Melgaard v. Dunkel

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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 KARLA L. MELGAARD, ) ) Plaintiff/Appellant, ) ) v. ) ) ANNETTE DUNKEL; YAK YAK WIRELESS, ) L.L.C., an Arizona limited ) liability company; YUVAL YUVI ) SHMUL and KARI SHMUL; CDN ) PROPERTIES & INVESTMENTS, INC., ) an Arizona corporation dba ) AMERICAN REALTY BROKERS; JARED ) GUESS and JANE DOE GUESS, his ) wife; RICHARD EPSTEIN and JANE ) DOE EPSTEIN, his wife, ) ) Defendants/Appellees. ) __________________________________) No. 1 CA-CV 10-0276 DIVISION ONE FILED: 10/04/2011 RUTH A. WILLINGHAM, CLERK BY: DLL DEPARTMENT B MEMORANDUM DECISION (Not for Publication Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause No. CV2008-002422 The Honorable John R. Ditsworth, Judge AFFIRMED William C. Loftus Attorney for Plaintiff/Appellant Phoenix Lofy Group Attorneys at Law, P.C. By Thomas R. Lofy Attorney for Defendants/Appellees Dunkel and Yak Yak Phoenix Baird, Williams & Greer, LLP By Michael C. Blair Attorneys for Defendants/Appellees Shmul Phoenix The Doyle Firm, P.C. Phoenix By William H. Doyle D. Andrew Bell Attorneys for Defendants/Appellees CDN, Guess and Epstein S W A N N, Judge ¶1 After the Melgaard asserted failure claims of for a business breach of venture, contract and Karla fraud variously against the sellers of the business, Annette Dunkel and Yak Yak Wireless LLC (collectively Dunkel ), Dunkel s broker, Yuval Yuvi Shmul, and her brokers, Jared Guess, Richard Epstein and CDN Properties and Investments, Inc. (collectively American Realty ).1 The trial court entered summary judgment in favor of defendants on the ground that Melgaard had failed to proffer sufficient evidence in support of her claims. For the following reasons, we affirm. FACTS AND PROCEDURAL HISTORY ¶2 In winter 2003, after many years as an accountant in Minnesota, Karla Melgaard began seeking opportunities to purchase and operate an existing small business in the Phoenix area. In her quest, Melgaard was introduced to Richard Epstein, a business broker with American Realty Brokers. 1 Melgaard s claim against YSGE, LLC, and Edwin Lappi and his wife (collectively YSGE Defendants ) remains pending in the superior court. 2 ¶3 At their first in-person meeting in late 2003, Epstein discussed the availability of a women s apparel store with Melgaard, an opportunity she declined after she, her father, and Epstein met with the store owners. Epstein and Melgaard met again in November or December 2004 after Melgaard s father again contacted Epstein about Melgaard s interest in purchasing a business. At this second meeting, Epstein presented to Melgaard three business opportunities: a florist business, a water and ice business and a cell-phone business comprising two stores. After learning that her first choice, the water and ice business, had been sold, Melgaard decided to pursue the cellphone stores after learning from Epstein that he knew the seller s broker, Yuval Yuvi Shmul, and that he had done business with him in the past. Shortly thereafter, Melgaard, Melgaard s father, Epstein and Shmul met to discuss the cell-phone stores. At this meeting, Shmul provided Melgaard with spreadsheets representing financial information about the stores, including monthly profits. ¶4 At this meeting, Epstein stated that the stores made a monthly profit of $10,000.2 Though Melgaard acknowledges that 2 We view the evidence in the light most favorable to the party against whom summary judgment was entered and resolve all inferences from the evidence in that party's favor. Prince v. City of Apache Junction, 185 Ariz. 43, 45, 912 P.2d 47, 49 (App. 1996). 3 Shmul did not make any verbal representations as to the profitability of the stores, he provided her with spreadsheets indicating a monthly profit of approximately $10,000 and statements regarding his own experience operating the stores, which was that the stores were very profitable. Melgaard s own review of the spreadsheets resulted in her determination that the stores were very profitable with profits in the travelled to the neighborhood of $10,000 per month. ¶5 Following the meeting, physical locations of the stores. the group At the second location, they met with Dunkel, owner of Yak Yak Wireless LLC, the entity that owned the two cell-phone stores. additional documents receipts, carrier-commission reports, and including gross-sales Dunkel bank gave statements, reports, information. credit-card monthly Dunkel Melgaard activation did not give Melgaard sales-tax returns, nor did she offer any additional financial information. understanding that she The parties left the store with Melgaard would follow up wanted to pursue purchasing the stores. with Epstein if she Between the meetings with Shmul and Dunkel and her ultimate purchase of the stores, Melgaard did not discuss Dunkel s unwillingness to provide additional documentation regarding the stores financial status with Epstein. 