Gitman v. Simpson ( 2022 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
JACOB GITMAN, Plaintiff/Appellant,
v.
PATRICK SIMPSON, et al., Defendants/Appellees.
No. 1 CA-CV 21-0723
FILED 9-15-2022
Appeal from the Superior Court in Maricopa County
No. CV2019-09187
The Honorable Michael W. Kemp, Judge
AFFIRMED
COUNSEL
Rose Law Group PC, Scottsdale
By Logan V. Elia, Olen V. Lenets
Counsel for Plaintiff/Appellant
Law Offices of Paul Weich, Tempe
By Paul M. Weich
Counsel for Defendants/Appellees
GITMAN v. SIMPSON, et al.
Decision of the Court
MEMORANDUM DECISION
Judge Jennifer B. Campbell delivered the decision of the Court, in which
Presiding Judge Brian Y. Furuya and Judge Paul J. McMurdie joined.
C A M P B E L L, Judge:
¶1 Jacob Gitman appeals from an award of attorney’s fees
pursuant to A.R.S. § 12-349(A)(1) for bringing a claim without substantial
justification. He contends the award was error because his defamation
lawsuit was dismissed without an adjudication on the merits and because
the court denied the defendants’ motion to dismiss under Rule 12(b)(6) of
the Arizona Rules of Civil Procedure (Rules). Gitman also challenges
several of the court’s findings and the judge’s continued participation in the
case after reassignment to another judicial officer. We find the arguments
without merit and affirm.
¶2 Substantial justification for filing a claim must be evaluated
on the legal and evidentiary support the party had at the time of filing, not
based on how the claim is subsequently resolved. See Takieh v. O’Meara, 252
Ariz. 51, 62–63, ¶¶ 42–43 (App. 2021). Even if a claim withstands a motion
to dismiss, that is not dispositive on the issue of whether the plaintiff had a
reasonable expectation of prevailing when filing a complaint. See Coleman
v. City of Mesa, 230 Ariz. 352, 356, ¶ 9 (2012) (requiring the court to assume
the truth of well-pleaded factual allegations). Neither a lack of adjudication
on the merits nor a denial of a Rule 12(b)(6) motion precludes an award of
attorney fees under A.R.S. § 12-349(A)(1) for bringing a claim without
substantial justification. Because the record supports the court’s award, we
affirm.
BACKGROUND1
¶3 This is the second appeal from the superior court’s award of
attorney’s fees pursuant to A.R.S. § 12-349, following the dismissal of
Gitman’s defamation lawsuit. In his lawsuit, Gitman alleged an online news
journal, The Stern Facts, had published an article entitled Under Trump,
1 We view the evidence in the light most favorable to sustaining an
award under A.R.S. § 12-349. Takieh, 252 Ariz. at 61–62, ¶ 39.
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Witness Protection has been infiltrated by the Russian Mafia, containing
defamatory statements about him. The article mentioned Gitman in
connection with the Russian mafia, Michael Cohen, and various criminal
schemes in Florida involving money, drugs, and fraud. Gitman alleged that
he “[w]as working to open an aluminum plant in Arizona” and that the
article had “impaired and impeded [his] valuable business opportunities in
Arizona.” Gitman sought damages and a declaration that the article was
false and defamatory. He named several out-of-state corporations and
individuals, including the article’s author Patrick Simpson, and, in rem, the
internet domain for The Stern Facts (Defendants) as defendants.
¶4 Defendants moved to dismiss for lack of personal jurisdiction,
improper venue, and “failure to state a claim upon which relief can be
granted.” See Ariz. R. Civ. P. 12(b)(2), (3), (6). The superior court found that
the Stern Facts article “[wa]s based upon public statements and
investigations by the federal government, as well as public records” and
that the causal connection between the article and Gitman’s efforts to open
the aluminum plant “[wa]s tenuous at best,” but declined to dismiss under
Rule 12(b)(6) because “it [wa]s not inconceivable that some relief could be
granted.” The court agreed that it lacked personal jurisdiction over
Defendants and that venue was improper, however, and dismissed
Gitman’s complaint on those grounds.
