Ghb v. Solomon ( 2020 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
GHB CONSTRUCTION, L.L.C., Plaintiff/Appellant,
v.
GARY C. SOLOMON, et al., Defendants/Appellees.
No. 1 CA-CV 19-0781
FILED 12-10-2020
Appeal from the Superior Court in Navajo County
No. S0900CV201600387
The Honorable Michala M. Ruechel, Judge
AFFIRMED
COUNSEL
Copper Canyon Law LLC, Mesa
By D. Cody Huffaker
Counsel for Plaintiff/Appellant
Radix Law PLC, Scottsdale
By C. Adam Buck
Co-Counsel for Defendants/Appellees
Escolar Law Office, Oroville, California
By M. Philip Escolar
Co-Counsel for Defendants/Appellees
GHB v. SOLOMON, et al.
Decision of the Court
MEMORANDUM DECISION
Judge Maria Elena Cruz delivered the decision of the Court, in which
Presiding Judge James B. Morse Jr. and Judge Paul J. McMurdie joined.
C R U Z, Judge:
¶1 Appellant GHB Construction, L.L.C. (“GHB”) challenges the
dismissal of its October 2016 claims seeking to undo seven recorded real
estate transactions from June 2011 and June 2012 under Arizona’s Uniform
Fraudulent Transfer Act (“UFTA”). We affirm because these claims have
been extinguished.
FACTUAL AND PROCEDURAL HISTORY
¶2 Because GHB appeals from the grant of a motion to dismiss,
we state the relevant factual allegations from its operative complaint and
assume they are true for purposes of this appeal. Sw. Non-Profit Hous. Corp.
v. Nowak, 234 Ariz. 387, 389, ¶ 4 (App. 2014).
¶3 Hatch Development, LLC and Jason Hatch, a GHB member,
sued Sol’s Construction Co. Inc. (“Sol’s”), Gary C. Solomon, and Bobbie Sue
Solomon on September 28, 2011. They obtained a money judgment on
October 30, 2014. GHB received an assignment of the judgment in
September 2015. GHB then sued to collect on the judgment in October 2016,
seeking to undo numerous transactions between Sol’s or the Solomons and
entities controlled by the Solomons’ relatives.
¶4 This appeal involves seven real estate transactions between
Sol’s or the Solomons and appellees Solomon Global, LLC and Franco-
Anderson, LLC. Six of the transactions took place on or about June 1, 2011,
and the seventh took place on June 19, 2012; all seven were recorded. GHB
alleged the transactions were fraudulent because they “were made to
family members and/or entities that were purposely created in order
to . . . avoid future collection proceedings.” Appellees moved to dismiss
the complaint as to these transactions, contending the claims were time-
barred under Arizona Revised Statutes (“A.R.S.”) section 44-1009(A)(1),
which extinguishes claims alleging fraudulent transfers with actual intent
to hinder, delay, or defraud a creditor if not made within “four years after
the transfer was made or the obligation was incurred or, if later, within one
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Decision of the Court
year after the fraudulent nature of the transfer or obligation was or through
the exercise of reasonable diligence could have been discovered by the
claimant.” A.R.S. § 44-1009(A)(1); see also A.R.S. § 44-1004(A)(1).
¶5 The superior court granted the motion. While it found Hatch
and Hatch Development did not become creditors under the UFTA until
the underlying judgment was entered, it determined the transactions at
issue “were recorded as required by law and could have been discovered
through the exercise of reasonable diligence” in June 2011 or June 2012.
¶6 The court allowed GHB to file an amended complaint
“alleging any additional claims which are not extinguished by law.” GHB
filed an amended complaint that largely repeated the same fraudulent
transfer allegations, again alleging that the seven transactions at issue
“were made to family members and/or entities that were purposely created
in order to . . . avoid future collection proceedings.” To explain the delay
in filing suit, GHB added allegations that Hatch “did not have funds for
asset searches . . . or legal fees for filing a fraudulent transfer lawsuit” when
the underlying judgment was entered.
