NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
JUDSON C. BALL REVOCABLE TRUST,
Plaintiff/Counter-Defendant/Cross-Defendant/Appellant,
v.
PHOENIX ORCHARD GROUP I, LP, et al.,
Defendant/Counter-Claimant/Appellee,
PJI-2 COLLECTION LLC,
Defendant/Counter-Defendant/Cross-Claimant/Appellee.
No. 1 CA-CV 16-0557
FILED 1-4-2018
Appeal from the Superior Court in Maricopa County
No. CV2015-011768
The Honorable Dawn M. Bergin, Judge
AFFIRMED IN PART; JURISDICTION ACCEPTED, RELIEF DENIED
COUNSEL
Hovore Law, PLLC, Scottsdale
By F. Thomas Hovore
Counsel for Plaintiff/Counter-Defendant/Cross-Defendant/Appellant
Freeman Law PLLC, Scottsdale
By Shelton L. Freeman, Jason M. Venditti
Counsel for Defendant/Counter-Claimant/Appellee
Gallagher & Kennedy, P.A., Phoenix
By John P. Flynn, Hannah H. Porter
Counsel for Defendant/Counter-Defendant/Cross-Claimant/Appellee
MEMORANDUM DECISION
Presiding Judge Lawrence F. Winthrop delivered the decision of the Court,
in which Judge Diane M. Johnsen and Judge Maria Elena Cruz joined.
W I N T H R O P, Presiding Judge:
¶1 Judson C. Ball Revocable Trust (the “Trust”) appeals from the
declaratory judgment in favor of Phoenix Orchard Group I, LP and Phoenix
Orchard Group II, LP (collectively, “POG”); and the denial of its motion to
stay release of rescission payments to the Trust’s judgment creditor, PJI-2
Collection, LLC (“PJI-2”). For the following reasons, we affirm the
declaratory judgment and accept jurisdiction, but deny relief from the
denial of the Trust’s motion to stay.
FACTS AND PROCEDURAL HISTORY
¶2 In October 2015, the Trust brought this action pursuant to the
Arizona Securities Act, alleging two counts of securities fraud against POG
and others in connection with the Trust’s investment in citrus orchards in
California’s San Joaquin Valley.1 In its complaint, the Trust, which still
owned the securities it purchased, demanded damages or rescission. As a
part of the Trust’s claim for rescission it tendered the securities to POG.2
1 The Trust also alleged a common-law fraud claim, which is not the
subject of this appeal.
2 In its complaint, the Trust made the following explicit tender and
demand for rescission:
Plaintiff tenders to Defendants all consideration [with] . . . the
securities and offers to do any other acts necessary for
rescission under the common law or A.R.S. § 44-2001(A). In
return, Plaintiff demands rescission with interest and
attorney fees as provided in A.R.S. § 44-2001(A).
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Decision of the Court
POG accepted the Trust’s tender, and counterclaimed for a declaratory
judgment that acceptance of the tender created a valid, mutually binding
rescission obligation, and that a charging order3 be entered against the Trust
in an unrelated case (the “Charging Order”) that any rescission payments
owed to the Trust be paid to PJI-2.4
¶3 The superior court granted POG’s application for declaratory
relief, ruling that rescission is the sole remedy available to a purchaser who
still owns securities and is suing under A.R.S. § 44-2001(A) (2013). On this
basis, the court ordered POG to deposit with the clerk of the court the
consideration paid by the Trust for the securities (plus interest, costs, and
reasonable attorneys’ fees). On May 16, 2016, POG deposited with the clerk
rescission payments totaling $776,725.68.
¶4 In granting POG’s application for declaratory relief, the court
also found the rescission payments could be released to PJI-2 pursuant to
the Charging Order. The Trust did not challenge PJI-2’s rights as a
judgment creditor or the enforceability of the Charging Order, but it moved
to stay release of the payments to PJI-2 pending the Trust’s “intended
appeal” from the underlying ruling. The superior court denied the Trust’s
request to stay enforcement of the Charging Order, finding that the Trust’s
request was “extraordinary” because the court “may, in the future, enter a
Rule 54(b) final judgment that [the Trust] would appeal[,]” and if
overturned on appeal, “PJI-2 will be legally obligated to return the funds.”
