Ajman Stud v. David Cains ( 2021 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS SEP 16 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
AJMAN STUD, a business entity organized Nos. 19-16779
and existing under the laws of the United 20-16648
Arab Emirates, Ajman Emirate; SHEIKH
AMMAR BIN HUMAID AL NUAIMI, D.C. No. 2:15-cv-01045-DJH
Plaintiffs-Appellees,
MEMORANDUM*
v.
DAVID CAINS; et al.,
Defendants-Appellants,
and
UNKNOWN PARTIES, 1 through 30,
inclusive,
Defendant.
Appeal from the United States District Court
for the District of Arizona
Diane J. Humetewa, District Judge, Presiding
Argued and Submitted July 8, 2021
Portland, Oregon
Before: M. MURPHY,** PAEZ, and BENNETT, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Michael R. Murphy, United States Circuit Judge for
In 2012, Plaintiff-Appellee, Ajman Stud, purchased a mare named La
Bella Versace (the “Mare”) from Defendant, Stonewall Farms Arabians,
LLC (“Stonewall”). Defendant-Appellant, David Cains, negotiated the sale
on behalf of Stonewall. According to Ajman Stud’s agent, Elisa Grassi,
Cains told her the Mare had not been bred and he failed to disclose the Mare
was subject to reserved embryo rights. Stonewall received payment for the
Mare on February 28, 2012, but did not deliver her to Appellees until May
2012. While the Mare was in Stonewall’s care, she was artificially
inseminated and two embryos were extracted. Appellees did not learn the
Mare was bred while at Stonewall Farms until June 2013.
In 2015, Appellees brought an action in Arizona state court raising the
following claims: (1) breach of contract, (2) breach of the covenant of good
faith and fair dealing, (3) fraud, (4) conversion of property rights, (5) breach
of fiduciary duty, and (6) breach of bailment duties. Appellees also sought
declaratory relief. Appellants removed the case to federal district court.
After a six-day bench trial, judgment was entered in favor of Appellees on
all claims except the breach of contract claim. Appellees were awarded
$975,000 in compensatory damages and $100,000 in punitive damages.
the U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
2
Thereafter, the district court awarded Appellees their attorneys’ fees, exper t
witness fees, and non-taxable costs in the amount of $743,356.93.
Our jurisdiction over these consolidated appeals arises under
28 U.S.C. § 1291. We affirm in part, reverse in part, and remand for
further proceedings.
Appeal No. 19-16779
1. Appellants seek a new trial, arguing the district court’s written
Order contains numerous clearly erroneous findings of fact and miscitations
to the record, thereby undermining confidence in the court’s judgment. 1
Conspicuously missing from Appellants’ briefs, however, are examples
illustrating how the district court’s alleged errors and miscitations actually
affected any aspect of the court’s judgment. All of Appellants’ arguments
are based on mere speculation. Further, Appellants have failed to identify
any precedent in this court, or any other, supporting the proposition that a
party is entitled to a new trial when a district court makes erroneous
nonmaterial findings. Accordingly, the request for a new trial is denied.
1
Related to this claim, Appellants have moved this court to take
judicial notice of a four-page, single-spaced Exhibit appended to their
opening appellate brief. Because the Exhibit contains argument, not
materials amenable to judicial notice pursuant to Fed. R. Evid. 201(b), the
motion is denied.
3
2. Before trial, Appellants moved to dismiss Appellees’ claims as a
sanction for alleged improprieties that occurred during the deposition of
Plaintiff, Sheikh Ammar bin Humaid al Nuaimi, the Crown Prince of the
Emirate of Ajman (“Sh. Ammar”). Appellants’ belief that Grassi coached
Sh. Ammar during his deposition by sending text messages to his phone is
not supported by any evidence. To the contrary, Grassi testified she did not
text Sh. Ammar 2 and the district court found her credible on this point.
Further, Appellants have not shown Appellees were responsible for any
malfunction of the video-conference equipment or loss of the data
connection during Sh. Ammar’s deposition. Because Appellants cannot
show Appellees engaged in the conduct of which they are accused, the
district court did not abuse its discretion in refusing to dismiss Appellees’
claims as a sanction.
3. Prior to trial, Appellants sought to exclude evidence of three
separate instances in which Cains was accused of business improprieties,
2
Appellants’ Motion to Transmit to the Court a Flashdrive of Sh.
Ammar’s Deposition is denied. According to Appellants, the video
recording shows Sh. Ammar repeatedly monitoring his cell phone during the
deposition. Even if true, the video would not provide the necessary
evidence to support Appellants’ assertion that Sh. Ammar was receiving text
messages from Grassi.