¶7 Appellees renewed their motion to dismiss. At oral
argument, the court found there was “not a substantive difference in [the]
amended complaint versus the prior complaint” and stated that it would
grant the renewed motion. GHB orally requested leave to file a second
amended complaint, stating that it did not substantively change its
fraudulent transfer allegations because it relied on the court’s ruling that
Hatch did not become a creditor until October 2014. GHB also argued that
the issues are twofold. One is whether reasonable diligence
was exercised by my client. I’d like the opportunity to amend
my complaint to that effect. I believe that’s perhaps what the
Court was proposing with its first minute entry order, and I’d
like the opportunity to do so. If the Court’s ruling today is
that my client did not, in fact, exercise reasonable diligence, I
can provide or consult with my client about providing
additional information with respect to why reasonable
diligence was exercised.
The court denied counsel’s request, stating that it “ha[d] already given
plaintiffs an opportunity to amend their complaint.”
¶8 After considerable delays stemming from disputes over
whether GHB could maintain lis pendens on the properties at issue during
an appeal and the amount of GHB’s supersedeas bond, the court entered a
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Decision of the Court
final judgment under Arizona Rule of Civil Procedure (“Rule”) 54(b). GHB
timely appealed, and the parties agreed to stay the remainder of the case.
We have jurisdiction under A.R.S. § 12-2101(A)(1).
DISCUSSION
¶9 We review the dismissal of a complaint under Rule 12(b)(6)
de novo. Coleman v. City of Mesa, 230 Ariz. 352, 355, ¶ 7 (2012). We accept
all well-pleaded facts as true and give GHB the benefit of all inferences
arising therefrom. See Botma v. Huser, 202 Ariz. 14, 15, ¶ 2 (App. 2002). We
will affirm the dismissal only if GHB would not have been entitled to relief
under any facts susceptible of proof in its amended complaint. See Coleman,
230 Ariz. at 356, ¶ 8.
I. GHB’s Claims Relating to the June 2011 and June 2012 Transactions
Are Extinguished
¶10 A transfer is fraudulent as to a present or future creditor if
made
1. With actual intent to hinder, delay or defraud any creditor
of the debtor.
2. Without receiving a reasonably equivalent value in
exchange for the transfer or obligation, and the debtor either:
(a) Was engaged or was about to engage in a business
or a transaction for which the remaining assets of the
debtor were unreasonably small in relation to the
business or transaction.
(b) Intended to incur, or believed or reasonably should
have believed that he would incur, debts beyond his
ability to pay as they became due.
A.R.S. § 44-1004(A). Claims that arise under § 44-1004(A)(1) are
extinguished if no action is brought within four years of when the transfer
was made or, if later, within one year of when the fraudulent nature of the
transfer was or should have been discovered through reasonable diligence.
A.R.S. § 44-1009(A)(1). Claims that arise under § 44-1004(A)(2) are
extinguished if no action is brought within four years after the transfer was
made or the obligation was incurred. A.R.S. § 44-1009(A)(2). “Given our
preference to resolve claims on their merits,” we do not favor statute of
limitations defenses. Coulter v. Grant Thornton, LLP, 241 Ariz. 440, 444, ¶ 7
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GHB v. SOLOMON, et al.
Decision of the Court
(App. 2017). But “claims that are clearly brought outside the relevant
limitations period are conclusively barred.” Id. (quoting Montaño v.
Browning, 202 Ariz. 544, 546, ¶ 4 (App. 2002)).
¶11 GHB did not sue within four years of the transfers at issue;
we, therefore, focus on § 44-1009(A)(1). GHB contends the superior court
misapplied § 44-1009(A)(1) by concluding it could have reasonably
discovered the transfers, not their alleged fraudulent nature, more than one
year before filing suit. It also argued below that it sued within one year of
when Hatch discovered the fraudulent nature of the transfers, offering
declaration testimony that he did so in December 2015.
¶12 As noted above, all seven real estate transactions at issue were
recorded. We have previously held that the limitations period for
fraudulent transfer claims “may begin to run on the date of recording if the
recorded deed sets forth facts from which the aggrieved party should have
realized it had a cause of action.” Transamerica Ins. Co. v. Trout, 145 Ariz.