¶5 Defendants then requested attorney’s fees, taxable costs, and
double damages, pursuant to A.R.S. § 12-349, arguing that Gitman’s
complaint lacked substantial justification when filed and was intended to
harass them. The superior court awarded attorney’s fees and costs pursuant
to A.R.S. § 12-349 but declined to award damages, finding only that
Gitman’s lawsuit “was filed without substantial justification.” Gitman
appealed, and we vacated the fee award “[b]ecause the court failed to make
the specific findings required by A.R.S. § 12-350.” Gitman v. Simpson,
1 CA-CV 20-0536, 2021 WL 1885008, at *1, ¶ 1 (Ariz. App. May 11, 2021)
(mem. decision).
¶6 On remand, after a routine reassignment of the case, the
superior court issued new findings concluding that Gitman’s claims lacked
substantial justification in terms of merit, personal jurisdiction, and venue.
On that basis, the court entered a new judgment awarding attorney’s fees
and costs pursuant to A.R.S. § 12-349(A)(1). Despite the case being
administratively reassigned, the judge initially assigned to the case issued
the rulings and judgment related to the award. Gitman appealed, again,
challenging the A.R.S. § 12-349 award.
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DISCUSSION
¶7 Gitman makes three arguments challenging the court’s
award. First, he contends the lack of adjudication on the merits and the
denial of Defendants’ Rule 12(b)(6) motion precluded an award under
A.R.S. § 12-349(A)(1). Second, he contends the record does not support the
superior court’s findings. And third, he argues the first judicial officer
should not have participated in the case after reassignment.
¶8 Under A.R.S. § 12-349, the court must award attorney’s fees if
the defendant proves the plaintiff or his attorney “[b]r[ought] . . . a claim
without substantial justification.” A.R.S. § 12-349(A)(1); Phx. Newspapers,
Inc. v. Dep’t of Corr., 188 Ariz. 237, 244 (App. 1997) (burden on proponent).
“A claim lacks substantial justification when it is both ‘groundless’ and ‘not
made in good faith.’” Takieh, 252 Ariz. at 61, ¶ 37 (quoting A.R.S.
§ 12-349(F)). “A claim is groundless if the proponent can present no rational
argument based upon the evidence or law in support of that claim.” Id.
(quotation omitted). A claim is not made in good faith when a “litigant was
aware that a particular pleading should not have been brought.” Gilbert v.
Bd. of Med. Exam’rs, 155 Ariz. 169, 180 (App. 1987). Groundlessness is an
objective inquiry, but a subjective standard applies to the bad-faith inquiry.
Takieh, 252 Ariz. at 61, ¶ 37.
¶9 If the court awards fees under this statute, it must make
express findings about the reasons for the award, “though the findings need
only be specific enough to allow a reviewing court to test the validity of the
judgment.” A.R.S. § 12-350; Rogone v. Correia, 236 Ariz. 43, 50, ¶ 22 (App.
2014). We review the application of A.R.S. § 12-349 de novo, but we review
the superior court’s factual findings and legal conclusions for clear error.
See Goldman v. Sahl, 248 Ariz. 512, 531, ¶ 65 (App. 2020).
I. Award Under A.R.S. § 12-349(A)(1) Without Adjudication on the
Merits, After Denial of Rule 12(b)(6) Motion
¶10 Gitman contends a court cannot find a claim groundless
absent an adjudication on the merits. In the alternative, he contends a claim
cannot be groundless if it withstands a Rule (12)(b)(6) motion to dismiss.
Both contentions are without merit. Courts must evaluate substantial
justification based on a party’s legal and evidentiary support when the
claim was filed. See Takieh, 252 Ariz. at 62–63, ¶¶ 42–43 (rejecting
disparaging remarks as a factual predicate for defamation claim because
statements were made months after filing); see also A.R.S. § 12-349(A)(1)
(mandating award when attorney or party “[b]rings . . . a claim without
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substantial justification” (emphasis added)). A claim is groundless if it was
groundless when filed; it does not cease to be groundless if the court or the
plaintiff later dismisses it on procedural grounds. 2 Whether a defendant
prevails on the merits is irrelevant to whether the plaintiff had a legal and
factual basis to bring his claim in the first place. See Compassionate Care
Dispensary, Inc. v. Ariz. Dep’t of Health Servs., 244 Ariz. 205, 216, ¶ 37 (App.
