Red Mountain v. Ingle ( 2018 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
RED MOUNTAIN MED SPA, L.L.C., Plaintiff/Appellee,
v.
AZ NP HEALTH SERVICES, LLC, et al., Defendants.
__________________________________
CHRISTOPHER B. INGLE, Appellant.
No. 1 CA-CV 16-0251
FILED 10-23-2018
Appeal from the Superior Court in Maricopa County
No. CV2013-055010
The Honorable Susan M. Brnovich, Judge
AFFIRMED
COUNSEL
Sherman & Howard LLC, Phoenix
By Michael W. Wright, Gabriel A. Peraza
Counsel for Plaintiff/Appellee
May Potenza Baran & Gillespie PC, Phoenix
By Christopher B. Ingle, Michelle Mozdzen
Counsel for Appellant Ingle
RED MOUNTAIN v. INGLE
Decision of the Court
MEMORANDUM DECISION
Presiding Judge James P. Beene delivered the decision of the Court, in
which Judge Michael J. Brown and Judge James B. Morse Jr. joined.
B E E N E, Judge:
¶1 Appellant Christopher B. Ingle challenges a sanctions award
stemming from the denial of a motion to disqualify opposing counsel from
representing Appellee Red Mountain Med Spa, L.L.C. (“Red Mountain”) at
trial. We affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 Red Mountain sued AZ NP Health Services and Steve and
Loretta Hayko (collectively “Defendants”) in 2013 and alleged, among
other things, that Defendants had misappropriated Red Mountain
confidential and proprietary information (the “Red Mountain Lawsuit”).
AZ NP counterclaimed alleging tortious interference with its business
relations and unfair business practices. The superior court granted
summary judgment for Red Mountain on AZ NP’s counterclaims and set
trial on Red Mountain’s claims for January 4-7, 2016.
¶3 On December 14, 2015, less than a month before trial,
Defendants, through Ingle, moved to disqualify Red Mountain’s counsel,
Sherman & Howard LLC (“S&H”), from continuing to represent Red
Mountain. Defendants alleged that Pamela Andow (“Andow”), a witness
who they contended had “worked at AZ NP,” had taken “a lot of AZ NP’s
proprietary information,” and that S&H was “using the information . . .
obtained from Andow against AZ NP in this case” in violation of Arizona
Supreme Court Rule 42, Rules of Professional Conduct, Ethical Rules (“ER”)
1.2 and 4.2. Defendants also contended Andow had an “ongoing
relationship” with AZ NP because it had disclosed her as a witness and
intended to call her to testify at trial. Defendants further noted that Andow
had retained S&H to file suit to dissolve another company known as
Improve Aesthetics after she “terminated her relationship with AZ NP” in
August 2015 (the “Improve Aesthetics Lawsuit”).
¶4 Red Mountain contended in response that Andow only
worked with AZ NP as an independent contractor from September 2014
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through May 2015, at which time she and Mr. Hayko formed Improve
Aesthetics. S&H acknowledged representing Andow in the Improve
Aesthetics Lawsuit but denied that it had any communications with Andow
relating to the Red Mountain Lawsuit. S&H also contended that it obtained
the allegedly confidential information through legitimate means. On these
bases, Red Mountain argued Defendants filed the motion to disqualify
“without substantial justification, with the intent to harass Red Mountain,
and to needlessly increase the cost of litigation on the eve of trial” and
requested sanctions under Arizona Rules of Civil Procedure (“Rule”) 11 or
Arizona Revised Statutes (“A.R.S.”) section 12-349.
¶5 The superior court denied the motion to disqualify in an
unsigned minute entry on December 23, 2015. The court found that Andow
“was not a former employee” of AZ NP and that she did not start working
with AZ NP until after the events that led to the Red Mountain Lawsuit.
The court also granted Red Mountain’s sanctions request, ordered Red
Mountain to submit a fee affidavit and proposed form of order by January
9, 2016, and ordered that “any objection to the affidavit shall be filed no
later than January 19, 2016.”
¶6 Red Mountain submitted a fee application and proposed form
of judgment on January 8, 2016. Five days later, Red Mountain filed an
amended fee application and proposed form of judgment in which it
specifically requested that the court enter sanctions against both
Defendants and Ingle. Defendants responded on January 20, 2016,
challenging the basis of the sanctions award and objecting to the amount of
fees requested. On January 22, 2016, the superior court entered a final Rule
54(b) judgment denying the motion to disqualify and imposing $5,000 in
sanctions against Defendants and Ingle jointly and severally (the “Sanctions
Judgment.”).
