

was being committed against the Funds.

¶40 On June 8, 1990, the Senior Loan Committee conditionally

approved White’s requested $1.2 million write-off in his June 7

memo but asked that he obtain an accurate financial statement from

Symington. The Senior Loan Committee was concerned about the

statement, as Ward Wilson, a member of the committee testified:

Q: Given that Mr. Symington had warranted the values
in his financial statement only a month prior to
your consideration of it, did it occur to you that
the inflated values could have been the result of
intentional misstatements by Mr. Symington?

MR. CARDENAS: Objection to characterization with
respect to “inflated values.”

A. I believe that we were concerned about that.

¶41 On June 26, 1990, Symington resubmitted his personal

financial statement dated June 21, 1990, to the Bank. This

statement also failed to provide current market values or disclose

contingent debt. Regarding the securities listed on the financial

statement, Symington produced a letter from the trustee of a trust

of which he was the beneficiary, disclosing that the “readily

marketable securities” listed on his financial statement at a value

of $791,000 were, in fact, not readily marketable but were held in

-23-
trust subject to a spendthrift provision.14 The June 21 financial

statement also included one other change. Symington unilaterally

changed the certification language on the statement from the Bank’s

standard language that the statement was accurate to a statement

that the figures were merely Symington’s “best efforts” to arrive

at accurate figures.

¶42 The Senior Loan Committee found the updated financial

statement just as disconcerting. Ward Wilson testified:

Q. Okay. Upon getting that information, did you feel
as though Mr. Symington had provided accurate and
honest information about the current state of his
financial condition to First Interstate?

MR. CARDENAS: Objection; calls for speculation.

A. Our concern about that was heightened.

¶43 Evidence that the Bank knew Symington had misled the

Funds can also be seen in a letter dated June 25 from Jeff White to

the Senior Loan Committee at the Bank, updating the Committee on

the status of the Mercado loan. White’s letter discusses

“perceived impediments” to the funding of the Permanent Commitment.

White listed the Mercado limited partners as potential impediments.

14
White testified that information regarding the spendthrift
trust did not make the financial statements deceptive and did not
alarm the Bank because it already knew the securities were in a
spendthrift trust, and had known this since at least 1986. White
admitted, however, that nothing on the face of the financial
statement would indicate that the securities were subject to
spendthrift restrictions and that as such, they were not, as
represented, “readily marketable.”

-24-
The limited partners were upset because mathematical errors

relating to the partners’ return on investment calculations were

found after the formation of the partnership. The limited partners

were threatening to exercise their rescission rights and demand

refund of their initial $500,000 investment. Regarding this

situation, White states, “[t]his threat currently prevents

Mercado’s counsel from issuing [the Funds] . . . a ‘clean’ opinion

letter, a condition precedent to closing.” (Emphasis added).

White goes on to explain to the Senior Loan committee

[i]f the limiteds are not satisfied with our
subordination language as proposed, they pose a real
threat to the permanent loan closing. Our paying off the
limiteds, as Symington had earlier proposed, is not
deemed a viable option as it would have the effect of
dissolving the existing borrowing entity, giving the
Permanent Lender [the Funds] a clear out.

¶44 In addition to the threat by the limited partners, White

also described the risk to funding stemming from improvements

undertaken on the Mercado project to prepare it for tenancy by

Arizona State University (“ASU”), which intended to occupy the

space as a downtown campus. White informed the Senior Loan

Committee “Mercado has requested that FIAZ [the Bank] provide

bridge financing for the ASU build-out in an attempt to both keep

the subs working, and to avoid having to disclose the situation to

the Permanent Lender at closing.” (Emphasis added). This

statement is in reference to $600,000 worth of tenant improvements

completed for the ASU space in the Mercado. Despite nearly half of

-25-
the improvements being completed, the Mercado Partnership had not

made any progress payments to the contractors. The Bank was

concerned that the Partnership’s lack of progress payments may have

violated ¶ 29 of the Permanent Commitment by failing to pay debts

as they became due.

¶45 This accumulation of evidence raises the inference that

the Bank knew Symington was engaged in false representations to the

Funds. Accordingly, a jury could find that the Bank’s actions and

internal communications provide evidence of a resolute strategy to

avoid having the Funds learn what it knew about Symington’s

financial situation. A showing of actual and complete knowledge of

the tort is not uniformly necessary to hold a secondary tortfeasor

liable under an aiding and abetting theory. FDIC v. First

Interstate Bank of Des Moines, N.A., 885 F.2d 423 (8th Cir. 1989)

(bank can be held liable for aiding and abetting a customer who

defrauded another bank if bank has a “general awareness” of the

customer’s fraudulent scheme, notwithstanding the fact that the

bank may not have had actual knowledge of the scheme or an intent

to participate in the fraud; general awareness of the fraudulent

scheme can be established though circumstantial evidence). “The

knowledge requirement” can be met, “even though the bank may not

have known of all the details of the primary fraud –- the

misrepresentations, omissions, and other fraudulent practices.”

Aetna Cas. and Sur. Co. v. Leahey Const. Co., Inc., 219 F.3d 519,

-26-
536 (6th Cir. 2000) (“Leahey”) (citing Woods v. Barnett Bank of

Fort Lauderdale, 765 F.2d 1004, 1012 (11th Cir. 1985) (“Woods”)

(internal citations omitted)).

¶46 The third requirement, substantial assistance by an aider

and abettor, can take many forms, but means more than “a little

aid.” In re American Continental, 794 F. Supp. at 1435 (quoting

Barker v. Henderson, Franklin, Starnes & Holt, 797 F.2d 490, 496

(7th Cir. 1986); see also CPC Int’l Inc. v. McKesson Corp., 514

N.E.2d 116 (N.Y. 1987) (broker aided and abetted primary fraud by

providing false financial information used to present “enhanced

financial picture to others”)). The legal elements of aiding and

abetting a tortfeasor have been explored most comprehensively by

the federal courts in the context of aiding and abetting securities

fraud. See Schatz v. Rosenberg, 943 F.2d 485 (4th Cir. 1991);

Roberts v. Peat, Marwick, Mitchell & Co., 857 F.2d 646 (9th Cir.

1988); Metge v. Baehler, 762 F.2d 621 (8th Cir. 1985); Monsen v.

Consolidated Dressed Beef Co., Inc., 579 F.2d 793 (3d Cir. 1978).

But cf. Central Bank of Denver v. First Interstate Bank of Denver,

511 U.S. 164 (1994) (aiding and abetting liability abolished under

§ 10(b) of the Securities and Exchange Act of 1934, but secondary

actors not completely absolved from liability).

¶47 For example, in Metge, the court stated that “[a]lthough

the facts . . . are unremarkable taken in isolation, we find that

taken together, they present what should have been a jury issue on

-27-
the question of aiding-and-abetting liability.” 762 F.2d at 630.