2018).
¶11 The cases Gitman cites in support of his argument, including
Monti v. Monti, do not alter this conclusion. 186 Ariz. 432 (App. 1996). In
that case, we stated:
A party whose claim is groundless cannot prevail on the
merits, for a groundless claim has no merit. Only the party who
prevails on the merits can seriously argue that the other’s claim was
groundless. A trial court cannot make a finding of
“groundlessness,” nor can an appellate court review such a
finding, without considering the merits of the challenged
claim.
Id. at 435 (emphasis added). But the issue in Monti was not whether an
award under A.R.S. § 12-349(A)(1) requires an adjudication on the merits;
it was whether the superior court might make such an award after entry of
final judgment. Id. at 433 (holding court lacked jurisdiction to make award
after directing verdict for plaintiff and entering final judgment). The Monti
court did not need to consider the universe of pre-trial procedural postures
in which parties may request an award under A.R.S. § 12-349(A)(1). For
instance, a defendant would not be barred from seeking sanctions under
A.R.S. § 12-349(A)(1) if the plaintiff voluntarily dismissed a frivolous
lawsuit weeks before trial. We agree with Monti that “a groundless claim
has no merit” and that A.R.S. § 12-349(A)(1) requires courts to consider the
merits of a claim. We disagree with Monti, however, to the extent it
suggested a court must first adjudicate the lack of merit in a separate ruling.
¶12 A court’s denial of a Rule 12(b)(6) motion to dismiss is
likewise not dispositive on whether a claim was groundless at the time it
was filed. First, post-filing developments may give a plaintiff additional
2 As explained below, we resolve this case based on the substantive
merit of Gitman’s claims. Therefore, we need not decide whether A.R.S.
§ 12-349(A)(1) permits a fee award when a claim is substantively
meritorious but procedurally frivolous.
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Decision of the Court
legal or evidentiary support that could insulate a groundless claim from
dismissal. But A.R.S. § 12-349 does not permit plaintiffs to rely on
“supposition and speculation” about changes in the law or unforeseeable
factual discoveries. Takieh, 252 Ariz. at 63, ¶ 43. Second, in a motion to
dismiss, the parties may fail to bring legal or factual gaps to the court’s
attention. The defendant’s failure to prevail on a motion to dismiss does not
preclude him from later prevailing on a meritorious request for attorney’s
fees under A.R.S. § 12-349. Cf. Compassionate Care Dispensary, Inc., 244 Ariz.
at 216, ¶ 37 (“The mere fact that a [plaintiff] is ultimately unable to sustain
its claims in defense of a motion for summary judgment does not
automatically equate to a determination that the complaint itself was
frivolous, unjustified, or put forth for an improper purpose.”). Third, and
perhaps most importantly, the inquiries under Rule 12(b)(6) and A.R.S.
§ 12-349(A)(1) are different and may compel different results.
¶13 When considering a motion to dismiss under Rule 12(b)(6),
the court must consider whether any reasonable interpretation of the well-
plead facts, if proven true, could warrant relief. Coleman, 230 Ariz. at 356,
¶¶ 8–9. At the dismissal stage, the court does not consider whether the
plaintiff can prove the alleged facts. See id. (explaining “courts must assume
the truth of all well-pleaded factual allegations”). In contrast, when
considering whether a claim is groundless under A.R.S. § 12-349(A)(1), the
question is whether the plaintiff “can present [any] rational argument based
upon the evidence or law in support of that claim.” Takieh, 252 Ariz. at 61,
¶ 37 (emphasis added and quotation omitted). Under that standard, the
court must consider whether the plaintiff, at the time of filing, had a
reasonable expectation of proving the necessary facts at trial. See id. at 62–
63, ¶¶ 42–43.
