Unpublished Disposition, 855 F.2d 864 (9th Cir. 1987)

MEMORANDUM^* 

In 1971, Walker, Anderson and a limited partnership controlled by Anderson entered into a joint venture agreement for the sole purpose of acquiring the ranch which was located near Scottsdale, Arizona. The ranch was to be held by the joint venture for price appreciation and long-term capital gain. The joint venture agreement specifically provided that if the property was sold on a real estate contract, the agreement would not terminate until the terms of the real estate contract had been fully satisfied.

On June 25, 1979 the joint venture sold the ranch to Allarco for $2.8 million under a real estate contract which provided for default and repossession of the ranch as the remedy for nonpayment of the annual payments. Annual payments of $283,000 were due on June 25 of each year starting in 1980 and continuing thereafter until the deferred balance of $1,701,156 was fully paid. The balance owing was evidenced by a promissory note, payment of which was secured by a Collateral Assignment of Second Beneficial Interest Under Trust Agreement, Security Agreement and Realty Mortgage.

The first annual payment from Allarco to the joint venture was due on June 25, 1980 in the amount of $283,000. On June 19, 1980 Allarco tendered $260,672.33 purportedly because of Canadian tax laws. Walker and Anderson jointly decided to give notice of default to Allarco for the purpose of recovering the ranch. After the notice of default and declaration of forfeiture was given, Allarco paid the approximately $23,000 deficiency to cure the default.

Beginning in November 1981 Allarco began exploring the possibility of reselling the ranch. Anderson was presented with several opportunities to purchase the ranch from Allarco but did not advise Walker of any of them.

The market value of the ranch was greatly dependent upon the legally-required assured supply of water which in turn was dependent upon annexation by the City of Scottsdale. Between 1980 and 1982 Anderson was very active in securing annexation of the ranch and other property in the area owned by him. Anderson was successful in his efforts as Scottsdale annexed the ranch on October 4, 1983.

On June 2, 1982 Anderson acting as an undisclosed principal offered to purchase the ranch through his attorney Philip Schneider. Anderson did not disclose this offer to Walker or inform him of it. On June 4, 1982 Allarco rejected Anderson's offer by a counter offer. On June 8, 1982 Allarco contacted Anderson to discuss restructuring the scheduling of its repayment to the joint venture. Anderson presented Allarco's proposal to Walker and they both agreed to reject the proposal and require timely payment. Anderson communicated rejection of the proposal to Allarco in absolute terms. Anderson and Walker agreed that if Allarco failed to make the payment when due on June 25, 1981 they would both be glad to have the ranch revert to the joint venture through foreclosure proceedings. After Walker and Anderson rejected Allarco's proposal Anderson without consulting Walker, granted Allarco a five-day extension to June 30 to make the June 25 payment.

On June 25, 1982 Allarco issued a check for the June payment in the amount of $283,000, on an account with a balance of $817.92. Payment of this check was refused. Payment was ultimately made by cashier's check on June 30, 1982, five days after the due date.

In late June or early July 1982 Allarco agreed to sell the ranch to Anderson for $2.8 million. The sale closed on September 10, 1982 with Scottsdale North Joint Venture as Anderson's nominated purchaser. Anderson held fifty per cent interest in Scottsdale North. On November 16, 1982 Scottsdale North agreed to sell the ranch to Johnes for $7,500,000. The sale closed on September 30, 1983 resulting in a gross profit of $4,760,000. The costs incurred in the purchase of the ranch by Scottsdale North from Allarco totaled $8,691. The costs incurred in carrying the property by Scottsdale North while it owned the property was $291,776.47. The costs incurred in the sale of the ranch by Scottsdale North to Johnes totaled $263,059.58.

On December 7, 1983 Walker filed a complaint in U.S. District Court for the District of Arizona alleging that Anderson had breached his fiduciary duty to Walker by self-dealing in joint venture property, the nondisclosure of such self-dealing and denial of a business opportunity to the joint venture. Anderson answered generally denying the allegations in Walker's complaint.