4
including failing to disclose reserved breeding rights and fabricating a
contract to conceal the nondisclosure; selling a horse he did not own at the
time of the sale; and filing paperwork with the American Horse Association
falsely representing Stonewall was the owner of a horse at the time embryos
were extracted. The district court denied Appellants’ pre-trial motion,
concluding the evidence of prior bad acts was probative of lack of mistake
and the probative value was outweighed by any prejudice. See Fed. R. Evid.
404(b)(2). Appellants’ opening brief attacks this ruling generally, but
contains only one citation to the record 3 and no citations to caselaw, making
it impossible for this court to conduct any meaningful review of the alleged
errors in the district court’s analysis. Further, Appellants have wholly
failed to show they were “substantially prejudiced” by the introduction of
the evidence, a necessary component of their appellate challenge to the
district court’s evidentiary ruling. Harper v. City of L.A., 533 F.3d 1010,
1030 (9th Cir. 2008). Accordingly, we affirm the district court’s ruling on
the introduction of Cains’s prior bad acts.
4. The district court granted Appellees’ pretrial motion to exclude
evidence underlying a civil lawsuit Cains, Bailey, and Stonewall filed
3
Appellants’ argument does not even contain a record citation to
the district court’s ruling on their motion.
5
against Grassi and Frank Spönle in Arizona state court (the “Cains/Grassi
suit”). The court ruled, inter alia, that permitting the introduction of the
proposed evidence would confuse the trier of fact because the evidence
touched on unresolved issues in a completely separate transaction. The
district court’s ruling comports with Fed. R. Evid. 403 which provides that
even relevant evidence may be excluded “if its probative value is
substantially outweighed by a danger of . . . unfair prejudice, confusing the
issues, misleading the jury, undue delay, wasting time, or needlessly
presenting cumulative.” Appellants have not shown the district court
clearly erred in finding that confusion would result from the introduction of
disputed evidence 4 involving an unrelated transaction that occurred two
years after the Mare was purchased by Ajman Stud. Thus, the district court
did not abuse its discretion in excluding the evidence.
5. We next conclude the district court did not err in ruling that Bailey
was liable for any judgment in favor of Appellees under an alter ego theory.
Under Arizona law, the proponent of the alter ego theory of liability must
show (1) unity of interest and (2) that observance of the corporate form
would sanction a fraud or promote injustice. Dietel v. Day, 492 P.2d 455,
4
Judgment was entered in favor of the defendants in the
Cains/Grassi suit, but no findings of fact were made.
6
457 (Ariz. Ct. App. 1972). The district court concluded Cains and Bailey
“had a unity of interests in Stonewall Farms making them indistinguishable
from the corporation.” In support of this conclusion, the district court
referenced ample evidence showing Stonewall’s assets were intermingled
with Cain’s and Bailey’s personal assets.
According to Appellants, however, there is no evidence showing
Stonewall was formed to perpetrate a fraud or was used for fraudulent
purposes. Arizona law does not require such evidence to support alter ego
liability. The law requires that observance of the corporate form would
either “sanction a fraud” or “promote injustice.” Id. at 457-58. Here, the
same evidence that shows unity of interest also supports the conclusion that
observance of the corporate form would promote injustice. In addition to
evidence showing Appellants’ assets were intermingled, there was evidence
that Stonewall paid approximately $200,000 to repair and maintain real
property owned by Bailey. 5 Because this evidence shows Stonewall’s assets
were used to enrich Bailey—leaving fewer assets in Stonewall’s coffers to
satisfy the judgment in favor of Appellees—it would promote injustice to
observe corporate formalities.
5
Bailey testified he could not recall what, if anything, he did to
reimburse Stonewall for these payments.
7
6. Appellants challenge the judgments entered against them on four of
Appellees’ claims: (1) fraud, (2) breach of the covenant of good faith and
fair dealing, (3) breach of bailment agreement, and (4) breach of a fiduciary
duty. We conclude Appellants are only entitled to relief from the judgment
in favor of Appellees on the breach of fiduciary duty claim.
There was no clear error in the district court’s finding that Appellants
engaged in fraud. The supporting evidence is fully set out in the court’s
Order and includes testimony showing that material misrepresentations were
made by Appellants in their efforts to sell the Mare. Appellants point to
controverting evidence, but conflicting evidence is common in civil trials
and its existence does not show the district court’s judgment is unsupported
by clear and convincing evidence. See Ridgeway v. Walmart Inc., 946 F.3d
1066, 1083 (9th Cir. 2020).