¶14 Considering the two standards, a claim may withstand a
motion to dismiss and still be groundless, for instance, if the facts alleged
warrant relief, but counsel had no reasonable expectation of supporting
those facts with admissible evidence. Because of this, a court’s denial of a
motion to dismiss under Rule 12(b)(6) does not preclude a later award of
attorney’s fees under A.R.S. § 12-349(A)(1) if the court determines the
claims were filed without substantial justification.
II. Factual Findings
¶15 The superior court concluded Gitman’s claims were
groundless and brought in bad faith in terms of substantive merit, personal
jurisdiction, and venue. Gitman argues the record does not support the
court’s findings. Because we find no clear error in the conclusion that
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Gitman lacked substantive justification for his claims, we need not address
his arguments about jurisdiction and venue. We review the court’s
conclusion that Gitman’s claims were substantively groundless and
brought in bad faith.
A. Groundlessness
¶16 Gitman argues that no evidence supports the superior court’s
conclusion that his claims were substantively groundless. The court’s
conclusion was rooted in Gitman’s inability to prove the essential elements
of his defamation claim.
¶17 To recover for defamation, a plaintiff must prove (1) that the
defendant made a false statement, (2) that the statement was defamatory,
and (3) that the defendant published the statement to a third party, (4) with
the requisite level of fault, (5) causing damages. See Dombey v. Phx.
Newspapers, Inc., 150 Ariz. 476, 480–81 (1986); Peagler v. Phx. Newspapers, Inc.,
114 Ariz. 309, 315–16 (1977). A plaintiff who is a private figure need only
prove the defendant negligently published the statement; a public figure
must prove actual malice, meaning reckless or knowing disregard of the
truth, by clear and convincing evidence. Dombey, 150 Ariz. at 480–81, 487.
Damages may be presumed for statements that are defamatory per se, or
facially defamatory. See Boswell v. Phx. Newspapers, Inc., 152 Ariz. 1, 6 n.4
(App. 1985) (supplement by 152 Ariz. 9 (1986)). But if the defamatory
statements involve matters of public concern, a plaintiff must prove actual
malice to recover presumed damages; otherwise, proof of actual damages
is required. 152 Ariz. at 19.
¶18 Here, Gitman is a private figure. See Dombey, 150 Ariz. at 484(explaining that a person does not become a public figure merely by “doing
business with the government, being swept up in a controversy over an
issue of public interest or concern, [and] being named in articles creating a
public controversy”). And the statements at issue are arguably defamatory
per se because they involve crimes of dishonesty and fraud. See Boswell, 152
Ariz. at 6 n.4; Restatement (Second) of Torts § 571 cmt. g (1977). But the
statements concerned matters of public interest, namely Gitman’s
involvement in an international criminal syndicate and his association with
Michael Cohen, whom the superior court described as “an infamous
attorney closely tied to Donald Trump.” As such, Gitman needed to prove
actual damages or malice, the latter by clear and convincing evidence. Cf.
Dombey, 150 Ariz. at 481. But the superior court’s findings suggested
Gitman lacked proof of either. The court found that the aluminum plant
had been granted an air quality permit, after the publication of the Stern
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Facts article, and that a “rezoning permit was denied without any factual
basis that the article was considered in any way by the [zoning
commission]”—presumably based on review of a transcript from a zoning
hearing.3 Further, the court found that public statements, investigations,
and records provided a basis for the Stern Facts article—presumably based
on a review of the article itself.
¶19 Gitman argues the transcript was not in the record, but the
superior court may take judicial notice of matters not reasonably disputed.
Ariz. R. Evid. 201(b). A transcript from a zoning hearing falls within that
ambit, and Gitman cites no authority to the contrary. Gitman also contends
it was premature to draw conclusions about the factual basis for the article.
An article’s sources are relevant to the actual malice inquiry, and the article
itself is evidence of what kind of investigation an author conducted before
publishing. See, e.g., Biro v. Conde Nast, 807 F.3d 541, 545 (2d Cir. 2015)
(noting that a plaintiff could allege malice if the defendant provides no
source for defamatory statements, if the source is unreliable, or if there are
obvious reasons to doubt the veracity of source’s information).