On April 4, 1985 Walker filed a motion for summary judgment. On May 15, 1985 Anderson replied to Walker's motion and filed a cross-motion for summary judgment.

On July 26, 1985 the district court granted Walker's motion for summary judgment and denied Anderson's cross motion for summary judgment finding that Anderson's failure to disclose his self-dealing in joint venture property was a breach of fiduciary duty as a matter of law. On November 3-4, 1986 the district court held a hearing in which testimony was taken and exhibits admitted to determine the amount of damages to which Walker was entitled. On January 16, 1987 the district court entered its Findings of Fact and Conclusions of Law which after a motion for clarification by Anderson were amended on February 23, 1987. The district court entered its Final Judgment on February 24, 1987 awarding Walker the sum of $1,048,868.23, attorneys' fees in the amount of $110,000, and costs in any amount as taxed by the clerk of the district court. On March 19, 1987, the clerk entered an order taxing costs in favor of Walker and against Anderson in the amount of $2,496.65.

On March 2, 1987 Anderson filed a motion for reconsideration. Walker replied March 16, 1987. On April 10, 1987, the district court entered its order denying Anderson's motion for reconsideration.

DISCUSSION

The district court concluded as a matter of law that " [a] joint venture relationship imposes a fiduciary duty upon the co-venturers to act in good faith with one another with respect to the affairs of the joint venture, and to refrain from taking any advantage of one another by the slightest misrepresentation or concealment."

In Ghiz v. Millet, 71 Ariz. 4, 222 P.2d 982 (1950), aff'd 71 Ariz. 161, 224 P.2d 650 (1950), the Arizona Supreme Court held:

The relationship between joint adventurers like that existing between partners is fiduciary in character and imposes on all participants the obligation of loyalty to the joint concern, and of the utmost good faith, fairness and honesty in their dealings with the other with respect to matters pertaining to the enterprise. This is especially true of those to whom the conduct of the transaction, or the property thereon is entrusted ... [P]arties who enter into a joint adventure engage in a common enterprise for their mutual benefit, and have a right to demand and expect from their associates good faith in all that relates to their common interests.

Id. at 8, 9, 222 P.2d at 985.

The fiduciary nature of a joint venture relationship requires complete disclosure of everything affecting the relationship. See, e.g., Goben v. Barry, 676 P.2d 90, 97 (Kan.1984); Carroll v. Caldwell, 12 Ill. 2d 487, 197 N.E.2d 69 (1958); Martin v. Hunter, 179 Kan. 578, 297 P.2d 153 (1956). The relationship requires that each refrain "from taking any advantage of one another by the slightest misrepresentation, concealment, threat or adverse pressure of any kind." See De Santis v. Dixon, 72 Ariz. 345, 350, 236 P.2d 38, 41 (1951). These duties and obligations continue until the joint venture is finally terminated. Marmis v. Solot Co., 573 P.2d 899, 903 (Ariz.Ct.App.1977). Thus Anderson and Walker owed each other fiduciary duties until their joint venture terminated. The joint venture did not terminate, as Anderson suggests, upon the 1979 sale of the ranch to Allarco. Rather, the joint venture remained intact and so did the fiduciary obligations.

Anderson contends that if the joint venture survived the 1979 Allarco sale, its scope was greatly diminished and thus so were the fiduciary duties of the co-venturers. Walker argues that this was not the case since nothing the parties did indicated that the purpose of the joint venture or the corresponding duties were in any way diminished upon the prior two sales of the ranch. To the contrary, Walker points out, the co-venturers were more than willing to have the joint venture regain the property and have the joint venture duties fully in effect.

Anderson principally relies on Gillan v. Stansbury, 98 Cal. App. 2d 502, 217 P.2d 1016 (Cal.Ct.App.1950), for the proposition that Anderson no longer owed a fiduciary duty to Walker. Gillan, however, is easily distinguishable. In Gillan, the plaintiff was presented with the opportunity to participate and refused. In this case Anderson concealed his buy-back transaction from Walker. Walker had no opportunity to refuse.