Metge involved a suit by investors against a lender for aiding and

abetting an issuer of securities who ultimately filed for

bankruptcy. The investors alleged that the lender engaged in a

series of banking strategies to keep a failing securities issuer in

business. In evaluating the record, the court sought to determine

whether the lender knew that the thrift certificates being issued

were worthless and that because of the lender’s involvement, the

financial life of the issuer was prolonged in the lender’s own

interest and at the expense of the certificate holders. The court

noted that, viewed separately, most of the banking transactions

were unremarkable events, but viewed in conjunction with other

evidence, they suggest an unusual pattern of extraordinary attempts

to prolong the issuer’s financial viability to the detriment of the

investors.15 Id. at 626; see also K & S Partnership v. Continental

Bank, N.A., 952 F.2d 971, 979 (8th Cir. 1991).

¶48 Other courts have commented that executing transactions,

even ordinary course transactions, can constitute substantial

15
The court remarked on the favorable relationship between the
lender and the issuer even at a time when the lender knew of the
issuer’s precarious financial position. The court noted that the
evidence suggested that the lender had knowledge of the issuer’s
thrift certificate program and its importance to the issuer’s
ability to repay loans to the lender. Finally, the court noted the
inference created by the fact that by postponing the issuer’s
demise, the lender may have been able to leverage itself into a
more favorable position with the issuer than the investors when the
issuer was prioritizing which debts to pay first. Metge v.
Baehler, 762 F.2d 621, 630 (8th Cir. 1985).

-28-
assistance under some circumstances, such as where there is an

extraordinary economic motivation to aid in the fraud. See

Armstrong v. McAlpin, 699 F.2d 79, 91 (2d Cir. 1983) (broker’s

processing of transactions with knowledge of fraudulent nature was

done to generate commissions); IIT, an Int’l Inv. Trust v.

Cornfeld, 619 F.2d 909, 921-22 (2d Cir. 1980) (defendant performed

challenged transaction knowing it violated client’s policy, with

heightened economic motive to do so).

¶49 There is no doubt that the Bank here had a heightened

economic motive to assist Symington. Not only did the Bank have

the typical motivations of a construction lender, i.e., to ensure

nothing happens to jeopardize permanent funding, but in this case,

the Bank had added incentive to ensure the permanent financing by

virtue of its knowledge of Symington’s much weakened financial

condition. The Bank knew that Symington was the personal guarantor

on the Mercado loan in the event the Funds found reason not to

advance permanent funding. The Bank also knew Symington’s personal

guarantee was becoming less and less valuable in part because the

Bank knew Symington was unable to fulfill his financial obligations

on the Alta Mesa loan.

¶50 In addition, Jeff White’s June 7, 1990 letter to the

Senior Loan Committee evidences the Bank’s knowledge of Symington’s

inability to provide collateral of a value sufficient to cover the

$1.2 million shortfall occasioned by the Funds’ decision to hold

-29-
back part of the $10 million take-out for improvements to the

Mercado. These circumstances heightened the Bank’s motive to aid

and abet in a fraud designed to secure the permanent loan.

¶51 Accordingly, the Funds presented evidence of business

strategies undertaken by the Bank to prolong Symington’s financial

life, raising reasonable inferences that it knew of, and gave

substantial assistance to, Symington’s material misstatements.

Moreover, “if [a] . . . method or transaction is atypical or lacks

business justification, it may be possible to infer the knowledge

necessary for aiding and abetting liability.” Woodward v. Metro

Bank of Dallas, 522 F.2d 84, 97 (5th Cir. 1975); see also Woods at

1012 (for purposes of establishing liability as an aider and

abettor, knowing assistance of a securities violation can be

inferred from atypical business actions).

¶52 Here, as noted, the Funds’ banking expert offered

evidence that the Bank’s forbearance from enforcement of the Alta

Mesa loan was contrary to prudent banking practices for purposes of

securing the Mercado take-out. Gaia Declaration at ¶¶ 37, 39, 40,

43. In addition, the Bank’s own employee testified that a

forbearance not accompanied by a credit authorization request is

unusual if, as here, it extends the maturity of the loan. The Alta

Mesa forbearance was not accompanied by a credit authorization

request.

¶53 The Bank argues that the single act the Funds complain

-30-
about is the forbearance on the Alta Mesa loan. Indeed, the Funds

do complain about the forbearance and argue that the Bank’s

decision to extend rather than foreclose the loan provided

“substantial assistance” to Symington by enabling him to claim

falsely that he met the requirements of the Permanent Commitment.

But it is not solely the forbearance that creates the problem; it

is also the Bank’s failure to report Symington’s false

representations to federal banking officials as required by law,

where it was admittedly knowledgeable of the false financial

statement. See 31 C.F.R. § 103.18 (2001).

¶54 Moreover, substantial assistance does not mean assistance

that is necessary to commit the fraud. Leahey at 537. The test is

whether the assistance makes it “easier” for the violation to

occur, not whether the assistance was necessary. Id. (quoting Camp

v. Dema, 948 F.2d 455, 462 (8th Cir. 1991) (internal quotations

omitted)).

¶55 Finally, the Funds’ claim of aiding and abetting is

further supported by allegations that the Bank, with full knowledge

that Symington’s financial statements were false, convened the June

8, 1990 meeting and communicated directly with the Funds regarding

the Permanent Commitment due on June 30. The Funds were

represented in the meeting by legal counsel, Sam Coppersmith.

Specifically, it appears the Bank called the meeting with

Coppersmith and Symington representatives because the Funds had

-31-
announced their intention to reduce the amount of the permanent

loan by $1.2 million in order to compensate for Mercado tenant

improvements which apparently had been funded by the Bank but were

not a part of the basic construction costs. The Bank desired to

secure the full $10 million take-out, including the $1.2 million,

by exploring, with the Funds, ways to eliminate or otherwise deal

with the shortfall or “gap financing” as it was described. If

successful, the Bank would receive full reimbursement of the $10

million. The meeting would thus have had no purpose without the

presence of the Funds.

¶56 At that time, the Bank knew that Symington was in default

on Alta Mesa. Internal documents regarding the Mercado loan

referenced Alta Mesa as a “related” debt. The Bank also knew that

Symington had submitted false financial statements relative to

Mercado, and that just days earlier the Bank had signed a

forbearance agreement with Symington on Alta Mesa to keep him

financially viable until the day after the permanent loan was due

to be funded. Nevertheless, the Bank, with a clear opportunity to

speak, kept this information from Coppersmith and pressed for

closing the permanent loan at the full $10 million or for an

alternate method of handling the “gap” problem.

