Smith West v. Mohnach Payne

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE SMITH WEST, LLC, ) ) Plaintiff/Movant/Appellee, ) ) v. ) ) MOHNACH PAYNE INC.; JOHN M. ) MOHNACH; and THOMAS PAYNE, ) ) Defendants/Respondents/ ) Appellants. ) __________________________________) DIVISION ONE FILED: 06/17/10 PHILIP G. URRY,CLERK BY: JT 1 CA-CV 09-0568 DEPARTMENT B MEMORANDUM DECISION (Not for Publication Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause No. CV2008-030558 The Honorable Joseph B. Heilman, Judge AFFIRMED Thomas N. Payne Attorney for Defendants/Respondents/Appellants Osborn Maledon, P.A. by William J. Maledon Dawn L. Dauphine and Arnold & Porter LLP by Emily M. Pasquinelli, Pro Hac Vice Attorneys for Plaintiff/Movant/Appellee Paradise Valley Phoenix Washington, D.C. P O R T L E Y, Judge ¶1 Payne Mohnach Payne Inc. ( MPI ), John Mohnach, and Thomas (collectively Appellants ) challenge the trial court s confirmation of the independent accountants final award in favor of Appellee Smith West, L.L.C. FACTS AND PROCEDURAL BACKGROUND ¶2 MPI was equally owned by its two shareholders, Thomas Payne and John Mohnach. manufacturing aerospace MPI was engaged in the business of engineering parts contracted to buy most of MPI s assets. and Smith West The sale agreement ( the Agreement ), which was signed by both Payne and Mohnach, required MPI, among other terms, working capital to Smith West. to deliver $4,685,840 in The Agreement also provided that disputes would be resolved by arbitration, but that any dispute over the closing amount of working capital would be resolved by an independent accounting firm. 1 ¶3 A dispute arose after the sale, and Smith West demanded arbitration pursuant to the Agreement s indemnification provision. The accounting firm of Alvarez & Marsal was hired separately to resolve the working capital dispute. 2 The firm had each party submit its initial position and its reply to the other party s submission. The accounting firm then sent a list of questions to the parties, and both parties were provided the 1 Both parties acquiesce that the independent accountants award is governed under the statutory rules to confirm or oppose an arbitration award. 2 While the accounting firm was resolving the closing amount of working capital claim, the parties were in a separate arbitration on other issues. The arbitrator s decision was not part of this confirmation. 2 questions and the answers. The accounting firm subsequently entered its award and found a capital shortfall of $987,565. ¶4 of Smith West then filed an application for confirmation independent superior court. accountants final determination with the Appellants opposed the confirmation, and argued that the award was procured by fraud and undue means. 3 The trial court granted confirmation of the independent accountants final determination. pursuant to Appellants appealed, and we have jurisdiction Arizona Revised Statutes ( A.R.S. ) sections 12- 2101(B) and -120.21(A)(1) (2003). DISCUSSION ¶5 granted Appellants a de facto argue that summary the judgment. trial They court incorrectly contend that an evidentiary hearing was required because factual allegations of fraud were presented. ¶6 We review a confirmation of an arbitration award for an abuse of discretion. Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., 180 Ariz. 148, 150, 882 P.2d 1274, 1276 (1994). The arbitrator s decision is final both as to questions of fact and law, Ariz. Pub. Serv. Co. v. Mountain States Tel. & Tel. 3 In their opposition, Appellants alleged the following: Count One, common law fraud; Count Two, double recovery; and Count Three, an illegal interception of electronic communication. There was also a fourth count that requested specific performance, but it is not a subject of this appeal. 3 Co., 149 Ariz. 239, 243, 717 P.2d 918, 922 (App. 1985), and the trial court can deny confirmation of an arbitration award only on the limited grounds enumerated in A.R.S. § 12-1512(A) (2003), 4 see Fisher v. Nat l Gen. Ins. Co., 192 Ariz. 366, 369, ¶ 11, 965 P.2d 100, 103 (App. 1998). authority to modify an Additionally, the trial court has no award except upon application made setting forth one of the grounds set forth in A.R.S. § 121513(A). 5 Creative Builders, Inc. v. Avenue Devs., Inc., 148 4 A.R.S. § 12-1512(A) provides that a court will decline confirmation where: 1. The award was procured by corruption, fraud or other undue means; 2. There was evident partiality by an arbitrator appointed as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party; 3. The arbitrators exceeded their powers; 4. The arbitrators refused to postpone the hearing upon sufficient cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to provisions of § 12-1505, as to prejudice substantially the rights of a party; or 5. There was no arbitration agreement and the issue was not adversely determined in proceedings under § 12-1502 and the adverse party did not participate in the arbitration hearing without raising the objection; but the fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award. 