¶7 Defendants and Ingle filed a timely motion for new trial on
February 8, 2016. Citing then-Rule 59(l), now codified as Rule 59(d),
Defendants and Ingle asked the court “for an order vacating the judgment
. . . .” They contended they were not given “an opportunity to respond to
[the] Amended Application for Costs and Fees, or its Amended Proposed
form of Judgment, before the Court entered said judgment” because Red
Mountain had mailed the documents as opposed to using the electronic
service tool available in the Maricopa County Superior Court TurboCourt
system. They also contended the amended application and proposed form
of judgment were untimely.
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¶8 The superior court denied the motion for new trial in a March
31, 2016 unsigned minute entry, finding that Defendants were given an
opportunity to, and did, address Red Mountain’s sanctions arguments.
Defendants, but not Ingle, filed a notice of appeal on April 4, 2018,
challenging this ruling. Defendants and Ingle then moved the superior
court to set an amount for a supersedeas bond on April 19, 2016.
¶9 On May 19, 2016, Defendants and Ingle filed an amended
notice of appeal challenging the Sanctions Judgment. The next day—the
day Ingle was scheduled to sit for a judgment debtor examination—Red
Mountain notified the court that the Sanctions Judgment had been satisfied
in full. The court then denied Defendants’ motion to set an amount for a
supersedeas bond as moot.
¶10 On November 15, 2017, following a lengthy stay due to
ongoing bankruptcy proceedings, this Court determined that the
April 4, 2016 notice of appeal and the May 19, 2016 amended notice of
appeal were premature. This Court ordered Defendants and Ingle to apply
for a signed order denying the motion for new trial and, once that order
was obtained, file a new notice of appeal designating “the judgment and/or
order being appealed as well as who is appealing.” The superior court
entered a signed order denying the motion for new trial on January 5, 2018.
Ingle, but not Defendants, filed a timely notice of appeal challenging both
the order and the Sanctions Judgment.
DISCUSSION
I. This Court Has Jurisdiction over Claims For Which Appellate
Notice Was Filed and Ingle Was Aggrieved.
¶11 Before addressing the merits, we must determine whether we
have jurisdiction to resolve the issues Ingle raises on appeal. Ghadimi v.
Soraya, 230 Ariz. 621, 622, ¶ 7 (App. 2012). A party may not appeal from a
judgment or order unless he is “aggrieved” by the judgment or order.
ARCAP 1(d); Chambers v. United Farm Workers Org. Comm., AFL-CIO, 25
Ariz. App. 104, 107 (App. 1975). One is “aggrieved” by a judgment or order
if it denies him some personal or property right. Gries v. Plaza del Rio Mgmt.
Corp., 236 Ariz. 8, 12, ¶ 14 (App. 2014).
¶12 We have previously held that an attorney may appeal from a
judgment imposing sanctions against him. Wieman v. Roysden, 166 Ariz.
281, 284 (App. 1990). The parties agree on appeal, however, that Ingle paid
the remaining balance of the judgment in May 2016. Payment of a judgment
can preclude an appeal if the payment is voluntary. Flood Control Dist. of
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Maricopa Cty. v. Paloma Inv. Ltd. P’ship, 237 Ariz. 322, 326, ¶ 13 (App. 2015).
Payments made to avoid collection efforts outside of a settlement or
compromise agreement, however, are generally considered to be
compulsory, not voluntary. Webb v. Crane Co., 52 Ariz. 299, 320 (1938);
Freeman v. Wintroath Pumps-Div. of Worthington Corp., 13 Ariz. App. 182, 183
(App. 1970).
¶13 The timing of Ingle’s payment—made on the day he was to
sit for a debtor’s examination—suggests he chose to satisfy the judgment to
avoid further collection efforts. Satisfaction of the Sanctions Judgment thus
did not preclude his right to appeal it. See Del Rio Land, Inc. v. Haumont, 110
Ariz. 7, 10 (App. 1973) (“One against whom a judgment is entered, if he fails
to satisfy it, must expect to see his property seized and sold at a sacrifice,
and it is difficult to conceive how his payment of the judgment can give rise
to any estoppel against his seeking to avoid it for error.”) (quoting Freeman
on Judgments, vol. 2, 5th ed., p. 2410, § 1165).
¶14 Ingle also challenges unspecified rulings that he contends
allowed Red Mountain to introduce “information and documents” at trial
that he says were not properly disclosed. Ingle’s notice of appeal did not
challenge any part of the judgment resulting from the trial on Red
Mountain’s claims; moreover, he was not a party to the trial, nor was he
aggrieved by the result. He therefore cannot raise those issues. See, e.g.,
Matter of Gubser, 126 Ariz. 303, 306 (1980) (“Appellant can appeal from only
that part of the judgment by which she is aggrieved.”); MCA Fin. Group, Ltd.
v. Enter. Bank & Tr., 236 Ariz. 490, 494, ¶ 8 (App. 2014) (“Generally, a person
who is not a party to an action is not aggrieved and cannot appeal from
findings adverse to him.”). We thus proceed to consider the Sanctions
Judgment and the order denying his motion to disqualify that precipitated
it.