It is the general rule that until the joint adventure has been terminated or the enterprise has been abandoned, a joint adventurer cannot exclude his associates from an interest in the property by purchasing it for his individual account; neither can he acquire for his individual benefit an interest therein antagonistic to the interest which he acquires for his associate. If he does so purchase or acquire the property in breach of his duty he must account therefore to his joint adventurer. Kincaid v. Miller, 272 P.2d 276 (Colo.1954); see also Martin v. Hunter, 297 P.2d 153 (Kan.1956); Johnson v. Koyle, 295 P.2d 834 (Utah 1956).

Where a joint venture agreement exists the parties assume the status of fiduciaries and "neither one would have had a right while the joint venture existed to acquire the subject property to the exclusion of others." Lasry v. Lederman, 305 P.2d 663, 667 (Cal.Ct.App.1957). The test is whether the joint venture "has a legally recognized interest, actual or in expectancy, in the property" or whether the purchase might hinder or defeat the plans and purposes of the joint venture in carrying on or developing its legitimate and usual business. Tovrea Land & Cattle Co. v. Linsenmeyer, 412 P.2d 47, 58 (Ariz.1966) (Tovrea Land concerned the purchase of corporate property by corporate directors and the fiduciary duties owed by directors and officers to the corporation), citing Zeckendorf v. Steinfeld, 100 P. 784, 800 (Ariz.1909), modified on other grounds, 225 U.S. 445 (1912).

The joint venture clearly had a legally-recognized interest in the ranch. The joint venture, as the purchaser of the real property, sold its beneficial interest in the property to Allarco. In the event of Allarco's default and failure to cure after notice, Allarco's interest in the property would revert back to the joint venture. The joint venture, accordingly, retained a reversionary interest in the property. The joint venture had not been terminated nor had the enterprise been abandoned, therefore Anderson continued to owe fiduciary duties to Walker including the duty to disclose and the duty to offer participation in the repurchase of the ranch.

Accordingly, we affirm the district court's conclusion that Anderson owed Walker fiduciary duties and that those fiduciary duties were breached.

The joint venture agreement provided that the "joint venture shall terminate upon the sale of the ranch property or if sold on a real estate contract at such time that the terms of the contract have been fully satisfied."

Anderson argues that there can be no fiduciary duty because at the time he bought the property back from Allarco he and Walker were no longer co-venturers. Anderson contends that Allarco received title to the ranch in 1979 and that the sale was not made on a real estate contract and thus under the terms of the agreement the joint venture no longer existed.

Anderson principally relies on two sources for his contention that the sale was not made on a real estate contract. The first of these sources is a UCLA Law Review article which discusses California mortgages, trust deeds and land sale contracts. We will not consider this source as the object of this litigation is Arizona property and Arizona law controls this diversity case. The second source relied on by Anderson is Arizona statutory law which defines "contract" in the context of forfeiture and reinstatement of a purchaser's interest under contract for conveyance of real property:

"Contract" means a contract for conveyance of real property a contract for deed, a contract to convey, an agreement for sale or any similar contract through which a seller has conveyed to a purchaser equitable title in property and under which the seller is obligated to convey to the purchaser the remainder of the seller's title in the property, whether legal or equitable, on payment in full of all monies due under the contract. This article does not apply to purchase contracts and receipts, escrow instructions or similar executory contracts, which are intended to control the rights and obligations of the parties to executory contracts pending the close of a sale or purchase transaction.

Ariz.Rev.Stat.Ann. Sec. 33-741(2).

Anderson argues that the sale of the ranch to Allarco did not satisfy the statutory criteria. Anderson contends that title passed at the close of escrow even though the parties structured the transaction as an installment sales contract.