5 A.R.S. § 12-1513(A) (2003) requires a court to modify or correct an award where: 1. There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award; 2. The arbitrators have awarded upon a matter not submitted to them and the award may be corrected without affecting the merits of the decision upon the issues submitted; or 3. The award is imperfect in a matter of form, not affecting the merits of the controversy. 4 Ariz. 452, 457, 715 P.2d 308, 313 (App. 1986). The party challenging the arbitration award has the burden of proving the existence of grounds to vacate the award. Fisher, 192 Ariz. at 369, ¶ 12, 965 P.2d at 103 (citing Wages v. Smith Barney Harris Upham & Co., 188 Ariz. 525, 530, 937 P.2d 715, 720 (App. 1997)). ¶7 Before confirming an arbitration award, a trial court should hold an evidentiary hearing whenever there is a genuine issue of any material fact. Brake Masters Sys. Inc. v. Gabbay, 206 78 Ariz. 360, 365, ¶ 14, P.3d 1081, 1086 (App. 2003). However, a party seeking to vacate an arbitration award claiming fraud must show that the fraud was (1) not discoverable upon the exercise materially of due related diligence to an prior issue in to the the arbitration, arbitration, established by clear and convincing evidence. and (2) (3) Lafarge Conseils Et Etudes, S.A. v. Kaiser Cement & Gypsum Corp., 791 F.2d 1334, 1339 (9th Cir. 1986). ¶8 Here, we agree with the evidentiary hearing was unnecessary. trial court that an Appellants knew about the alleged fraudulent statements during the working capital dispute arbitration when they received Smith West s submissions, and questions and answers. ¶9 Appellants do not deny they were aware of the alleged fraud during the arbitration. They contend, however, that under 5 the arbitration rules they were unable to notify the accounting firm of the fraudulent statements. ¶10 We disagree. The arbitration agreement allowed either party to file additional responses for good cause after the reply submissions. 6 Further, paragraph X of the firm s arbitration agreement with the parties stated that any disputes arising under or relating to the Agreement, or the accounting firm s services, including claims of fraud, would be submitted to the American Arbitration Association. Because Appellants were aware of the fraudulent statements during the arbitration, their remedy was twofold: (a) reveal and challenge the fraudulent statements in a response for good cause; and/or (b) challenge the fraudulent statements separately from the confirmation of the arbitration award. See Int l Union of Elec., Radio and Mach. Workers v. Ingram Mfg. Co., 715 F.2d 886, 890 (5th Cir. 1983) (holding that unless the arbitrators committed fraud or were biased or prejudiced, courts have no power to review the findings of fact of the arbitrator). 7 ¶11 Moreover, statements alleged to be false may not be enough to overcome confirmation. declined to confirm an In Pawlicki, the trial court arbitration 6 award after the claimant [N]o further submissions of the parties will be permitted following the Reply Submissions without good cause shown. 7 Because Arizona s arbitration statute A.R.S. § 12-1512(A) is essentially the same as Federal Arbitration Act 9 U.S.C. § 10(a), federal cases are instructive. See Pawlicki v. Farmers Ins. Co., 127 Ariz. 170, 173-74, 618 P.2d 1096, 1099-1100 (App. 1980). 6 objected and argued that the award had been procured by fraud with perjury. Id. at 171, 618 P.2d at 1097. To resolve the issue, we relied on Kirschner v. West Co., 247 F. Supp. 550 (E.D. Pa. 1965). There, plaintiffs pointed to alleged inconsistencies in the testimony of witnesses, even though they relied produce on evidence any other before the evidence. arbitrator Id. at and 173, (citing Kirschner, 247 F. Supp. at 553-54). did 618 not P.2d later at 1095 The Kirschner court found no fraud because the credibility of witnesses was for the arbitrators. Pawlicki, 127 Ariz. at 173, 618 P.2d at 1095. Following the Kirschner analysis, we vacated the trial court s order, and stated that [a]ssuming arguendo that appellee had proven that [the witness] had perjured himself at the arbitration hearing, the trial court still would not have had grounds for setting aside the award. Id. at 173-74, 618 P.2d at 1095-96. ¶12 Similarly, the accounting fraudulent statements by Smith West. determination, submissions. noted firm had the The firm, in making its inconsistencies in Smith was West s Moreover, the firm ruled against Smith West when it failed to provide documents to support its position. there alleged no evidence that the accounting firm Because acted fraudulently or with prejudice or bias, we defer to the firm s factual findings. Accordingly, we agree with the trial court 7 that there were no evidentiary hearing. material factual disputes to warrant an