4 ¶6 After discussing the business with her father, Melgaard contacted Epstein at the end of December 2004 to inform him that she wanted to buy the stores. Melgaard and her father then met with Epstein and decided upon the terms of the offer. Epstein drafted purchase a price, $110,000 promissory note. provided the Purchase Agreement of which documenting was in a the $225,000 form of a Melgaard signed the agreement and her father funds for the $10,000 deposit. The Purchase Agreement, dated December 24, 2004, included a contingency that gave Melgaard the right to a complete examination of all financial records. ¶7 Through purchase price Shmul, of promissory note. Dunkel $250,000, counter-offered with $135,000 for a secured total by a Melgaard accepted the counteroffer, assumed the lease for one of the stores and agreed to pay $135,000 pursuant to a promissory note. The transaction closed on January 31, 2005. ¶8 In January 2008, Melgaard commenced this action asserting claims for fraud against Dunkel and Shmul based on allegedly false information relating to the profitability of the stores and a claim for breach of contract against American Realty for failure to exercise reasonable skill and care in representing her in the purchase. for breach of contract relating 5 Dunkel asserted counterclaims to the Purchase Agreement, unpaid amounts on the promissory note and unpaid rents related to Melgaard s obligations under the lease for one of the two store locations. ¶9 In April 2009, American Realty filed a motion for summary judgment arguing that neither the terms of any purported oral agreement nor those of the parties Real Estate Agency and Disclosure and Election formed a valid basis for a breach of contract. According to American Realty, the parties contract only required Epstein to render services. In the absence of a specific duty on which Melgaard could present evidence of a breach, it American reasoned, Realty there further could argued be that no contract Melgaard s liability. claim was in substance one for negligent performance, a claim sounding in tort that she had neither asserted nor proved. ¶10 Later in April 2009, Dunkel filed a motion for summary judgment, seeking both dismissal of Melgaard s claims judgment on her counterclaim for breach of contract. argued that promissory Melgaard note liability for stores. As Melgaard could and failed that $14,504.26 to pay Melgaard s in Melgaard s not to show unpaid fraud that $89,651 breach rent claim, on exposed one Dunkel Dunkel misrepresentations, intentionally or otherwise. 6 owing had of and Dunkel on the her the to two argued that made any ¶11 In June 2009, Shmul filed a motion for summary judgment on the fraud claim against him, arguing that Melgaard could not reasonably have relied on his representations because she signed four disclaimers acknowledging that Dunkel provided all financial information and that she should not rely on Shmul for investigation or opinion about the accuracy of any information. ¶12 The motions. Based on the written matters previously presented and the discussion granted trial and American court held argument Realty s oral argument presented motion this for Melgaard s breach of contract claims. on date, summary the the three court judgment on The court later found that there did not exist any facts by which a jury could find by clear and convincing misrepresentations were evidence made, and that granted any both fraudulent Dunkel s and Shmul s motions for summary judgment. ¶13 Melgaard timely appealed the trial court s grant of summary judgment in favor of the moving defendants.3 Melgaard did not raise Dunkel s breach of contract counterclaim in her 3 The judgment dismissed fewer than all the claims against all the parties. We originally dismissed for lack of jurisdiction. The trial court entered an amended order containing Rule 54(b) language on February 7, 2011. A new appeal was filed and ultimately dismissed by stipulation of the parties following reinstatement of the original appeal on May 25, 2011. 