II. The Superior Court Did Not Abuse Its Discretion in Denying the
Motion to Disqualify S&H.
¶15 Ingle contends the trial court erred in denying the motion to
disqualify, reiterating his contentions that S&H violated ERs 1.2(d) and 4.2.
We review the denial of a motion to disqualify counsel for an abuse of
discretion. Simms v. Rayes, 234 Ariz. 47, 49, ¶ 8 (App. 2014).
¶16 ER 1.2(d) provides:
A lawyer shall not counsel a client to engage, or assist a client,
in conduct that the lawyer knows is criminal or fraudulent,
but a lawyer may discuss the legal consequences of any
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proposed course of conduct with a client and may counsel or
assist a client to make a good faith effort to determine the
validity, scope, meaning or application of the law.
Ariz. R. Sup. Ct. 42, ER 1.2(d). A lawyer violates the rule if he had actual
knowledge that he was participating in criminal or fraudulent conduct. In
re Tocco, 194 Ariz. 453, 456-57, ¶ 11 (1999).
¶17 Ingle contends S&H violated this rule by accepting
documents and information from Andow that he contends were
confidential to AZ NP. But he concedes he does not know “whether Andow
acted on her own free will, or whether she was induced in some way” by
S&H. As such, even assuming Andow improperly obtained confidential
information, Ingle fails to demonstrate any violation of the rule. See id. at
457, ¶ 11 (“[A] mere showing that the attorney reasonably should have known
her conduct was in violation of the rules, without more, is insufficient.”).
¶18 As for ER 4.2, it provides:
In representing a client, a lawyer shall not communicate about
the subject of the representation with a party the lawyer
knows to be represented by another lawyer in the matter,
unless the lawyer has the consent of the other lawyer or is
authorized by law to do so.
Ariz. R. Sup. Ct. 42, ER 4.2. ER 4.2 does not, however, prohibit
communication with a party or an employee or agent of a party concerning
matters outside the representation. Id., cmt. 1. Moreover, ex parte
communications with former employees are permitted “unless the acts or
omissions of the former employee gave rise to the underlying litigation or
the former employee has an ongoing relationship with the former employer
in connection with the litigation.” Lang v. Superior Court, 170 Ariz. 602, 607
(App. 1992).
¶19 Ingle contends ER 4.2 barred S&H from communicating with
Andow regarding the Red Mountain Lawsuit because “she was formerly
employed by [AZ NP] . . . and Andow has an ongoing relationship with AZ
NP in connection with the litigation” because she was “disclosed as a
witness . . . and the AZ NP Defendants had intended to call her to testify at
trial.” He cites no authority for his novel contention that a party can create
an “ongoing relationship” with a former independent contractor simply by
disclosing him or her as a potential witness. See id. (stating that the fact that
former employees “may have information which is damaging to [the
former employer] . . . does not justify a ban on ex parte communications.”).
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Moreover, neither Defendants nor Ingle presented any evidence to suggest
Andow’s acts or omissions somehow gave rise to the Red Mountain
Lawsuit. Id. at 609. The court thus did not abuse its discretion in denying
Defendants’ motion to disqualify S&H.
III. The Superior Court Did Not Abuse its Discretion in Awarding
Sanctions to Red Mountain.
¶20 The superior court imposed sanctions on AZ NP and Ingle
based on its finding that the motion to disqualify “was filed with the
purpose of needlessly increasing the cost of litigation, to harass or to cause
unnecessary delay.” It did not specify whether it based its award on Rule
11 or A.R.S. § 12-349. See Harris v. Reserve Life Ins. Co., 158 Ariz. 380, 383
(App. 1988) (“Rule 11, of course, deals with some of the same issues as
A.R.S. § 12-349.”). We first consider the award under Rule 11.
¶21 Generally, an attorney violates Rule 11 by filing a document
he or she knows or should know takes a position that is insubstantial,
frivolous, groundless, or otherwise unjustified. Compassionate Care
Dispensary, Inc. v. Ariz. Dep’t of Health Servs., 244 Ariz. 205, 216, ¶ 36 (App.
2018). We review a Rule 11 sanctions award for an abuse of discretion,
accepting the superior court’s fact findings unless they are clearly
erroneous. Id.¶22 Ingle contends sanctions were not appropriate because he
“conducted a reasonable investigation into both the facts and the law”
before filing the motion to disqualify S&H. See, e.g., James, Cooke & Hobson,
Inc. v. Lake Havasu Plumbing & Fire Prot., 177 Ariz. 316, 319 (App. 1993)
(“Rule 11 . . . requires that before signing a pleading, a lawyer possess a
good faith belief, formed on the basis of a reasonable investigation, that a
colorable claim or defense exists.”) (citation omitted). Specifically, Ingle
contends he supported the motion with “sworn declarations detailing
Andow’s relationship with AZ NP, Andow’s knowledge of confidential
and privileged information, and the documents she removed from the AZ
NP office.”