Therefore, because the trial court was not required to conduct an evidentiary hearing, the court did not improperly grant a de facto judgment on the pleadings. motion for summary judgment or See Brake Masters Sys. Inc., 206 Ariz. at 365, ¶ 14, 78 P.3d at 1086 (holding on a request to confirm an arbitration award a trial court is not required to hold an evidentiary hearing if the facts produced . . . so little probative value . . . that reasonable people could not agree with the conclusion advanced by the proponent of the claim ); see also Booth v. Hume Pub., Inc., 902 F.2d 925, 932 (11th Cir. 1990) (holding the court could vacate or confirm an arbitration award without oral testimony). ¶13 Appellants also argue that the trial court violated their procedural due process rights when the court failed to address the issue of double recovery. 8 8 They first argue that the One of Smith West s separate arbitration claims included allegations that MPI delivered unpaid accounts payable that should have been paid before the closing date of the sale. The claim was resolved by arbitration and was not before the trial court for this confirmation. In fact, the matter is before the superior court for a separate confirmation, and Appellants have raised the double recovery issue. Appellants, however, wanted to use the arbitrator s resolution of that claim as an offset to the independent accountants award for working capital. They argue that because Smith West was awarded the net amount of $1,460,230 for the unpaid accounts payable in the separate arbitration claim, that amount should increase the amount of working capital based on the Agreement s definition. They claim, as a result, that they 8 court failed to conduct oral argument on the issue and failed to enter judgment. ¶14 We disagree. A trial court has the discretion to determine how much time it will allow parties to argue an issue, if at all. 9 See Gunn v. Superior Court, 173 P.2d 328, 329 (Cal. Dist. Ct. App. 1947) ( [H]ow much time parties may be allowed for argument in a trial before a court sitting without a jury, or whether they are to be allowed any at all, are matters within the discretion of the court before whom the hearing is had. ). Because Appellants did not make an offer of proof of what they wanted to present for the matters court s within consideration [the trial [w]e court s] will not discretion interfere unless we in are persuaded that the exercise of such discretion resulted in a miscarriage of justice or deprived one of the litigants of a fair trial. O Reilly Motor Co. v. Rich, 3 Ariz. App. 21, 27, 411 P.2d 194, 200 (1966). when it resolved the Here, the trial court did not err double recovery claim without allowing Appellant oral argument apart from the fraud issue. should not be liable for the independent accountants final award because Smith West would recover twice for accounts payable. Because the issue is before a different court, it can resolve it as part of that confirmation process. 9 Appellants also argue that their due process rights were violated because they did not get an equal amount of time during oral argument. Because Appellants did not raise the issue below, we will not address it. 9 ¶15 Appellants because it issue. did also not argue enter that judgment the on trial their court double erred recovery The court, however, resolved the issue. ¶16 Appellants opposed the confirmation of the accountants final determination because the award was procured by fraud and other undue means. included that paragraphs. failed to language by Their double recovery claim incorporating the preceding Consequently, the court found that Appellants had show that the independent accountant s final determination and the award based thereon were procured by fraud or other undue means. ¶17 argued Appellants now contend that the double recovery count a different legal theory under a different statute. Appellants, however, never cited to the modification statute, A.R.S. § 12-1513(A), for relief. They only sought relief pursuant to § 12-1512(A) for fraud and other undue means, and told the court that the double recovery portion also speaks to whether the independent accountant s decision should be confirmed or not, because that falls under undue means of the statute. ¶18 their Moreover, Motion Judgment. for Appellants New Trial never and raised Motion to the argument Alter or in Amend Consequently, when the trial court found that there 10 was no fraud or undue means to preclude confirmation of the award, the ruling included the double recovery issue. CONCLUSION ¶19 Based on the foregoing reasons, we affirm the trial court s confirmation of independent accountants final determination. /s/ _____________________________ MAURICE PORTLEY, Judge CONCURRING: /s/ ________________________________ JOHN C. GEMMILL, Presiding Judge /s/ ________________________________ PATRICIA K. NORRIS, Judge 11

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