7 opening brief, thus it is not addressed in this decision. We have jurisdiction pursuant to A.R.S. § 12-2101(B). STANDARD OF REVIEW ¶14 Summary produced in judgment support of should be granted if the facts claim or defense have so little the probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense. Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). In reviewing a grant of summary judgment, we determine de novo whether any genuine issues of material fact exist and whether the trial court properly applied the law. Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App. 2000). We determine de novo whether there are genuine issues of material fact. United Bank of Ariz. v. Allyn, 167 Ariz. 191, 195, 805 P.2d 1012, 1016 (App. 1990). Although any evidence sufficient to permit a reasonable jury to find the elements of plaintiff s claim by the requisite standard of proof will preclude summary judgment, [m]ere speculation or insubstantial doubt as to the facts will not suffice. Id. at 195, 805 P.2d at 1016. Finally, we will affirm the entry of summary judgment if it is correct for any reason. Hawkins v. State, 183 Ariz. 100, 103, 900 P.2d 1236, 1239 (App. 1995). 8 DISCUSSION I. MELGAARD FAILED TO PRESENT EVIDENCE OF THE EXISTENCE OF A MISREPRESENTATION OF FACT. ¶15 To prove common law fraud, a plaintiff must prove the following elements by clear and convincing evidence: (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity . . . ; (5) the speaker's intent that it be acted upon by the recipient in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance on its truth; (8) the right to rely on it; [and] (9) his consequent and proximate injury. Enyart v. Transam. Ins. Co., 195 Ariz. 71, 77, ¶ 18, 985 P.2d 556, 562 (App. 1998). Each element must be supported by sufficient evidence, and cannot be shown by doubtful, vague, speculative, or inconclusive evidence. Id. (quoting Echols v. Beauty Built Homes, Inc., 132 Ariz. 498, 500, 647 P.2d 629, 631 (1982)). ¶16 After a full opportunity for discovery, Melgaard has been unable to produce evidence -- even in the form of her own testimony -- that any defendant made a knowingly false representation concerning the stores or their profitability. At Melgaard s December 9, 2008 deposition, in response to direct questioning regarding her understanding of any inaccuracies on the spreadsheets prepared by Dunkel and provided by Shmul, Melgaard stated, You d have to see the documentation underneath it. I don t know. I don t know where those numbers come from. 9 And when asked how she knew the information that defendants supplied was inaccurate at all, she testified: I don t. It s just not consistent with my experience. I mean, Annette wrote me a letter that said the stores made money when she owned them, but I don t know that. All I know is I kept, you know, her same employees, used her same advertising, did everything else the same as she did, and it sucked for me. (Emphasis added.) specifically Melgaard As to any alleged misrepresentations made by Dunkel stated [i]t s concerning mostly that the I stores don t performance, know what they represent, and as to anything she could point to that she knew was false, I don t have enough information to know that. ¶17 As to evidence of the Shmul, Melgaard existence of a not only failed to misrepresentation, present she also signed a Non-Disclosure Letter, a Purchase Agreement, a Removal of Contingencies and a Disclaimer, each of which acknowledged the Seller s sole responsibility for the financial information provided. In these documents, she further acknowledged that her reliance on any facts in connection with the transaction was based on her own independent investigation and due diligence. In view of these disclaimers, we perceive no basis upon which Melgaard could demonstrate that she reasonably relied on any purportedly false information that Shmul provided. 