355, 358 (App. 1985). Transamerica predates the current § 44-1009(A)(1);
there, we instead applied A.R.S. § 12-543(3), under which a fraud claim does
not accrue until the claimant discovers the facts constituting the fraud or
mistake using reasonable diligence. Transamerica, 145 Ariz. at 358.
¶13 We see no reason why our holding in Transamerica would not
continue to apply to fraudulent transfer claims that seek to undo recorded
transactions, including this case. As noted above, GHB alleged that the June
2011 and June 2012 transactions were fraudulent because the properties
were conveyed to family members or family-controlled entities. See A.R.S.
§ 44-1004(B)(1) (court may consider whether a transfer was to “an insider”
in determining actual intent under subsection (A)(1)). The recorded
documents GHB attached to its original and amended complaints identify
the parties to each transaction. Recordation is “notice to all persons of the
existence of such grant, deed or instrument,” and there is no exception for
claimants who lack funds. A.R.S. § 33-416.
¶14 GHB contends constructive knowledge via recordation does
not trigger the limitations period of § 44-1009(A)(1), citing Backman v.
Backman, 127 Ariz. 414 (App. 1980). In Backman, we concluded the plaintiff’s
fraudulent transfer claim was timely because, under “the unusual
circumstances surrounding the relationship between [the parties],” she did
not become a “creditor” until after she obtained a delinquent child support
judgment. Id. at 418. GHB did not plead any unusual circumstances like
those in Backman, and Hatch did not identify any in his supporting
declaration. It instead relied on the superior court’s original finding that
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GHB v. SOLOMON, et al.
Decision of the Court
Hatch did not become a creditor under the UFTA until October 2014. This
finding was erroneous, as the UFTA defines “creditor” as “a person who
has a claim” and “claim” in relevant part as “a right to payment, whether
or not the right is reduced to judgment.” A.R.S. § 44-1001(2), (3). Entry of
the underlying judgment had no bearing on Hatch’s creditor status. See
Farris v. Advantage Cap. Corp., 217 Ariz. 1, 2, ¶ 8 (2007) (“The UFTA does not
require a creditor to reduce a claim to a judgment before seeking to void a
debtor’s allegedly fraudulent transfer of property.”).
¶15 In Moore v. Browning, cited by both parties at oral argument,
this court determined “actual or constructive discovery of the fraudulent
nature of the transfers” applies to § 44-1009. 203 Ariz. 102, 110-11, ¶ 31
(App. 2002). GHB argued the Moore court held that whether or not the
plaintiffs knew or reasonably could have known the transfers at issue were
fraudulent “requires a factual determination” and was “not an issue this
court can resolve.” Id. Although this question would typically be an issue
for the fact-finder, GHB attached copies of the recorded documents to its
complaint and amended complaint, demonstrating constructive notice of
the transfers and their alleged fraudulent nature. See Transamerica, 145 Ariz.
at 358.
¶16 For these reasons, we affirm the dismissal of GHB’s claims
stemming from the June 2011 and June 2012 transactions. See Old Republic
Nat’l Title Ins. Co. v. New Falls Corp., 224 Ariz. 526, 530, ¶ 19 (App. 2010)
(“[W]e may affirm the trial court’s grant of a motion to dismiss if it is correct
for any reason.”).
II. The Overall Purposes of the UFTA Do Not Mandate Reversal
¶17 GHB also contends the overall purposes of the UFTA, “to
discourage fraud and provide aggrieved creditors with a means to recover
assets wrongfully placed beyond their reach,” require reversal. See In re
Fair Fin. Co., 834 F.3d 651, 674 (6th Cir. 2016). Generally, the UFTA
“provides rights to creditors against debtors who evade their financial
responsibilities.” Farris, 217 Ariz. at 2, ¶ 7. But general policy statements
do not override the Legislature’s specific limitations period in § 44-
1009(A)(1). Cf. Dooley v. O’Brien, 226 Ariz. 149, 154, ¶ 20 (App. 2010) (noting
that Arizona’s UFTA “displaced similar common law actions”).