¶57 Convening the meeting to discuss the loan and potential

shortfall in these circumstances, without disclosure of the facts,

would justify a reasonable inference that the Bank aided and

-32-
abetted by knowingly assisting Symington’s tortious conduct. If

true, this goes well beyond mere self protection in the midst of a

financial transaction gone sour. In sum, it can be inferred that

had the Funds been made aware of what the Bank knew, the Funds

might well have chosen to withdraw from the obligation under the

Permanent Commitment, and the Bank was fully knowledgeable of that

prospect.

¶58 These facts raise inferences sufficient to take the issue

to the jury under the applicable preponderance standard.16

B. Breach of the Implied Covenant of Good Faith and Fair
Dealing

¶59 Arizona law implies a covenant of good faith and fair

dealing in every contract. Enyart v. Transamerica Ins. Co., 195

16
Aiding and abetting fraud requires proof by a preponderance
of the evidence. York v. InTrust Bank, N.A., 962 P.2d 405, 422
(Kan. 1998) (because jury ruled in favor of defendant on fraud
count which required higher burden of proof does not mean evidence
was insufficient to prove aiding and abetting fraud); State ex rel.
Goettsch v. Diacide Distributors, Inc., 561 N.W.2d 369 (Iowa 1997)
(preponderance of the evidence is the proper standard of proof for
aiding and abetting securities fraud under Iowa law); State, Dep’t
of Finance v. Tenney, 858 P.2d 782 (Idaho App. 1993) (aiding and
abetting securities violation must be proven by preponderance of
the evidence under Idaho law).

Because there is a difference between proving an agreement to
participate in a tortious line of conduct (civil conspiracy) and
proving knowing action that substantially aids tortious conduct
(aiding and abetting), Halberstam v. Welch, 705 F.2d 472, 478 (D.C.
Cir. 1983), we deem the preponderance standard more appropriate for
an aiding and abetting claim.

-33-
Ariz. 71, 985 P.2d 556, ¶14 (1998) (citing Rawlings v. Apodaca, 151

Ariz. 149, 726 P.2d 565 (1986)); see also Wagenseller v. Scottsdale

Mem’l Hosp., 147 Ariz. 370, 383, 710 P.2d 1025, 1038 (1985)). Such

implied terms are as much a part of a contract as are the express

terms. Golder v. Crain, 7 Ariz. App. 207, 437 P.2d 959 (1968).

The implied covenant of good faith and fair dealing prohibits a

party from doing anything to prevent other parties to the contract

from receiving the benefits and entitlements of the agreement. The

duty arises by operation of law but exists by virtue of a

contractual relationship. Rawlings at 153-54, 726 P.2d at 569-70.

¶60 Breach of the implied covenant may provide the basis for

imposing damages. Burkons at 355, 813 P.2d at 720. A party may

bring an action in tort claiming damages for breach of the implied

covenant of good faith, but only where there is a “special

relationship between the parties arising from elements of public

interest, adhesion, and fiduciary responsibility.” Id. at 355, 813

P.2d at 720; see also Wagenseller at 383, 710 P.2d at 1038;

McAlister v. Citibank (Arizona), a Subsidiary of Citicorp, 171

Ariz. 207, 829 P.2d 1253 (App. 1992) (a special relationship must

exist in order to support a tortious breach of the implied covenant

of good faith and fair dealing). The Funds have conceded that they

do not have the required “special relationship” to support a claim

for tortious breach.

¶61 There is a difference, however, in the proof required,

-34-
depending on whether the claim sounds in tort or in contract.

Here, the remedy for breach of the implied covenant is an action

for breach claiming contract damages. Burkons at 355, 813 P.2d at

720. When the remedy for breach of the covenant sounds in

contract, it is not necessary for the complaining party to

establish a special relationship. Firstar Metro. Bank & Trust v.

Federal Deposit Ins. Corp., 964 F. Supp. 1353, 1358 (D. Ariz. 1997)

(“[I]n light of the distinction between tortious and contractual

claims based on the breach of the implied covenant of good faith

and fair dealing, Plaintiff’s assumption that it need not

demonstrate a special relationship is correct.”). The claim

presented in the Funds’ counterclaim alleges breach of contract, a

claim that is thus viable without the special relationship required

for tortious relief.

¶62 The Bank, relying on Kesselman at 421, 937 P.2d at 343,

argues that in the absence of duty, it did not act in bad faith by

failing to disclose Symington’s true financial condition to the

Funds. The lower courts agreed. But, as noted, Kesselman does not

dispose of this claim. Deese v. State Farm Mut. Auto. Ins. Co.,

172 Ariz. 504, 507, 838 P.2d 1265, 1268 (1992) (bad faith is not

proven by showing negligence; the act or omission must be

intended). Moreover, unlike the bank in Kesselman, the Bank here

was directly and contractually involved in the transaction with the

Funds via the Triparty Agreement, an agreement which the Bank

-35-
itself insisted be executed.

¶63 The Triparty Agreement is the lynchpin of the Funds’

claim of bad faith. The “underlying contract provides the basis

for a bad faith action.” Taylor v. State Farm Mut. Auto. Ins. Co.,

185 Ariz. 174, 176, 913 P.2d 1092, 1094 (1996) (citing Noble v.

National American Life Ins. Co., 128 Ariz. 188, 189, 624 P.2d 866,

867 (1981)). Because the terms of the Triparty Agreement do not

require the Bank to volunteer information to the Funds, the Bank

argues that it cannot be liable for bad faith because it did not

breach any provisions of the Triparty Agreement. The Bank relies

too heavily on the literal text. The duty of good faith extends

beyond the written words of the contract.

¶64 A party may breach an express covenant of the contract

without breaching the implied covenant of good faith and fair

dealing. Rawlings at 157-60, 726 P.2d at 573-76. Conversely,

because a party may be injured when the other party to a contract

manipulates bargaining power to its own advantage, a party may

nevertheless breach its duty of good faith without actually

breaching an express covenant in the contract. Deese at 509, 838

P.2d at 1270 (noting that a breach of an express covenant is not “a

necessary prerequisite” for a bad faith claim); Rawlings at 157-60,

726 P.2d at 573-76.

¶65 For example, in Arizona’s Towing Professionals Inc. v.