10 ¶18 Because the record contains no evidence of any false statement of fact or reasonable reliance, we conclude that the court properly entered summary judgment on the fraud claims. II. MELGAARD FAILED TO CONTRACT SUFFICIENT JUDGMENT. ¶19 PRESENT ANY EVIDENCE OF BREACH OF TO WITHSTAND A MOTION FOR SUMMARY The superior court granted American Realty s motion for summary judgment on its breach of contract claim, but did not state its reasons. judgment was warranted American Realty contends that summary because the contract contained specific or express undertaking for Epstein to breach. we agree that Melgaard has failed to identify any no Though express contractual term that could form the basis for her claim, our analysis does not end there. Even in the absence of an express contract, real estate brokers owe to their principals duties of good faith, loyalty and disclosure. Corp., 155 Ariz. 585, 588, 748 Haldiman v. Gosnell Dev. P.2d 1209, 1212 (App. 1987) (citing Vivian Arnold Realty Co. v. McCormick, 19 Ariz. 289, 293, 506 P.2d 1074, 1078 (App. 1973); Jennings v. Lee, 105 Ariz. 167, 173, 461 P.2d 161, 167 (App. 1969)). ¶20 Neither statute nor regulation prescribes a precise quantum of advice that a broker must give to satisfy his implied duties to the client. The only circumstance in which the Arizona courts have specifically addressed the extent of advice, explanation and disclosure of relevant facts owed to a client 11 can be found in Morley v. J. Pagel Realty & Ins., 27 Ariz. 62, 550 P.2d 1104 (App. 1976). In Morley, this court held that where a real estate agent showed sellers a purchase offer that would result in a substantial portion of the purchase price being satisfied by an unsecured promissory note, the broker had the duty to tell the sellers that they should require security for the buyer s performance. 1107. Id. at 63, 65, 550 P.2d at 1105, The court explicitly cautioned that this holding was narrow and limited to its facts. ¶21 The facts from Morley. of this Id. at 65, 550 P.2d at 1107. case are readily distinguishable Here, there were no material facts available to American Realty that were not disclosed -- Melgaard seems only to complain that American Realty did not present her with an accurate prognostic analysis. law that could support a She points neither to facts nor breach of contract case in these circumstances. ¶22 As to the general duties of a broker, the record contains no evidence that Epstein breached his duties of good faith, loyalty or disclosure. to establish that any of Melgaard has presented no facts Epstein s statements regarding the profitability of the business were false, nor has she presented any evidence that even if the statements were Epstein knew or should have known they were false. not asserted, nor come forward 12 with evidence false, that Melgaard has to show that Epstein engaged in any self-dealing or nondisclosure that would violate his duty of loyalty. Indeed, Epstein disclosed to Melgaard that he knew Shmul and had worked with him in the past. Melgaard presented no evidence that Epstein failed to disclose any other information pertaining to the transaction that would support her claim for breach of his duties to her. In the absence of any evidence of a breach of contract, we must affirm the entry of summary judgment. ATTORNEY S FEES ON APPEAL ¶23 All costs on defendants appeal. have Dunkel requested requests fees attorney s under fees A.R.S. § and 12- 341.01(A), on the theory that the court granted summary judgment on her counterclaims for breach of contract. But Melgaard has not appealed those judgments, and the contract claims therefore do not create a basis for fees in this court. The fraud claims against of Dunkel and Shmul do not arise out contract as required for an award of attorney s fees pursuant to A.R.S. § 12-341.01(A). of any commit Fraud is a tort that can occur without a breach contract fraud is between the obviously parties not and created [t]he by a duty not to contractual relationship and exists . . . even when there is no contractual relationship between the parties at all. Morris v. Achen Constr. Co., 155 Ariz. 512, 514, 747 P.2d 1211, 1213 (1987). Accordingly, we conclude that the fraud case does not arise out 13 of contract, and an award of attorney s fees on appeal is not available. However, as the prevailing parties on appeal, both Dunkel and Shmul are entitled to their costs. ¶24 In our discretion, we award the American Realty defendants their attorney s fees and costs upon compliance with ARCAP 21(c). CONCLUSION ¶25 For the foregoing reasons, we affirm the trial court s grant of summary judgment in favor of Dunkel, Shmul and American Realty. /s/ ___________________________________ PETER B. SWANN, Judge CONCURRING: /s/ ____________________________________ MARGARET H. DOWNIE, Presiding Judge /s/ ____________________________________ DONN KESSLER, Judge 14

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