There was, likewise, no error in the district court’s finding that
Appellants breached the implied covenant of good faith and fair dealing.
Appellants allege, generally, there was no evidence supporting the court’s
finding on this claim. The district court’s Order, however, cites ample
evidence, none of which Appellants even reference in their opening brief.
As to Appellees’ bailment claim, Appellants argue there was no
bailment because Ajman Stud never delivered the Mare to Stonewall.
8
Instead, they assert, Stonewall had possession of the Mare at the time of the
sale and she simply remained on Stonewall’s property until she was
delivered to Gallun Farms. We reject this argument because Appellants
have cited no Arizona precedent for the proposition that a bailment cannot
exist unless the bailor takes physical possession of an item after purchasing
it from the bailee. Here, the district court found Appellants agreed to board
and transport the Mare after ownership transferred to Ajman Stud. This
evidence is sufficient to support the court’s conclusion that a bailment
existed.
In contrast to the other issues raised by Appellants, their challenge to
the district court’s judgment in favor of Appellees on the breach of fiduciary
duty claim is well-taken. The district court’s finding that a fiduciary
relationship existed between the parties is not supported by the record.
Under Arizona law, whether a fiduciary relationship exists as a matter of
fact is governed by an analysis of multiple factors, including health, age,
relative sophistication of the parties, the length and nature of the
relationship between the parties, and the degree of influence by one party
over the other. See, e.g., Eagerton v. Fleming, 700 P.2d 1389, 1392 (Ariz.
Ct. App. 1985). The evidence on which the district court relied showed
only that Appellants and Appellees had a long-standing relationship that
9
was a mix of personal and professional. There was no evidence one party
had any degree of influence over the other; or evidence that Appellants were
more sophisticated than Appellees; or evidence showing “any of the
hallmarks of a fiduciary association: intimacy, secrets, or the entrusting of
power.” Cook v. Orkin Exterminating Co., 258 P.3d 149, 152 (Ariz. Ct.
App. 2011). Accordingly, we reverse the judgment against Appellants on
the breach of fiduciary duty claim. 6
7. The district court awarded Appellees $975,000 in compensatory
damages and $100,000 in punitive damages. A significant portion of the
compensatory damages award was based on the district court’s finding that
Appellants’ wrongful conduct deprived Appellees of the opportunity to
breed the Mare in April and May 2012. Appellants argue that damages are
generally not recoverable for the value of unborn livestock because such
damages are speculative. They further argue the district court’s finding that
four viable embryos could have been flushed from the Mare in April and
May is not supported by the evidence. The record, however, shows the
6
Reversal of this portion of the district court’s judgment has no
effect on the award of compensatory or punitive damages in favor of
Appellees.
10
compensatory damages are not speculative and supports the amount of the
award. 7
Grassi testified that Ajman Stud purchased the Mare for a specific
purpose—to breed her to a stallion it owned named Vervaldee. Grassi
further testified she told Cains that Ajman Stud wanted the Mare transported
to Gallun Farms as soon as Stonewall received payment. According to
Grassi, “[t]here was never a moment where [Appellees] said we are not in a
hurry in bringing [the Mare]” to Gallun Farms. This testimony supports the
proposition that Appellees had a concrete, specific intention to breed the
Mare to Vervaldee at Gallun Farms as soon as possible. Their intention was
not uncertain or equivocal.
Appellees’ expert, Nancy Gallun, testified that if the Mare had been
bred with Vervaldee in April and May of 2012, four embryos could have
been extracted. Appellants challenge this testimony, contending that
Vervaldee had “impotent semen” and any attempt at breeding him with the
Mare in April or May would not have been successful. Appellants,
however, do not direct this court to any finding—let alone any evidence—
7
Appellants’ briefs are riddled with assertions unaccompanied by
citations to the record. Their argument on compensatory damages is no
exception.
11
that Vervaldee was impotent or that his semen was not available for
artificial insemination procedures at Gallun Farms in April or May 2012.
Instead, the evidence undermines Appellants’ contention.
Grassi testified that the breeding program for Vervaldee was managed
by Gallun Farms. Gregory Gallun, who operated Gallun Farms with his
wife Nancy Gallun, testified that the quality of Vervaldee’s sperm
“fluctuate[d].” But, he further testified that Gallun Farms got Vervaldee “to
a fairly reliable 1eve1 where we were able to at least breed mares on
premises” even though it was more difficult to “create a pregnancy” with his
frozen semen. Nancy Gallun testified that Vervaldee’s semen was not
amenable to being frozen so all breedings had to occur at Gallun Farms.