III. The Superior Court Did Not Abuse Its Discretion in Denying Leave
to File a Second Amended Complaint
¶18 Leave to amend, when sought before trial, should be “freely
given when justice requires.” Ariz. R. Civ. P. 15(a)(2). We review the denial
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Decision of the Court
of a request to amend for an abuse of discretion. Carranza v. Madrigal, 237
Ariz. 512, 515, ¶ 13 (2015). “A court may deny leave to amend if it finds
‘undue delay, bad faith, dilatory motive, repeated failure to cure
deficiencies by previous amendments, or undue prejudice to the opposing
party.’” Id. (quoting Owen v. Superior Court, 133 Ariz. 75, 79 (1982)).
¶19 Citing the statement that the superior court had already given
GHB one opportunity to amend, GHB argues it is “left to assume that the
trial court believed a second amended complaint would be futile.” But
GHB did not tell the court how it planned to amend the complaint to show
reasonable diligence; counsel only stated that she would “provide or
consult with [her] client about providing additional information with
respect to why reasonable diligence was exercised.” Assuming oral
motions for leave to amend satisfy Rule 15(a)—an issue we do not reach—
stating that one will add unidentified new allegations does not. See
Carranza, 237 Ariz. at 515, ¶ 12 (affirming the denial of leave to amend
where the movant did not inform the court or opposing counsel how he
intended to amend the pleadings); see also Wigglesworth v. Mauldin, 195 Ariz.
432, 439, ¶ 26 (App. 1999) (“[T]he non-moving party should be given an
opportunity to amend the complaint if such an amendment cures its defects.”
(emphasis added)).
¶20 GHB also contends the superior court “[e]xacerbated its
[e]rror” by declining to clarify its original finding that Hatch became a
“creditor” under the UFTA in October 2014. GHB contends this finding
“created confusion,” but GHB does not explain how any such confusion
was relevant to its second request for leave to amend the complaint. The
court dismissed the first amended complaint because GHB “failed to allege
reasonable diligence,” not because of GHB’s creditor status or lack thereof.
Notably, GHB tried to address reasonable diligence in the first amended
complaint by alleging Hatch lacked funding to investigate the transactions.
And it now cites those same allegations to contend that fact questions
remain as to reasonable diligence. The court did not abuse its discretion in
denying GHB a second opportunity to amend the complaint.
IV. Attorneys’ Fees on Appeal
¶21 GHB requests its attorneys’ fees and costs incurred in this
appeal but does not say why we should award them. We decline its request.
See ARCAP 21 (“A claim for fees . . . must specifically state the statute, rule,
decisional law, contract, or other authority for an award of attorneys’
fees.”).
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Decision of the Court
¶22 Appellees request fees under ARCAP 25 and A.R.S. § 12-349.
We may sanction an appellant who brings a frivolous appeal “to discourage
similar conduct in the future” under ARCAP 25. See Johnson v. Brimlow, 164
Ariz. 218, 221-22 (App. 1990). An appeal is not frivolous if it raises issues
supportable by any reasonable legal theory or a colorable legal argument
on which reasonable attorneys could differ. In re Matter of Levine, 174 Ariz.
146, 153 (1993). We consider ARCAP 25 sanctions with “great caution.”
Price v. Price, 134 Ariz. 112, 114 (App. 1982). In our discretion, we decline
to award ARCAP 25 sanctions.
¶23 Section 12-349(A) authorizes a fee award if a party
1. Brings or defends a claim without substantial justification[;]
2. Brings or defends a claim solely or primarily for delay or
harassment[;]
3. Unreasonably expands or delays the proceeding[; or]
4. Engages in abuse of discovery.
Appellees do not show that any of the above apply here; they only baldly
contend GHB’s appeal was “frivolous.” We decline to award § 12-349(A)
fees. As the successful party on appeal, appellees are entitled to their
taxable costs incurred in this appeal upon compliance with ARCAP 21.
CONCLUSION
¶24 We affirm the dismissal of GHB’s first amended complaint
and the denial of leave to file a second amended complaint. Appellees may
recover their taxable costs upon compliance with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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