State, the court of appeals held that a party to a contract could

-36-
not use an express provision in the contract –- in that case, a

“cancellation for convenience” provision -- to thwart

administrative or judicial review of the state’s decisions in

awarding contracts after the bidding process. 196 Ariz. 73, 77,

993 P.2d 1037, 1041 (App. 1999). The court found that if

cancellations for convenience were permissible under these

circumstances, they would effectively eliminate a party’s appeal

rights, which would violate the implied covenant of good faith,

even though the state expressly retained the power to cancel. Id.

at 77, 993 P.2d at 1041. Similarly, Southwest Savings & Loan

Association v. Sunamp Systems, Inc. addressed whether one who

retains express power or discretion under a contract can exercise

that power or discretion in a way that breaches the implied

covenant of good faith. 172 Ariz. 553, 558, 838 P.2d 1314, 1319

(App. 1992). In answering this question, the Sunamp court

favorably cited a California decision, stating that “the duty to

act in good faith does not alter the specific obligations of the

parties under the contract. . . . Acts in accord with the terms of

one’s contract cannot without more be equated with bad faith.” Id.

at 558, 838 P.2d at 1319 (quoting Balfour, Guthrie & Co. v. Gourmet

Farms, 166 Cal. Rptr. 422, 427-28 (App. 1980) (emphasis in

original)).

¶66 Southwest Savings explained that

[m]uch of the mystery of the law of good faith lies in

-37-
 the Balfour phrase “without more.” If contracting par-
ties cannot profitably use their contractual powers
without fear that a jury will second-guess them under a
vague standard of good faith, the law will impair the
predictability that an orderly commerce requires.

Id. at 558, 838 P.2d at 1319. Yet, “[i]nstances inevitably arise

where one party exercises discretion retained or unforeclosed under

a contract in such a way as to deny the other a reasonably expected

benefit of the bargain.” Id. The court concluded that the implied

covenant of good faith provides a clear remedy for such abuse. In

reaching its conclusion, the court relied on Professor Steven J.

Burton’s explanation of the duty of good faith:

The good faith performance doctrine may be said to permit
the exercise of discretion for any purpose -– including
ordinary business purposes –- reasonably within the
contemplation of the parties. A contract thus would be
breached by a failure to perform in good faith if a party
uses its discretion for a reason outside the contemplated
range -– a reason beyond the risks assumed by the party
claiming a breach.

Id. at 558-59, 838 P.2d 1319-20 (quoting Breach of Contract and the

Common Law Duty to Perform in Good Faith, 94 HARV. L. REV. 369, 385-

86 (1980) (“Burton”) (footnotes omitted)). Burton’s recitation

fully comports with RESTATEMENT (SECOND) OF CONTRACTS § 205 cmt. a

(1981), which states, “Good faith performance or enforcement of a

contract emphasizes faithfulness to an agreed common purpose and

consistency with the justified expectations of the other party.”

Consistent with Burton and the RESTATEMENT, this court has held in a

variety of contexts that a contracting party may not exercise a

retained contractual power in bad faith. See Rawlings at 153-157,

-38-
726 P.2d at 569-73 (power to adjust claims in an insurance

contract); Wagenseller at 385-86, 710 P.2d at 1040-41 (power to

fire employee at will for a bad cause).

¶67 In the instant case, under the Triparty Agreement the

Bank had no express duty to comply with Symington’s disclosure

obligations under the Permanent Commitment. But, the inquiry for

the Funds’ claim of bad faith does not end with mere recognition

that the written text of the Triparty Agreement may have freed the

Bank from any obligation to inform the Funds of Symington’s

financial condition. The question is whether a jury might

reasonably find that the Bank wrongfully exercised a contractual

power for “a reason beyond the risks” that the Funds assumed in the

Triparty Agreement, or for a reason inconsistent with the Funds’

justified expectations. Burton at 386; Southwest Sav. at 559, 838

P.2d at 1320; RESTATEMENT (SECOND) OF CONTRACTS § 205 cmt. a.

¶68 The Funds contend that, although the Bank was not

obligated to inform the Funds of the collapse of Symington’s

finances, the Bank proceeded in bad faith by knowing that the Funds

would be deprived of knowledge of Symington’s true condition in

reaching the decision to accept or reject the Mercado loan.17

17
Triparty Agreement § 3.9: . . . Permanent Lender will fund
the Permanent Loan on or before such date . . . (ii) if Borrower
has complied with each and every condition of the Permanent
Commitment to the reasonable satisfaction of Permanent Lender, and
(iii) if all submittals and documentation required by Permanent
Lender in order to fund the Permanent Loan have been received in
the Permanent Lender’s office . . . .

-39-
Symington deprived the Funds of this information. There is

evidence the Bank knew of the deprivation and engaged in a

systematic strategy designed to withhold material information from

the Funds and to keep Symington financially alive until after the

take-out deadline, all of which resulted in serious and clearly

anticipated damage to the Funds.

¶69 The key questions are:

(1) were the Bank’s actions inconsistent with what the
Funds justifiably expected under the Triparty Agreement?

(2) did the Bank, by its action or inaction, deprive the
Funds of a primary benefit of the agreement (see
RESTATEMENT (SECOND) OF CONTRACTS § 205 cmt. a. (“Good faith
performance or enforcement of a contract emphasizes
faithfulness to an agreed common purpose and consistency
with the justified expectations of the other party.”))?

(3) was it reasonable for the Funds to assume the Bank
would follow federal banking regulations and report non-
compliant activity (see 31 C.F.R. § 103.18 (bank shall
file with the Treasury Department a report of any
suspicious transaction relevant to a possible violation
of law or regulation))? and

(4) was it reasonable for the Funds to assume, despite
the Bank’s self interest, that the Bank would disclose
its alleged knowledge of Symington’s false financial
statements?

¶70 The foregoing are genuine questions of material fact.

The inferences favorable to the Funds’ claim are sufficient for a

jury’s consideration under the preponderance standard.18

18
Proof of a breach of the implied covenant of good faith and
fair dealing requires a preponderance of the evidence. See
Schwartz v. Farmers Ins. Co. of Ariz., 166 Ariz. 33, 36, 800 P.2d
20, 23 (App. 1990) (plaintiffs must prove breach of duty of good
faith and fair dealing by a preponderance of the evidence); see

-40-
 C. Intentional Interference With Contractual Relations

¶71 The Funds claim that by obscuring or concealing

Symington’s collapsing finances, the Bank improperly interfered

with the Funds’ contract right to receive full, accurate

information as a basis on which to reject the Permanent Commitment

on the Mercado loan.

¶72 The interference with contract claim was not separately

addressed by the court of appeals but was swept into the court’s

general reasoning that the bank had no duty to disclose Symington’s

financial status to the Funds.

¶73 Intentional interference with contract is, as its name

suggests, an intentional tort. Snow v. Western Sav. & Loan Ass'n,

152 Ariz. 27, 34, 730 P.2d 204, 211 (1986); see also RESTATEMENT

(SECOND) OF TORTS § 767 cmt. d (1979) (interference with contractual

relations is an intentional tort). In addition, "[t]he duty not to

interfere with the contract of another arises out of law, not

contract." Bar J Bar Cattle Co. Inc. v. Pace, 158 Ariz. 481, 486,

763 P.2d 545, 550 (App. 1988) (emphasis added). We therefore

examine the merits of the Funds’ claim.