Walker responds to this issue with two arguments. First, Walker contends that the court should not rule on this issue as it was not properly preserved for appeal. Walker feels that since the issue was not raised until it appeared as a footnote in Anderson's post trial memorandum and then again in Anderson's motion for reconsideration, it is not properly before this court. Walker relies on Publishers Resource v. Walker-Avis Publications, 762 F.2d 557, 560-61 (7th Cir. 1985). In Publishers Resource, as in the instant case, the appellant raised issues in support of a motion to reconsider an adverse summary judgment ruling. The Seventh Circuit declined to consider any of the issues on appeal because the appellant could have raised the issues in response to the motion for summary judgment but didn't. Walker urges this panel to adopt the Seventh Circuit's portion and not consider this issue. Anderson responds that Publishers Resource is not the proper standard. Rather, says Anderson, if the lower court has had an opportunity to rule on a matter the issue may be preserved for appeal. Ryan v. Department of Justice, 617 F.2d 781, 792, n. 38 (D.C. Cir. 1980). Notwithstanding Ryan or Publishers Resource, Anderson urges this court to consider the issue because manifest injustice would result from ignoring the new legal theory. Higginbotham v. Ford Motor Co., 540 F.2d 762, 768 n. 10 (5th Cir. 1976).

Second, Walker points to Anderson's own statements that the joint venture continued to exist because the term of the real estate contract had not been fully performed. These statements appear throughout Anderson's district court filings including Defendant's Proposed Findings of Fact and Conclusions of Law, Defendant's Response to Plaintiff's Motion of Summary Judgment and Cross Motion for Summary Judgment and as a stipulated fact in the Pretrial Order. Walker also suggests that the conduct of the parties indicating their intent that the joint venture would continue so long as any purchase money or any sales contract remained to be paid. Such prior conduct includes the two previous sales of the ranch on a deferred payment basis without considering the joint venture terminated; Anderson's declarations of partnership income from the joint venture on his 1982, 1983 and 1984 tax returns for a joint venture which supposedly terminated in 1979; and Anderson's seeking of Walker's approval on various joint venture items through the years including Allarco's request to modify the payment schedule. Walker suggests that Anderson's reliance on the Arizona statute is irrelevant because that particular article deals with remedies and that the parties intended the joint venture to survive as long as there was an outstanding obligation owed to it. Finally, Walker argues that title never passed to Allarco. Rather, contends Walker, legal title always remained with the trustee of Trust No. 382 and what was assigned to Allarco was the joint venture's second beneficial interest.

We conclude that this issue is properly raised on appeal. However, based on Anderson's own statements, the parties' conduct and the nature of the interests which passed between the joint venture and Allarco, we can affirm the district court's conclusion that the joint venture survived the 1979 sale of the ranch to Allarco.

III. Net Profit Determination Based on Consideration Paid by Anderson

After concluding that Anderson breached his fiduciary duty to Walker, the district court held an evidentiary hearing to determine what amount of damages to award Walker in restitution. After the evidentiary hearing, the district court, in its Amended Findings of Fact and Conclusions of Law, found that the price paid for the ranch was $2.8 million and ruled that the real estate contract documents by which Anderson acquired the ranch from Allarco constituted a fully integrated agreement. Anderson argues that the purchase of the ranch was part of a package transaction that involved another parcel of property owned by Allarco known as the Cave Creek Property. In calculating the net profit Anderson received, the district court declined to consider the consideration paid in the form of a purportedly inflated purchase price for the ranch.

In its April 29, 1986 Memorandum and Order the district court held: "If (Anderson) can show by extrinsic evidence that the contract for purchase of the joint venture property was part of a package including the other property, then the single purchase contract (for the ranch) will not be an integrated contract in and of itself. In that case, the parol evidence rule should not be applied to enforce a 'bargain' that was never really made and deny the true agreement of the package deal."

After considering all the evidence the court concluded: "The real estate contract documents by which (Anderson) acquired the ranch from Allarco constitutes a fully integrated agreement between the parties."