¶5 Accordingly, the superior court ordered the clerk of the court
to release the rescission payments to PJI-2 consistent with the Charging
Order.
¶6 In the meantime, the Trust moved for entry of a final
judgment pursuant to Arizona Rule of Civil Procedure 54(b) regarding the
superior court’s grant of rescission for Counts One and Two. The court
3 A charging order allows a judgment creditor to charge a judgment
debtor’s membership interest in a limited liability company to the extent of
the unsatisfied amount of the judgment plus interest. Ariz. Rev. Stat.
(“A.R.S.”) section 29-655(A) (2014).
4 PJI-2 cross-claimed against the Trust seeking a declaratory judgment
to the same effect with respect to the Charging Order.
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Decision of the Court
granted the motion as to Count One, and entered a final judgment in favor
of POG “on the First Claim for Relief in [its] Counterclaim: Declaratory
Judgment—Acceptance of Tender and Demand for Rescission.” The Trust
timely appealed from (1) the August 19, 2016 final judgment (the “August
Judgment”) and (2) “the Court’s issuance of the funds to a third party that
were lodged with the Clerk for the benefit of the Trust.”5
ANALYSIS
I. The August Judgment
¶7 We have jurisdiction of the Trust’s appeal from the August
Judgment pursuant to A.R.S. § 12-2101(A)(1) (2016). See Brumett v. MGA
Home Healthcare, L.L.C., 240 Ariz. 420, 426, ¶ 4 (App. 2016).
A. The Plain Language of A.R.S. § 44-2001
¶8 The Trust argues A.R.S. § 44-2001 does not limit a purchaser’s
remedy to rescission, but allows a purchaser to seek rescission and damages,
and to defer any election of remedies until the time of trial. We review
questions of statutory interpretation de novo. E. Vanguard Forex, Ltd. v. Ariz.
Corp. Comm’n, 206 Ariz. 399, 406, ¶ 19 (App. 2003). When interpreting a
statute, we give “words their ordinary meaning unless the context of the
statute requires otherwise.” Hirsch v. Ariz. Corp. Comm’n, 237 Ariz. 456, 466,
¶ 38 (App. 2015) (citing Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., Inc., 177
Ariz. 526, 529 (1994)). See also Mercy Healthcare Ariz., Inc. v. Ariz. Health Care
Cost Containment Sys., 181 Ariz. 95, 98 (App. 1994) (“We look primarily to
the language of the statute and give effect to the terms according to their
commonly accepted meaning.”).
¶9 Our goal in “interpreting a statute is to give effect to the
legislature’s intent.” Blevins v. Gov’t Emps. Ins. Co., 227 Ariz. 456, 459, ¶ 13
(App. 2011) (citing Blum v. State, 171 Ariz. 201, 205 (App. 1992)). “When the
language of a statute is clear and unambiguous, a court should not look
beyond the language.” Cundiff v. State Farm Mut. Auto. Ins. Co., 217 Ariz.
358, 360, ¶ 8 (2008). Although the Arizona Securities Act is a “remedial
5 The final judgment included an award to the Trust of $47,532 in
attorneys’ fees and costs. POG deposited this amount with the clerk of the
court after the Trust filed its notice of appeal; thereafter, PJI-2 filed a request
for distribution of the award pursuant to the Charging Order. The Trust
objected, arguing the superior court was divested of jurisdiction over these
funds. The court granted PJI-2’s request, and released the remaining
judgment amount of $36,343.35.
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J. BALL TRUST v. PHX ORCHARD, et al.