¶74 Arizona has long recognized the tort of intentional

also General Acc. Fire & Life Assur. Corp. v. Little, 103 Ariz.
435, 443-44, 443 P.2d 690, 698-99 (1968) (lower court did not err
in refusing to give instruction on clear and convincing burden of
proof for “bad faith” claim; the proper standard was the
preponderance of the evidence).

-41-
interference with contractual relations. See Snow at 33, 730 P.2d

at 211. A prima facie case of intentional interference requires:

(1) existence of a valid contractual relationship, (2) knowledge of

the relationship on the part of the interferor, (3) intentional

interference inducing or causing a breach, (4) resultant damage to

the party whose relationship has been disrupted, and (5) that the

defendant acted improperly. Id.; RESTATEMENT (SECOND) OF TORTS § 766

(1977).

¶75 The first element, the existence of a valid contractual

relationship, is satisfied by the Permanent Commitment between

Symington and the Funds.19

¶76 Second, as party to the Triparty Agreement and

beneficiary of the proceeds under the Permanent Commitment, the

Bank had knowledge of the terms of both contracts. The terms of

the Permanent Commitment are frequently referenced in the Triparty

Agreement, and the Bank insisted Symington secure long-term

financing through the Permanent Commitment before it would agree to

fund the interim construction loan.

19
The Funds assert in their brief that the Bank interfered
with both the Permanent Commitment and the Triparty Agreement. As
a general rule, a party cannot be held liable in tort for
intentional interference with its own contract. Campbell v.
Westdahl, 148 Ariz. 432, 438, 715 P.2d 288, 294 (App. 1985). This
general rule is complicated here by the fact that the Bank, the
Funds, and Symington were parties to a tripartite agreement. We do
not address the question whether a party to a tripartite contract
can be liable in tort for interfering with rights as between the
other parties to the agreement because the Funds can satisfy this
element of the tort by the Permanent Commitment.

-42-
¶77 Third, intent is shown by proving that the interferor

either intended or knew that “[a particular] result was

substantially certain to be produced by its conduct.” Snow at 34,

730 P.2d at 211.

¶78 “There is no technical requirement as to the kind of

conduct that may result in interference with the third party’s

performance of the contract.” RESTATEMENT (SECOND) OF TORTS § 766

cmt. k (1979). In most instances the interference is by

inducement. As the RESTATEMENT explains, the word “inducing” refers

to situations in which A causes B to choose one course of conduct

rather than another. “Whether A causes the choice by persuasion or

by intimidation, B is free to choose the other course if he is

willing to suffer the consequences.” Id., § 766 cmt. h. While the

paradigm case of tortious interference with contract may be that of

a tortfeasor who induces breach by enticing the contracting party

not to perform or by preventing or disabling that party from being

able to perform, the RESTATEMENT emphasizes that liability attaches

to any intentional interference, whether by inducement or

otherwise. Id. (emphasis added). “The essential thing is the

intent to cause the result.” Id.

¶79 Here, Symington breached his contractual obligation to

-43-
the Funds by submitting false financial statements.20 Whether the

Bank intended that its conduct operate to disadvantage the Funds in

order to obtain payment of the Mercado loan under the Permanent

Commitment necessarily requires a jury assessment of the Bank’s

intent. Strategies in which the Bank readily participated, such as

the Alta Mesa loan extensions, the forbearance, and the failure to

report, raise legitimate inferences relating to the Bank’s intent.

Intent is a question for the fact finder. Snow at 34, 730 P.2d at

211. The Bank certainly had reason to believe that false financial

information was going to the Funds, giving rise to the inference

that, by its strategy, the Bank intended to benefit by this conduct

at the expense of the Funds.

¶80 Fourth, the Funds can prove resultant damage if they can

establish that the Mercado loan would not have been funded had they

been given accurate information.

¶81 Fifth, wrongful conduct can be analyzed by considering

seven factors previously advanced by this court:

(a) the nature of the actor’s conduct, (b) the actor’s
motive, (c) the interests of the other with which the
actor’s conduct interferes, (d) the interest sought to be
advanced by the actor, (e) the social interests in pro-
tecting the freedom of action of the actor and the
contractual interests of the other, (f) the proximity or

20
Whether Symington would have breached his contractual
obligations to the Funds without substantial involvement by the
Bank is a question of causation, not intent. Causation is also a
question for the jury. Molever v. Roush, 152 Ariz. 367, 374, 732
P.2d 1105, 1112 (App. 1986) (citing Harmon v. Szrama, 102 Ariz.
343, 429 P.2d 662 (1967)).

-44-
 remoteness of the actor’s conduct to the interference,
and (g) the relations between the parties.

Wagenseller at 387, 710 P.2d at 1042 (quoting RESTATEMENT (SECOND) OF

TORTS § 767); see also Bar J Cattle Co. at 484, 763 P.2d at 548.

Factors deserving the most weight are the nature of the actor’s

conduct and the actor’s motive. G.M. Ambulance & Med. Supply Co.,

Inc. v. Canyon State Ambulance, Inc., 153 Ariz. 549, 551, 739 P.2d

203, 205 (App. 1987).

¶82 Conduct specifically in violation of statutory provisions

or contrary to public policy may for that reason make an

interference improper. RESTATEMENT (SECOND) OF TORTS § 767 cmt. c

(1979). The testimony from banking expert Gaia regarding the

Bank’s handling of the Alta Mesa loan is relevant here. Based on

his review of the Alta Mesa loan history, Gaia opined that the

agreement to forbear on the Alta Mesa loan default was inconsistent

with prudent and reasonable banking practices and inconsistent with

the course of action previously prescribed by the loan’s Special

Credits Officer, Doug Hawes. See Gaia Declaration at ¶¶ 37, 39,

40, 43.

¶83 As further relevant evidence, the Funds offered to prove

the Bank’s failure to report Symington’s false financial statements

to the Financial Crimes Enforcement Network of the Department of

Treasury, as mandated by federal banking regulations. See 31

C.F.R. § 103.18 (2001). The regulations require FDIC insured banks

-45-
to file a “Suspicious Activity Report” when they detect a known or

suspected criminal violation of federal law or a suspicious

transaction, such as filing a false financial statement. Id.

White, the Bank’s own loan officer, testified in deposition that he

knew intentional fraudulent submissions of financial statements

would trigger reporting requirements to the FBI. Nevertheless, the

Bank did not report. It claims its conduct was not improper

because it did not know Symington’s financial statements were

false. But inferences of the Bank’s knowledge of false statements

are clearly present.

¶84 The Bank responds with several additional arguments.