The district court did not err in determining that Anderson's intent was for separate and distinct purchases and not for a package deal. Each and every document relating to Anderson's purchase of the ranch deals solely and exclusively with his purchase of only the ranch without any mention of the Cave Creek property. These documents include the offer, counteroffers, correspondence, corporate resolution, nomination and assignment, closing statement, affidavit of real property value and title insurance policy. Anderson's acquisition of the Cave Creek property was separately and distinctly, documented and closed.

Based on the record before us, we affirm the district court's conclusion that Anderson and Allarco had concluded a fully integrated agreement. The district court did not err in excluding a portion of the consideration paid in determining Anderson's net profit.

The district court awarded Walker one-half of the net profit earned by Anderson in the transaction. Anderson contends that Walker's proper share of the net profits should be one-third as Walker only held a one-third interest in the joint venture property in conjunction with Anderson's one-third interest and the one-third interest held by the Lone Mountain Limited Partnership.

However, the district court in making the award to Walker stated: "Walker is entitled to restitution of profits or unjust gains from Anderson's breach-of-fiduciary-duty transaction(s) in the amount of $1,048,868.23, i.e. one-half of Anderson's net profit." (emphasis added)

The district court specifically characterized the award as restitution. "Restitutionary recoveries are not designed to be compensatory; their justification lies in the avoidance of unjust enrichment on the part of the defendant." Renner v. Kehl, 722 P.2d 262, 266 (Ariz.1986) (quoting D. Dobbs, Remedies Sec. 4.1 P. 224 (1973).

The district court found that as Walker and Anderson each held an undivided one-third interest in the joint venture, " [t]heir interests in the joint venture were, therefore, equal." Applying restitutionary principles to avoid unjust enrichment, the district court looked to the relative equal interests of Walker and Anderson in the joint venture and correctly apportioned the profits on a one-half/one-half basis.

The district court did not err in awarding Walker one-half of the net profits and we affirm that award.

V. Credit Allowed for Financing Costs and Expenses in the District Court's Net Profit Calculation

The district court determined the net profit realized from Anderson's breach of fiduciary duty first by subtracting the purchase price of the ranch paid to Allarco from the price at which the ranch was sold to Johnes less the costs of acquiring, carrying and selling the ranch. The costs of acquiring the ranch from Allarco and the costs associated with the sale of the ranch to Johnes were undisputed. The district court also found that Scottsdale North incurred $291,776.47 in costs while carrying the ranch, prior to the closing of the Johnes sale.

Walker contends that of the total carrying costs--interest paid on the loan made to purchase the ranch from Allarco and the legal and accounting fees incurred in securing that loan were not properly deductible. Walker argues that Anderson was "a tortious, conscious wrongdoer who acted with unclean hands in breaching his fiduciary duty to Walker when he reacquired the ranch for his own personal gain and that he should be denied credit for these carrying costs."

Anderson responds that what Walker in essence seeks is punitive damages to punish Anderson for his conscious wrongdoing. Walker states though that he is seeking restitution not punitive damages.

Walker principally relies on Edwards v. Hauff, 682 P.2d 1 (Ariz.Ct.App.1984), and the Restatement of Restitution. Edwards, like the instant case, concerned joint venture property and the secret acquisition of the property by one partner to the exclusion of the other partner in what the court found was a blatant violation of the fiduciary duties owed.

In Edwards the Arizona appellate court stated that "if the conduct of the recipient (defendant) is tortious he should bear any losses resulting from the transaction and should not benefit from profits." Id. at 5.

In Edwards, the issue concerned expenses for repairs, improvements and additions, not legal fees, accounting fees and interest incurred in acquiring the property as in this case. The principle, though, is the same.

Section 158 of the Restatement of Restitution relied on by Walker and cited in Edwards, provides:

A person is entitled to specific restitution of property from another or to the product of such property only on condition that he compensate the other for expenditures with reference to the subject matter which have incurred to his benefit, to the extent that justice between the parties requires.

In this case the district court did not abuse its discretion in deducting the costs of acquiring, carrying and selling the ranch in arriving at its net profit figure. These costs were legitimately-incurred expenses, necessary for concluding the transaction which yielded the large profit. We find that justice requires that these costs be deducted. To not deduct these expenses would be tantamount to a punitive damage award against Anderson for which there are no grounds to award.