Decision of the Court
measure for the protection of the public[,]” it may be liberally construed
only if a provision’s language is ambiguous. Sell v. Gama, 231 Ariz. 323, 325,
¶ 8 (2013) (quoting 1951 Ariz. Sess. Laws, ch. 18, § 20 (1st Reg. Sess.)). See
also Caruthers v. Underhill, 235 Ariz. 1, 10, ¶ 38 (App. 2014) (discussing A.R.S.
§ 44-2002). Section 44-2001(A) is not ambiguous, thus, we construe it
according to its ordinary meaning.
¶10 Section 44-2001(A) provides:
A sale or contract for sale of any securities to any purchaser
in violation of § 44-1841 or 44-1842 or [§§ 44-1991 through
2000] is voidable at the election of the purchaser, and the
purchaser may bring an action in a court of competent jurisdiction
to recover the consideration paid for the securities, with interest,
taxable court costs and reasonable attorney fees, less the
amount of any income received by dividend or otherwise
from ownership of the securities, on tender of the securities
purchased or the contract made, or for damages if the purchaser
no longer owns the securities.
A.R.S. § 44-2001(A) (emphasis added.)
¶11 The language of A.R.S. § 44-2001 is clear—a purchaser of
securities must seek rescission if it owns the securities, but, if it does not, it
may seek damages. See Bullard v. Garvin, 1 Ariz. App. 249, 251 (1965)
(finding that if A.R.S. § 44-2001 were to be construed to “permit a purchaser
of securities sold in violation of the Act to sell the securities and still sue for
damages . . . [it would] negate the supposed purpose of the legislature in
requiring a strict tender”).
B. Legislative History
¶12 This court generally does not review or refer to legislative
history if the language of the subject statute is clear; however, we do so here
only to address the issues raised by the Trust. The Trust suggests that, by
not interpreting A.R.S. § 44-2001(A) to allow rescission and/or damages,
the superior court essentially permitted POG to “buy” its way out of a
securities fraud claim. Specifically, the Trust urges that we interpret A.R.S.
§ 44-2001(A) more liberally to provide a defrauded purchaser or a
purchaser of unregistered securities, the same opportunity to seek
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J. BALL TRUST v. PHX ORCHARD, et al.
Decision of the Court
rescission and/or damages as provided to a defrauded seller under A.R.S.
§ 44-2002(A).6
¶13 The Trust acknowledges that while A.R.S. § 44-2002(A)
expressly grants a seller the right to sue for damages, A.R.S. § 44-2001(A)
does not contain the same express grant to the purchaser. The Trust,
however, suggests the Arizona Securities Act drafters intended the same
remedies for sellers be applied to purchasers. This contention is not
supported by the legislative history.
¶14 The legislature has amended both statutes twice since original
enactment, but not in ways material to this issue. See 1993 Ariz. Sess. Laws,
ch. 257, § 5 (1st Reg. Sess.); 2000 Ariz. Sess. Laws, ch. 108, §§ 41-42 (2d Reg.
Sess.). This creates a “strong inference” the legislature did not intend to
incorporate the seller’s damages remedy under A.R.S. § 44-2002(A) into the
purchaser’s damages remedy under A.R.S. § 44-2001(A). See Cemex Constr.
Materials S., LLC v. Falcone Bros. & Assocs., Inc., 237 Ariz. 236, 241, ¶ 18 (App.
2015). Accordingly, we will not read into A.R.S. § 44-2001(A) what the
legislature has omitted or excluded. See Stambaugh v. Killian, 242 Ariz. 508,
511, ¶ 15 (2017) (citing City of Flagstaff v. Mangum, 164 Ariz. 395, 398 (1990)
(quotations omitted)).
C. Case Law
¶15 The Trust contends Arizona case law supports its argument
that A.R.S. § 44-2001 allows a purchaser to seek both rescission and
damages. In large part, the authorities relied on by the Trust address the
remedies available to (1) purchasers who sold their securities before filing
for relief; (2) purchasers who, like the Trust, assert other distinct causes of
6 Section 44-2002(A) (2013) provides:
A purchase or contract for purchase from a seller of securities
made in violation of section 44-1842, 44-1991 or 44-1994 is
voidable at the election of the seller of the securities, and the
seller may bring an action in a court of competent jurisdiction
to recover the amount of the seller’s damages, with interest,
taxable court costs and reasonable attorney fees.