First, it argues that, even despite the inconsistencies in the

financial statement, no one at the Bank believed that an event had

occurred under ¶ 29 of the Permanent Commitment regarding

Symington’s financial status that would have given the Funds the

legal right to refuse to honor the Triparty Agreement. The Bank

contends that the provisions under ¶ 29, which include “generally

not paying Debtor’s debts as such debts become due” and “assignment

for the benefit of creditors,” are terms of art from sections of

the U.S. Bankruptcy Code or its state statutory equivalent. See 11

U.S.C.A. § 303(h)(1) (1993); A.R.S. §§ 44-1031 to -1047 (1994 and

Supp. 2001). Because an event which would qualify under the

relevant bankruptcy statutes had not occurred, the Bank contends

nothing happened that would allow the Funds not to comply with the

-46-
Permanent Commitment. This argument is tenuous in light of the

fact that, in other sections of ¶ 29, when the parties intended to

refer to a section of the Bankruptcy Code, it was expressly stated.

Moreover, the Bank knew that despite its loan extensions to

Symington and the Forbearance Agreement, the Alta Mesa loan was

absolutely in default and amounted to clear failure to pay a debt

when due.

¶85 The Bank further argues that under the Triparty Agreement

it was not required to disclose information not requested. The

Bank claims that, under Kesselman, it actually has a duty not to

disclose confidential customer information. See Kesselman at 421,

937 P.2d at 343. If simple nondisclosure were the essence of this

case, the Bank could not be liable, based on the holding in Mac

Enterprises v. Del E. Webb Development Co., 132 Ariz. 331, 336, 645

P.2d 1245, 1250 (App. 1982). But, as discussed, simple

nondisclosure is not the claim the Funds make. The real questions

are the propriety of the Bank’s affirmative decision not to

institute foreclosure proceedings against Alta Mesa, the

forbearance, the failure to report Symington’s false statements to

federal authorities, and whether these intentional actions or

omissions interfered with the Funds’ right to receive from

Symington information material to their decision to fund the

Mercado loan.

¶86 Finally, the Bank argues that even if it knew the

-47-
statements were false, it was acting properly in its own self-

interest by not disclosing Symington’s financial status to the Fund

to protect itself against a $10 million loss. We agree that the

Bank may have been acting in its self-interest and we are cognizant

of the inherent conflict between the parties’ interests created by

the interim loan and Permanent Commitment. But self-interest does

not justify an affirmative strategy to deprive the Funds of

information which the Bank knows is vital to the Funds’ legitimate

expectations under the Permanent Commitment. Further, it is not

justification to interfere knowingly with a contract where the

defendant acts with an improper purpose and seeks to further his

own interests. Community Title Co. v. Roosevelt Fed. Sav. and Loan

Ass’n, 796 S.W.2d 369 (Mo. 1990). Summary judgment on the Funds’

tortious interference with contract claim was improper. Inferences

arising from the evidence are sufficient to go to the jury under

the preponderance standard.21

D. Fraudulent Concealment

21
Intentional interference with contract requires the
preponderance standard. Hi-Ho Tower, Inc. v. Com-Tronics, Inc.,
761 A.2d 1268, 1273-75 (Conn. 2000) (Com-Tronics must prove claim
of tortious interference with contractual relations by a
preponderance of the evidence); Examination Mgmt. Serv., Inc. v.
Kirschbaum, 927 P.2d 686, 697 (Wyo. 1996) (in claim for intentional
interference with contract, defendant has burden of proving
elements by a preponderance of the evidence); see also Collins v.
Collins, 625 So. 2d 786, 791 (Miss. 1993) (elements of tortious
interference need to be proven only by a preponderance of the
evidence).

-48-
¶87 Arizona recognizes the tort of fraudulent concealment:

One party to a transaction who by concealment or other
action intentionally prevents the other from acquiring
material information is subject to the same liability to
the other, for pecuniary loss as though he had stated the
nonexistence of the matter that the other was thus
prevented from discovering.

RESTATEMENT (SECOND) OF TORTS § 550 (1976); see also King v. O’Rielly

Motor Co., 16 Ariz. App. 518, 521, 494 P.2d 718, 721 (1972). Where

failure to disclose a material fact is calculated to induce a false

belief, “the distinction between concealment and affirmative

misrepresentation is tenuous.” Schock v. Jacka, 105 Ariz. 131,

133, 460 P.2d 185, 187 (1969).

¶88 The court of appeals dismissed the Funds’ claim for

fraudulent concealment on the basis that the Bank’s fiduciary and

contractual duty was to Symington and not to the Funds. Both the

court of appeals and the Bank mistakenly cite Frazier v. Southwest

Savings & Loan Association, 134 Ariz. 12, 653 P.2d 362 (App. 1982),

for the proposition that concealment was not proven because there

was no duty to speak.22

22
The confusion surrounding the requisites of fraudulent
concealment results from the fact that there are three distinct
classes of fraud: misrepresentation, concealment, and non-
disclosure. Liability for fraudulent misrepresentation occurs
under § 525 of the RESTATEMENT (SECOND) OF TORTS and lies against “[o]ne
who fraudulently makes a misrepresentation of fact . . . for the
purpose of inducing another to act or to refrain from action
. . . .” In contrast, liability for nondisclosure occurs under
§ 551 of the RESTATEMENT (SECOND) OF TORTS and lies against “[o]ne who
fails to disclose to another a fact . . . if, but only if, he is
under a duty to the other . . . to disclose the matter in
question.” Liability for fraudulent concealment occurs under § 550

-49-
¶89 In Frazier, the court explained that liability for

concealment under § 550 of the RESTATEMENT (SECOND) OF TORTS requires

knowledge of the false information and action by the defendant that

intentionally prevented the plaintiff from finding the truth. 134

Ariz. at 17, 653 P.2d at 367. The Frazier court found concealment

unproven, not because there was no duty to disclose, but because

there was no evidence from which the jury could have found active

concealment.23 Frazier at 17, 653 P.2d at 367.

¶90 The court of appeals has previously referred to a duty

requirement in the context of fraudulent concealment. Dunlap v.

City of Phoenix, 169 Ariz. 63, 69, 817 P.2d 8, 14 (App. 1990). In

Dunlap, the court stated that “[t]o be guilty of fraudulent

concealment, a defendant must have a legal or equitable obligation

to reveal the information.” Dunlap at 69, 817 P.2d at 14. This

statement was dictum however, since the case was decided on statute

of the RESTATEMENT (SECOND) OF TORTS and lies against a “party to a
transaction who by concealment or other action intentionally
prevents the other from acquiring material information.” (Emphasis
added.) As discussed, duty has no relevance in a tort requiring an
intentional act. Concealment necessarily involves an element of
non-disclosure, but it is the intentional act of preventing another
from learning a material fact that is significant, and this act is
always the equivalent of a misrepresentation. RESTATEMENT (SECOND) OF
CONTRACTS § 160 (“Action intended or known to be likely to prevent
another from learning a fact is equivalent to an assertion that the
fact does not exist.”).
23
The opinion does address the concept of duty; however, the
discussion occurred in the context of Frazier’s claims under
RESTATEMENT (SECOND) OF TORTS § 551, “Liability for Nondisclosure” and
RESTATEMENT (SECOND) OF TORTS § 552, “Information Negligently Supplied
for the Guidance of Others.”