Walker contends that the district court erred in denying him prejudgment interest. The district court concluded that " [b]ecause Anderson acted on advice of experienced counsel, the legal issues close and the amount of damages unliquidated, prejudgment interest will not be allowed."

A party's entitlement in Arizona to prejudgment interest depends on whether the amount awarded is liquidated or unliquidated. Prejudgment interest on a liquidated claim is a matter of right. Conversely, prejudgment interest is generally not allowed on unliquidated claims. La Paz County v. Yuma County, 735 P.2d 772, 778 (Ariz.1987).

"A claim is liquidated if the evidence furnishes data which, if believed, makes it possible to compute the amount with exactness, without reliance upon opinion or discretion." Id. citing Arizona Title Ins. & Trust Co. v. O'Malley Lumber Co., 484 P.2d 639, 649 (Ariz.Ct.App.1971), citing C. McCormick Damages Sec. 54 (1935). A claim is not considered unliquidated, though merely because the fact finder must find certain facts in favor of the plaintiff in order to determine the amount of damages. Trus Joist Corp. v. Safeco Ins. Co. of America, 735 P.2d 125, 137 (Ariz.Ct.App.1986). Furthermore, a claim is not unliquidated merely because there was some small difference between the amount of the claim made in the complaint and that proven at trial. Rawlings v. Apodaca, 726 P.2d 596, 601-2 (Ariz.Ct.App.1985).

Walker contends that the district court had all the evidence available to it to compute exact damages without relying on opinion or discretion. That computation, states Walker, is arrived by subtracting the Allarco purchase price from the Johnes sales price and from that figure deducting the costs of acquiring, carrying and selling the ranch.

Walker surmises that because Anderson and he held equal one-third shares in the joint venture, the district court awarded one-half of the net profits as restitutionary damages to Walker. Walker concludes that the district court did not have to use opinion or discretion in determining that Walker and Anderson held relative equal joint venture interests and therefore the claim is liquidated.

In response to the district court's conclusion that the legal issues were close Walker argues that this was a reference to the liability issue. "Uncertainty as to liability does not bar recovery of prejudgment interest on a liquidated claim." Banner Realty, Inc. v. Turek, 546 P.2d 798, 800 (Ariz.1976). Walker characterizes the district court's reference to the fact that Anderson acted on advice of legal counsel as balancing of the equities of Walker's claim in exercising discretion to deny him prejudgment interest. This is an exercise of discretion that can't be engaged in because the claim is liquidated. La Paz County, supra; L.M. White Contracting Co. v. St. Joseph Structural Steel Co., 488 P.2d 196 (Ariz.Act.App.1971).

Walker also contends that this court can alternatively award prejudgment interest as a matter of equity. An award of interest is the only way Walker can be made whole and unjust enrichment to Anderson can be avoided because he had use of the money from the date of the transaction until date of judgment.

Anderson argues that the district court was forced to make a number of highly judgmental, discretionary findings which were based on opinion and did not merely perform a simple mathematical calculation. Relying on Linthicum v. Nationwide Life Ins. Co., 723 P.2d 675, 680 (Ariz.1986), Anderson contends that the district court had to make an inquiry into Anderson's state of mind to determine if Anderson had intent to interfere with Walker's rights. That inquiry, states Anderson, is a classic example of the use of opinion and discretion. We agree. Furthermore, the district court's finding that Walker and Anderson held relative equal one-third interests in the joint venture and that therefore Walker was entitled to one-half of the net profits also required the exercise of opinion or discretion.

We agree that Walker's claim is not a liquidated claim and therefore he is not entitled to prejudgment interest. La Paz County, supra. The district court relied in several instances on opinion and discretion in computing the amount of damages including the inquiry into Anderson's state of mind on the issue of intent.

The judgment of the district court is affirmed.

AFFIRMED.