A.R.S. § 44-2002(A) (emphasis added.)
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J. BALL TRUST v. PHX ORCHARD, et al.
Decision of the Court
action; or (3) sellers. For example, the Trust cites Wash. Nat’l Corp. v. Thomas
to support its argument that the court should not limit its remedy to
rescission, if rescission cannot make the Trust whole. 117 Ariz. 95 (App.
1977), disapproved on other grounds, Greenfield v. Cheek, 122 Ariz. 57 (1979).
The Trust’s reliance on Wash. Nat’l Corp. is misplaced. Wash. Nat’l Corp.
addressed the recovery of damages sought by a seller of stock, under A.R.S.
§ 44-2002. Id. at 103. As mentioned above, there are significant differences
between A.R.S. § 44-2001 and § 44-2002, which demonstrate that the
legislature did not intend for the same remedies to apply to both statutes.7
¶16 The Trust also argues that case law supports its interpretation
that A.R.S. § 44-2001 does not “limit a defrauded buyer to rescission when
the buyer still owns the securities.” In this regard, the Trust relies primarily
on Grand v. Nacchio, 214 Ariz. 9 (App. 2006). Grand involved a situation
where the purchaser sold the subject shares before instituting the securities
fraud action, and argued it could establish a right to rescind the original
transaction if it replaced the shares it originally owned with “substitute”
shares. Id. at 13, ¶ 2. These facts, clearly, are not the facts of the instant
appeal. In allowing the purchaser to rescind, the Grand court interpreted
§ 44-2001(A) to “permit[] a plaintiff to elect a remedy rather than []
prescrib[e] the remedy.” Id. at 22, ¶ 42. Grand, however, does not stand for
the proposition that a purchaser who still owns the shares can assert a right
to rescission and successfully tender the shares while simultaneously
asserting a statutory claim for damages.8 Neither does Grand modify the
underlying directive of A.R.S. § 44-2001—that rescission is the appropriate
remedy if a purchaser still owns the securities.9 Grand, 214 Ariz. at 22, ¶ 42.
Grand merely gives a plaintiff who has previously sold the subject securities
7 It is undisputed that a seller under A.R.S. § 44-2002 may also seek
damages.
8 The superior court’s ruling in this regard does not affect the Trust’s
ability to seek damages arising out of its common law misrepresentation
and non-disclosure claims, which remain pending in superior court.
9 Grand explicitly recognized that rescission is a proper remedy if a
purchaser of securities still owns the securities. Id. at 24, ¶ 48. See also
Randall v. Loftsgaarden, 478 U.S. 647, 655 (1986) (finding under federal
securities law, the remedy of rescission is prescribed “except where the
plaintiff no longer owns the security” (citing Wigand v. Flo-Tek, Inc., 609 F.2d
1028, 1035 (2d Cir. 1979))).
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J. BALL TRUST v. PHX ORCHARD, et al.
Decision of the Court
the opportunity to purchase substitute securities prior to trial, and thereby
qualify to seek rescission.
¶17 Here, the Trust in its complaint explicitly elected and
demanded rescission, triggering POG’s right to accept the tender. POG
accepted the tender and completed the rescission process as provided by
the statute. Under these facts, we need not address the hypothetical issue
of whether a purchaser can both demand rescission and tender the subject
shares and, for tactical reasons, reserve its right to later seek an alternative
damages remedy.10
D. Punitive Damages
¶18 Finally, the Trust contends the superior court “impermissibly
abrogated” its right to recover punitive damages. We disagree. The Trust
urges that Hall v. Sec. Planning Servs., Inc., allows an award of punitive
damages under A.R.S. § 44-2001(A). 419 F. Supp. 405 (D. Ariz. 1976). It
does not. In Hall, the district court concluded the defendants’ actions
violated the Arizona Securities Act and constituted common law fraud, and
it was the defendants’ “knowing and willful fraud” that allowed for
punitive damages. Id. at 408. Although the Arizona Securities Act’s
“remedy provisions do not limit ‘any statutory or common law right of any
person in any court for any act involved in the sale of securities,’” they do
not allow us to “superimpose” a common law claim for punitive damages
on A.R.S. § 44-2001(A). Sell, 231 Ariz. at 329, ¶ 26 (quoting A.R.S. § 44-2005).