-50-
of limitations grounds. Id. at 70, 817 P.2d at 15. Moreover, the

two cases Dunlap relied on for this proposition, Schock v. Jacka

and Van Buren v. Pima Community College District Board, 113 Ariz.

85, 546 P.2d 821 (1976), did not hold fraudulent concealment is

subject to a disclosure duty.

¶91 In Schock, neither the complaint nor the plaintiff’s

opposition to summary judgment articulated any theory of fraudulent

concealment. 105 Ariz. at 133, 460 P.2d at 187. In Van Buren, the

plaintiff raised both fraudulent and negligent failure to disclose.

The court found no fraudulent failure because there was no proof

the statements were false, nor was there proof the defendant knew

of any falsehood. Van Buren at 86, 546 P.2d at 822. The court

correctly dismissed negligent failure because it found no duty.

Id. at 87, 546 P.2d at 823.

¶92 In Arizona, whether a duty to speak exists at all is

determined by reference to all the circumstances of the case.

National Hous. Indus., Inc., v. E.L. Jones Dev. Co., 118 Ariz. 374,

379, 576 P.2d 1374, 1379 (App. 1978) (citing 37 AM. JUR. 2d, Fraud

& Deceit § 146 (1968)). On the issue of duty in a fraudulent

concealment claim, we are persuaded by and affirm the reasoning

articulated by the court of appeals decision in King v. O’Rielly

Motor Co.

¶93 In King, a car buyer sued a car dealer for fraudulently

representing that the car the buyer purchased was “as good as new”

-51-
when in fact the car had been in an accident and, unbeknownst to

the buyer, had been repaired by the dealer. The car dealer argued

that because the buyer’s claim existed under § 551 of the RESTATEMENT

OF TORTS (Liability for Nondisclosure), the dealer could not be

liable to the buyer because the dealer was under no duty to

disclose. The court refused to limit its consideration of the

plaintiff’s claim to § 551, stating “[w]ith these facts in mind we

feel that a consideration of §§ 529 and 550 of RESTATEMENT OF TORTS

. . . is necessary for the determination of the question at hand.”

King at 521, 494 P.2d at 721. The court further stated that, while

“[i]t is often difficult to distinguish misleading representations

and fraudulent concealment from mere nondisclosure and the

classification of the act or acts in question must, of course,

depend on the facts of each case,” it was nevertheless true that

“the facts of this case . . . would be supportive of a finding of

misleading representation as set forth in Restatement § 529 or

fraudulent concealment as set forth in § 550.” King at 521-22, 494

P.2d at 721-22 (emphasis added). An Oregon court advanced similar

reasoning in Paul v. Kelley, 599 P.2d 1236 (Or. App. 1979),

concluding that a duty to disclose is not necessary to prevail on

a fraudulent concealment claim.

¶94 In Paul, the seller of real estate knew, before the

closing, that he was required to install a storm sewer if a

drainage ditch on the property were eliminated. Instead of

-52-
installing the storm sewer, the sellers simply filled the ditch and

sold the property. Buyers of the land sued the sellers when they

learned they had to put in an expensive sewer system. The sellers

defended on the grounds that they had no affirmative duty to

disclose the ditch to the buyers. The court found this argument

meritless, stating:

Such a duty is not necessary. . . . [A]n active
concealment such as the filling in of the ditch alleged
in this case is to be distinguished from a simple
nondisclosure. . . . Plaintiff’s complaint sets forth
facts alleging an active concealment of the drainage
ditch and is sufficient without the assertion of a duty
to speak.

Paul at 1238-39 (emphasis added); see also Caldwell v. Pop’s Homes,

Inc., 634 P.2d 471, 477 (Or. App. 1981) (where fraud is based on a

plan of actual concealment, as opposed to simple nondisclosure, a

duty to speak is not required).

¶95 “[T]he common law clearly distinguishes between

concealment and nondisclosure. The former is characterized by

deceptive acts or contrivances intended to hide information,

mislead, avoid suspicion, or prevent further inquiry into a

material matter. The latter is characterized by mere silence.”

United States v. Colton, 231 F.3d 890, 899 (4th Cir. 2000). “Thus,

fraudulent concealment -– without any misrepresentation or duty to

disclose -- can constitute common law fraud.” Id. at 899.

¶96 The distinction is made even more clear by Prosser’s

description of active concealment as:

-53-
 Any words or acts which create a false impression
covering up the truth, or which remove an opportunity
that might otherwise have led to the discovery of a
material fact--as by floating a ship to conceal the
defects in her bottom, sending one who is in search of
information in a direction where it cannot be obtained,
or even a false denial of knowledge by one in possession
of facts--are classed as misrepresentation, no less than
a verbal assurance that the fact is not true.

(Footnotes omitted.) WILLIAM L. PROSSER, HANDBOOK OF THE LAW OF TORTS § 106

at 695 (4th ed. 1971) (“Prosser IV”). Prosser discusses simple

nondisclosure as a separate category, usually requiring a duty to

speak before silence will be actionable. PROSSER IV at 695-99.

¶97 The Funds in the instant case allege the Bank actively

strategized to cover up the pending collapse of Symington’s

financial condition. This allegation fits the definition of

concealment, not nondisclosure. Three evidentiary points are

clear: the “unjustified and imprudent” loan extensions; the

forbearance until one day after the due date for the Mercado take-

out obligation; and the failure to report Symington’s false

statements to federal banking authorities. The record reveals

evidence of internal bank communications and communication between

Symington aides and the Bank. Applying the law, we conclude that

the Funds were not required to establish an affirmative duty to

speak in order to prove fraudulent concealment. Actions by the

Bank which intended to conceal material facts are, if proven,

sufficient.

¶98 In the final analysis, we reach two conclusions as to the

-54-
fraudulent concealment claim: there are reasonable inferences from

which a jury could find (1) the Bank had knowledge of false

information being given the Funds, and (2) the Bank took measures

intended to prevent the Funds from learning the truth. These

inferences are grounded in fact and are sufficient to take the

concealment theory to the jury under the applicable clear and

convincing standard.24

E. Civil Conspiracy to Commit Fraud

¶99 “For a civil conspiracy to occur two or more people must

agree to accomplish an unlawful purpose or to accomplish a lawful

object by unlawful means, causing damages.” Baker v. Stewart Title

& Trust of Phoenix, 197 Ariz. 535, 542, 5 P.3d 249, 256 ¶30 (App.