¶20 More importantly, the court did not find that the pleadings
disproved Gitman’s defamation claim. Rather, the court’s findings show
that Gitman lacked evidence to prove his claim, which is reasonably
supported by the record. Gitman’s complaint contained only vague damage
allegations and conclusory allegations of actual malice. Gitman argued he
“c[ould] prove” the Stern Facts article had “hindered” his efforts to build
the aluminum plant, but he offered no indication of how he planned to
produce evidence to substantiate that claim. Regarding malice, Gitman
pointed to the Stern Facts article’s timing:
Plaintiff’s plans for the Arizona aluminum plant first went
public the same day that [the a]rticle was published. This could
be a wild coincidence. However, Plaintiff perceived the
timing of the defamatory publication as a direct attempt to
stifle his business ventures in Arizona.
Although actual malice can be inferred from objective facts, Scottsdale
Publ’g, Inc. v. Superior Court, 159 Ariz. 72, 84 (App. 1988), the timing of the
Stern Facts article does not support such an inference. To prove actual
3Gitman also contends the superior court falsely stated that he was granted
the zoning permit. That argument misconstrues the record because the
court amended its findings about the permitting history.
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malice, a plaintiff must offer facts to show either that the defendant
“actually had a high degree of awareness of [the statement’s] probable
falsity” or that “the circumstances surrounding publication [provided]
obvious reasons to doubt . . . [its] accuracy.” Masson v. New Yorker Mag., Inc.,
960 F.2d 896, 900 (9th Cir. 1992) (quotation omitted). The coincidental
timing of the Stern Facts article does nothing to establish Defendants’ actual
or constructive awareness of any falsity in the article. At most, it raises an
inference about their desire to block the development of the aluminum
plant. But intent to harm is insufficient to prove actual malice as a matter of
law. See Harte-Hanks Commc’ns, Inc. v. Connaughton, 491 U.S. 657, 666–67,
666 n.7 (1989) (explaining actual malice confusingly has “nothing to do with
bad motive or ill will”).
¶21 In sum, nothing in the record suggests Gitman had a
reasonable expectation of proving actual damages or malice. Because
Gitman needed to establish at least one of the two, the superior court did
not clearly err by concluding he lacked a rational basis for filing his
defamation claims.4
B. Bad Faith
¶22 Gitman argues the record does not support the superior
court’s conclusion that he brought his claims in bad faith. Bad faith may be
determined from witness testimony or affidavits, a party’s filings, and
counsel’s representations. See Takieh, 252 Ariz. at 62–63, ¶ 39 n.5, ¶¶ 40–43
(affirming award based on counsel’s filings, affidavit, and arguments).
Contrary to Gitman’s argument, the court need not hold an evidentiary
hearing before finding a claim was brought in bad faith.5 See id.
¶23 Here, the superior court found Gitman filed his claims in bad
faith for two reasons. First, the court found Gitman had no evidence of a
causal link between the Stern Facts article and any damage to the aluminum
plant planning. Second, the court found Gitman’s counsel failed to “avail[]
himself” of facts concerning the alleged causal connection, suggesting he
could have reviewed the transcript from the zoning hearing or interviewed
committee members before filing the lawsuit. See A.R.S. § 12-350(1) (“The
4 Gitman has not argued, and we therefore need not decide, whether
his claim for declaratory relief was independently meritorious.
5 To the extent Gitman argues his due process rights were violated,
that argument is waived because he fails to develop it or provide citations
to legal authority. See Ritchie v. Krasner, 221 Ariz. 288, 305, ¶ 62 (App. 2009).
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extent of any effort made to determine the validity of a claim before the
claim was asserted.”), (3) (“The availability of facts to assist a party in
determining the validity of a claim or defense.”). The record supports the
court’s analysis.
¶24 The record also supports the court’s conclusion that Gitman
lacked a good-faith basis for his damage allegations. As discussed above,
Gitman never presented any facts to show why he “believe[d]” the Stern
Facts article had interfered with the aluminum plant’s development. The
record discloses Gitman’s actual malice allegation was rooted only in
“supposition and speculation.” Cf. Takieh, 252 Ariz. at 63, ¶ 43.