¶23 The only declaration attached to the motion was one in which
Mrs. Hayko speculated that it was “possible” Andow had conveyed
“sensitive information” to S&H. She offered a second declaration with
Defendants’ reply in which she testified that she had “discussed the case
with Andow” and that Andow, a nurse practitioner, had treated nine other
disclosed witnesses. She did not, however, offer any evidence that Andow
actually conveyed any purportedly confidential or proprietary information
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to S&H. As such, even if we were to accept Mrs. Hayko’s declaration, it
does not approach the showing required to establish a violation of either
ER 1.2(d) or ER 4.2.
¶24 Ingle also contends the superior court improperly focused on
the fact that Andow was an independent contractor, not an employee. The
court mentioned this in addressing Defendants’ inaccurate contention that
“Andow is not just a former employee, she is also a witness who will testify
at trial.” Defendants later conceded in their reply that Andow “was an
independent contractor at AZ NP through May 2015[.]” Notably,
Defendants also contended that Andow was “a disclosed witness who was
employed by [AZ NP] during the events at issue in this trial” despite knowing
she only worked with AZ NP in 2014 and 2015, well after the wrongful acts
alleged in Red Mountain’s complaint. In light of these misstatements, we
cannot find that the superior court clearly erred in determining that there
was not a reasonable investigation into the facts.
¶25 The court also found that “Defendants were aware of [S&H’s]
representation of Ms. Andow in early September, 2015, and waited until
December 14, 2015, to file the Motion to Disqualify,” which was “3 days
after the Final Trial Management Conference and only 3 ½ weeks before the
first day of trial.” Ingle does not challenge this finding but rather states he
was awaiting proof and it came in the form of the Haykos’ 2014 tax return.
The record, however, indicates the tax return was provided by his client,
Steve Hayko, not Andow. Hayko transmitted the tax return in June 2015 to
an unrelated third party, who then provided the tax return to S&H. We
thus conclude the trial court did not abuse its discretion in awarding Rule
11 sanctions. We need not decide whether the record also supports an
award under § 12-349. See Solimeno v. Yonan, 224 Ariz. 74, 82, ¶ 33 (App.
2010) (Court of Appeals may affirm a sanctions award on any basis
supported by the record.).
IV. The Superior Court Did Not “Decline” to Rule on the Motion to
Set the Amount of a Supersedeas Bond.
¶26 Ingle also contends the superior court “declined to rule on the
motion to set the amount of a supersedeas bond until after the [Sanctions
Judgment] had been satisfied.” He cites no record evidence to support this
contention or to show that the court somehow knew he would satisfy the
judgment.
¶27 We also note that this motion had only been pending for
approximately 30 days and that Defendants and Ingle had not yet filed a
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reply when Red Mountain filed the notice of satisfaction. See Ariz. R. Sup.
Ct. 91(e) (“Every matter submitted for determination to a judge of the
superior court for decision shall be determined and a ruling made not later
than sixty days from submission thereof.”) (emphasis added). In any event,
the remedy on appeal would be to remand for a ruling, which the superior
court has already issued. W. Sav. & Loan Ass’n v. Diamond Lazy K Guest
Ranch, Inc., 18 Ariz. App. 256, 261 (App. 1972).
V. The Appeal Was Not Frivolous, Indisputably Meritless, or For the
Purposes of Delay.
¶28 Red Mountain requests its attorneys’ fees pursuant to ARCAP
25, under which we may sanction an appellant who brings a frivolous
appeal. Johnson v. Brimlow, 164 Ariz. 218, 221-22 (App. 1990). An appeal is
frivolous if it is brought for an improper purpose or indisputably has no
merit. Ariz. Tax Research Ass’n v. Dep’t of Revenue, 163 Ariz. 255, 258 (1989).
We consider ARCAP 25 sanctions with great caution. Price v. Price, 134
Ariz. 112, 114 (App. 1982).
¶29 Red Mountain contends Ingle filed this appeal “to further
delay this matter,” but cites no record evidence to demonstrate this alleged
intent. Indeed, the Sanctions Judgment had been satisfied when Ingle filed
his latest notice of appeal, leaving unclear what he could have hoped to
delay. In our discretion, we decline to award attorneys’ fees under ARCAP
25.
CONCLUSION
¶30 For the foregoing reasons, we affirm the judgment. Red
Mountain is the successful party on appeal and may recover its taxable costs
upon compliance with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
9