See also Jones v. CPR Div., Upjohn Co., 120 Ariz. 147, 153 (App. 1978) (finding
the remedy for a violation of A.R.S. § 44-2001(A) is “nonexclusive and an
action may be maintained for common law fraud as well as statutory
securities violation”).
¶19 Accordingly, we agree with the superior court that POG’s
acceptance of the Trust’s unequivocal tender created a valid and mutual
rescission obligation, and the Trust is not entitled to seek punitive damages
on its statutory securities fraud claims.
10 Even assuming such a delayed election might be permitted in some
cases, we note such attempt may in certain circumstances be inappropriate;
for example, if the purchaser “delayed in electing the remedy of rescission
to see if avoidance or affirmance would be more profitable.” Rose v. Dobras,
128 Ariz. 209, 214 (App. 1981).
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J. BALL TRUST v. PHX ORCHARD, et al.
Decision of the Court
II. Release of Rescission Payments
¶20 The Trust argues the superior court erred by releasing the
rescission payments to PJI-2 before the Trust appealed from the August
Judgment. We construe this argument as a challenge to the denial of the
Trust’s motion to stay, which is more properly raised by special action. See
Astorga v. Wing, 211 Ariz. 139, 142, ¶ 14 (App. 2005); Grand, 214 Ariz. at 17,
¶ 20. See also A.R.S. § 12-120.21(A)(4) (stating this court may hear petitions
for special action “without regard to its appellate jurisdiction”). In the
exercise of our discretion, we consider the Trust’s appeal of this issue as a
special action.
¶21 Because we affirm the August Judgment on the merits, the
question of whether the superior court frustrated the appeal process is
moot. See Contempo-Tempe Mobile Home Owners Ass’n v. Steinert, 144 Ariz.
227, 229 (App. 1985) (“A case is moot when it seeks to determine an abstract
question which does not arise upon existing facts or rights.” (citing Freeman
v. Wintroath Pumps-Div. of Worthington Corp., 13 Ariz. App. 182, 183 (1970)));
J.R. Francis Constr. Co. v. Pima Cty., 1 Ariz. App. 429, 430 (1965).
Accordingly, we deny relief. Cf. Best Choice Fund, LLC v. Low & Childers,
P.C., 228 Ariz. 502, 510 n.6, ¶ 23 (App. 2011) (deeming a cross-appeal moot
when affirming judgment for reasons underlying the superior court’s
ruling); Catalina Foothills Unified Sch. Dist. No. 16 v. La Paloma Prop. Owners
Ass’n, Inc., 238 Ariz. 510, 519 n.8, ¶ 37 (App. 2015) (declining to address
issues raised by cross-appeal when affirming judgment on a jury’s verdict).
CONCLUSION
¶22 For the foregoing reasons, we affirm the August Judgment
and accept jurisdiction of, but deny relief from, the denial of the Trust’s
motion to stay. POG requests an award of attorneys’ fees on appeal
pursuant to A.R.S. § 12-341.01 (2016). We defer this request to the superior
court pending final resolution of the case. See Tierra Ranchos Homeowners
Ass’n v. Kitchukov, 216 Ariz. 195, 204, ¶ 37 (App. 2007). As the successful
parties, POG and PJI-2 upon compliance with ARCAP 21 are entitled to
their costs on appeal.
AMY M. WOOD • Clerk of the Court
FILED: AA
9