24
Although courts in other jurisdictions are not in agreement
regarding the standard of proof required for fraudulent
concealment, we follow those requiring clear and convincing
evidence. See Aksomitas v. Aksomitas, 529 A.2d 1314 (Conn. 1987);
Hughes v. Holt, 435 A.2d 687 (Vt. 1981); Haleyville Health Care
Center v. Winston County Hosp. Bd., 678 So. 2d 789 (Ala. 1996);
Webb v. Pomeroy, 655 P.2d 465 (Kan. App. 1982); but see Kracl v.
Loseke, 461 N.W.2d 67, 72 (Neb. 1990) (to maintain an action for
fraudulent concealment, the plaintiff must prove the elements by a
preponderance of the evidence); Hebron Public School Dist. No. 13
of Morton County v. U.S. Gypsum Co., 475 N.W.2d 120, 124 (N.D.
1991) (fraudulent concealment must be established to the
satisfaction of the jury by a fair preponderance of the evidence);
Kopeikin v. Merchants Mortgage and Trust Corp., 679 P.2d 599, 601
(Colo. 1984) (defendant asserts petitioners could not have proven
fraudulent concealment by a preponderance of the evidence).

We adopt the heightened standard for this tort because
fraudulent concealment is essentially the equivalent of fraud by a
misrepresentation. See RESTATEMENT (SECOND) OF TORTS § 550 (1976).
Fraud unquestionably requires clear and convincing evidence. Rice
v. Tissaw, 57 Ariz. 230, 237, 112 P.2d 866, 869 (1941).

-55-
2000) (quoting Rowland v. Union Hills Country Club, 157 Ariz. 301,

306, 757 P.2d 105, 110 (1988)); see also RESTATEMENT (SECOND) OF TORTS

§ 876. “A mere agreement to do a wrong imposes no liability; an

agreement plus a wrongful act may result in liability.” Baker at

542, 5 P.3d at 256 (citations omitted). In short, liability for

civil conspiracy requires that two or more individuals agree and

thereupon accomplish “an underlying tort which the alleged

conspirators agreed to commit.” Id. at 545, 5 P.3d at 259. Here,

the underlying wrong is Symington’s fraud via submission of

fraudulent financial statements to the Funds. The Bank denies any

agreement to defraud.

¶100 Ultimately, the correspondence between Bank agents and

Symington’s aides, coupled with meetings among Symington, his

aides, and bank officials and the ensuing results raise serious

questions about the Bank’s activity. But a claim for civil

conspiracy must include an actual agreement, proven by clear and

convincing evidence,25 and although the Bank’s conduct is

suspicious, evidence of an agreed upon conspiratorial arrangement,

on this record, cannot rise to the clear and convincing level. See

Elliott v. Videan, 164 Ariz. 113, 116, 791 P.2d 639, 642 (App.

1989).

¶101 There is a qualitative difference between proving an

25
Civil conspiracy to commit fraud requires clear and con-
vincing evidence. Elliot v. Videan, 164 Ariz. 113, 116, 791 P.2d
639, 642 (App. 1989).

-56-
agreement to participate in a tort, i.e., a civil conspiracy, and

proving knowing action that substantially aids another to commit a

tort. Halberstam at 478. Even though legitimate fact questions

exist on the Funds’ claims of aiding and abetting, bad faith,

intentional interference, and concealment, it is unreasonable to

infer a conspiratorial agreement. Leahey at 537 (court upheld jury

verdict finding defendant guilty of aiding and abetting fraud but

struck down jury finding that defendant conspired to commit fraud

because it was unreasonable for jury to conclude defendant agreed

to join in the scheme).

¶102 Accordingly, we affirm summary judgment of the Funds’

civil conspiracy claim.

IV. Conclusion

¶103 The Funds correctly emphasize that the case is here in

opposition to the summary judgment entered in the Bank’s favor,

claiming they are entitled to take their case to the jury with all

reasonable inferences to be drawn from the facts. See Anderson v.

Liberty Lobby, Inc., 477 U.S. 242 (1986). The inquiry on a motion

for summary judgment unavoidably asks whether reasonable jurors

could find by the appropriate evidentiary standard that the

plaintiff is entitled to a verdict, i.e., whether there is

“evidence . . . such that a reasonable jury could return a verdict

for the nonmoving party.” Id. at 248. Accordingly, the issue here

is whether the evidence is sufficient to overcome a motion for

-57-
summary judgment. Our evaluation focused exclusively on the five

allegations made in the Funds’ counterclaim, the evidence offered

in support of those allegations, and the arguments made in the

court of appeals and the petition for review to this court.

¶104 In light of the evidence, we hold that summary judgment

was premature as to all claims except the claim of civil

conspiracy. Thus, the court of appeals ruling on civil conspiracy

is affirmed. As to the other claims, the opinion of the court of

appeals is vacated, the judgment of the trial court is reversed,

and this case is remanded to the trial court for proceedings

consistent with this opinion.

¶105 Because of our decision to remand, we also vacate the

existing award of attorneys’ fees to the Bank. Attorneys’ fees, if

any, will be recoverable at the termination of the proceedings in

the trial court.

___________________________________
Charles E. Jones
CONCURRING: Chief Justice

____________________________________
Ruth V. McGregor, Vice Chief Justice

____________________________________
Stanley G. Feldman, Justice

____________________________________
Thomas A. Zlaket, Justice

-58-
M A R T O N E, Justice, concurring in part and dissenting in part.

¶106 I agree with the court that the absence of a duty to

disclose is not fatal to the assertion of intentional tort claims.

This is the issue decided by the court of appeals upon which review

was sought. I would thus remand the case to the court of appeals

for consideration of those issues presented to but not decided by

it. The court instead proceeds to examine the sufficiency of the

evidence in this case as to each of five separate counts. In the

process it sweeps broadly, drawing on decisions from scores of

other courts, to set forth, in dicta, rules for Arizona on issues

not briefed by the parties. See, e.g., ante, at ¶ 58 n.16. To

illustrate, the court concludes that the tort of aiding and

abetting fraud, unlike fraud itself, requires proof only by a

preponderance of the evidence. I would like to have seen this

issue briefed and argued. I should think that if fraud requires

proof by clear and convincing evidence, aiding and abetting fraud

would require the same.

¶107 Rule 23 (i)(3), Ariz. R. Civ. App. P., provides that if

issues were raised in, but not decided by, the court of appeals, we

may consider them or remand to the court of appeals to decide them

in the first instance. Given the fact intensive nature of the

inquiry and the wide range of views expressed nationally on the

torts alleged, it is best to have such issues decided in the court

in which they were raised and briefed. I thus concur in the

-59-
judgment but dissent from the court’s opinion.

Frederick J. Martone, Justice

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