Grassi testified that because of Vervaldee’s medical condition, Gallun
Farms could not collect his semen every day but it was never more than a
week between collections. All of this testimony supports the proposition
that Vervaldee could be successfully bred with mares, like the Mare,
physically located at Gallun Farms—not the proposition advanced by
Appellants that his semen was not viable during April and May of 2012.
Having reviewed the record, we conclude the district court’s finding
that breedings between the Mare and Vervaldee at Gallun Farms in April
and May 2012 would have produced four viable embryos is amply
12
supported. The compensatory damages awarded by the district court were
not based on speculation.
The district court’s award of punitive damages to Appellees was based
on the court’s finding that Appellants acted with the requisite “evil mind”
required under Arizona law. See Rawlings v. Apodaca, 726 P.2d 565, 578
(Ariz. 1986) (en banc). This finding is not clearly erroneous in light of the
evidence referenced by the district court showing Appellants “purposely
created an after-the-fact false contract,” filed documents with the American
Horse Association falsely claiming they owned the Mare, and engaged in
prior acts similar to those involving the Mare.
8. Appellants raise two issues we do not consider. The first involves
Appellants’ assertion that Appellees’ conversion claim is barred by the
applicable statute of limitations. The district court ruled this affirmative
defense was waived because it was not adequately raised in Appellants’
Answer or in their motion for summary judgment. Appellate review of this
issue has been waived by Appellants’ inadequate briefing. See United
States v. Alonso, 48 F.3d 1536, 1544 (9th Cir. 1995).
Appellants also seek review of the district court’s denial of their
request for a jury trial. Appellants raised this issue for the first time in their
corrected opening brief—a brief they were ordered to file by this court
13
because their original opening brief did not comply with Ninth Circuit Rule
28-2.8. Because this issue was not set out in Appellants’ original
nonconforming brief, it was not properly included in the corrected brief.
Accordingly, we grant Appellees’ motion to strike the argument.
Appeal No. 20-16648
In Appeal No. 20-16648, Appellants challenge the award of attorneys’
fees to Appellees. Under Arizona law, a court may award attorneys’ fees to
“the successful party” in “any contested action arising out of a contract,
express or implied.” Ariz. Rev. Stat. § 12-341.01. Appellants argue
attorneys’ fees are not permissible here as a matter of law because
Appellees did not prevail on their breach of contract claim. In Marcus v.
Fox, 723 P.2d 682, 684-85 (Ariz. 1986) (en banc), the Arizona Supreme
Court framed the appropriate test as whether a cause of action for tort could
not have existed but for the existence of a contract. Under that test, the
award of attorneys’ fees in this matter was legally appropriate because
Appellees’ claims arose from the parties’ contractual relationship even
though Appellants did not breach the terms of the written contract. We
further conclude there was no abuse of discretion in the district court’s
decision to award fees in this matter because there was no reversible error in
the court’s analysis of the relevant factors. See Associated Indem. Corp. v.
14
Warner, 694 P.2d 1181, 1184 (Ariz. 1985) (en banc). Nor have Appellants
shown any reversible error in the amount of fees awarded except as
discussed below.
According to Appellants, a portion of the attorneys’ fee award
included fees sought by Appellees’ attorney Michael Carroll for work he
performed in the Cains/Grassi suit. 8 Appellees do not dispute this assertion
despite the presence of the following statement in the written declaration
Mr. Carroll filed with the district court: “Those hours, fees and costs
itemized and sought in this action do not include any fees (or costs) incurred
in [the Cains/Grassi suit].” (emphasis in original). We remand this issue to
the district court for a determination of whether there is any basis to award
fees to Appellees for work performed by Mr. Carroll, or any other person, in
the Cains/Grassi suit.
Conclusion
The judgment in favor of Appellees in No. 19-16779 is affirmed with
the exception of the judgment against Appellants for breach of fiduciary
duty which is reversed. The award of compensatory and punitive damages
to Appellees is affirmed. The award of attorneys’ fees in No. 20-16648 is
8
Appellants’ Motion to take Judicial Notice of the docket in the
Cains/Grassi suit is granted.
15
affirmed with the exception of fees awarded for work performed by any
person in the Cains/Grassi suit. As to those fees, the matter is remanded
for further proceedings. Appellees shall recover their costs in both appeals.
16