¶25 The record also supports the superior court’s finding that
Gitman’s counsel failed to conduct an adequate pre-litigation investigation.
Gitman’s counsel argued that he had performed online research into
Defendants’ identities and their post-article statements to determine
jurisdiction and venue. But counsel needed a good-faith basis for his
substantive allegations, and there is simply no indication he had one. See
Ariz. R. Civ. P. 11(b)(3) (“By signing a pleading . . . , the attorney or party
certifies that to the best of the person’s knowledge, information, and belief
formed after reasonable inquiry . . . the factual contentions have evidentiary
support or, if specifically so identified, will likely have evidentiary support
after a reasonable opportunity for further investigation or discovery[.]”).
¶26 In sum, the record supports the superior court’s conclusion
that Gitman lacked a good-faith basis and failed to conduct a reasonable
investigation into the substantive allegations in his complaint before filing.
Therefore, the court did not err in concluding Gitman lacked a good-faith
basis for his defamation claims.
III. Involvement of the Original Assigned Judge
¶27 Citing Rule 3.1 of the Local Rules of Practice for the Maricopa
County Superior Court and In re Hendrix, Gitman contends that it was
improper for the judge originally assigned to the case to make decisions
about the fee award after the case had been administratively transferred to
another judicial officer. See Ariz. Local R. Prac. Super. Ct. (Maricopa) 3.1(b)
(“All cases . . . shall be assigned . . . to a civil trial calendar which will
thereafter process the case to conclusion unless the case is otherwise
assigned by the Presiding Judge . . . .”); see also 145 Ariz. 345, 345–47, 350
(1985) (censuring judge for entering ex parte orders in a criminal case not
assigned to her at the request of her clerk, who had a personal interest in
the case). As a threshold matter, Gitman may have waived this argument
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because, in the superior court, he argued only that “[i]t may have been
inappropriate” for the original judge to continue ruling in the case. That
ambiguous wording gave the court no reason to consider his argument. See
Cont’l Lighting & Contracting, Inc. v. Premier Grading & Utils., LLC, 227 Ariz.
382, 386, ¶ 12 (App. 2011) (explaining that argument is waived on appeal if
not presented to the superior court so it “may have an opportunity to
address [the] issue[] on [its] merits.”).
¶28 Waiver aside, and even assuming impropriety, Gitman has
shown no prejudice, so there is no reason to vacate the superior court’s
award. See Creach v. Angulo, 189 Ariz. 212, 214 (1997) (explaining error is
reversible only if prejudicial to substantial rights of party). The court’s
findings support the award of attorney’s fees and are supported by the
record. It matters not who made the findings.
¶29 Gitman goes on to argue that the original judge’s involvement
gave “the appearance of personal animosity.” That argument is contrary to
the well-established rule that a judge’s actions in a case do not prove bias.
See Simon v. Maricopa Med. Ctr., 225 Ariz. 55, 63, ¶ 29 (App. 2010). Moreover,
the new judicial officer warned the parties that she would confer with the
originally assigned judge, and neither party objected. That was a reasonable
approach, given the initial lack of findings, because only the original judge
would know the specifics of why he determined Gitman’s claims lacked
justification in the first place. When put on notice, Gitman did not object to
the original judge’s participation, only to his entry of orders. And, on these
facts, we find no error.
CONCLUSION
¶30 For the reasons above, we affirm. Defendants request their
taxable costs and attorney’s fees on appeal, as well as double damages,
pursuant to A.R.S. §§ 12-342 and 12-349. As the prevailing party,
Defendants are entitled to recover their taxable costs pending their
compliance with ARCAP 21. Gitman’s appeal was not without substantial
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justification, however, and there is no indication he appealed primarily for
delay or harassment. See A.R.S. § 12-349(A)(1), (2). Therefore, we decline to
award attorney’s fees or double damages pursuant to A.R.S. § 12-349.
AMY M. WOOD • Clerk of the Court
FILED: AA
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