Opinion
1 CA-CV 21-0689
12-15-2022
SOLARIUM ENTERPRISES, LLC, a Utah limited liability company, Plaintiff/Appellant, v. JW RANCH, INC., a Utah Corporation; THE LAW OFFICE OF TRAVIS R. MARKER, PC, a Utah professional corporation; TRAVIS R. MARKER, an individual doing business as THE LAW FIRM OF TRAVIS R. MARKER, Defendants/Appellees.
Snow Christensen & Martineau, Salt Lake City, Utah By Keith A. Call, Steven W. Beckstrom (Pro Hac Vice) Counsel for Plaintiff/Appellant Ruesch & Reeve PLLC, Hurricane, Utah By Benjamin S. Ruesch, Mathew L. Barlow Counsel for Defendant/Appellee JW Ranch Inc.
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Mohave County No. S8015CV201700654 The Honorable Kenneth Gregory, Judge, Pro Tempore
COUNSEL
Snow Christensen & Martineau, Salt Lake City, Utah By Keith A. Call, Steven W. Beckstrom (Pro Hac Vice) Counsel for Plaintiff/Appellant
Ruesch & Reeve PLLC, Hurricane, Utah By Benjamin S. Ruesch, Mathew L. Barlow Counsel for Defendant/Appellee JW Ranch Inc.
Vice Chief Judge David B. Gass delivered the decision of the court, in which Presiding Judge Samuel A. Thumma and Judge Cynthia J. Bailey joined.
MEMORANDUM DECISION
GASS, Vice Chief Judge
¶1 Solarium Enterprises, LLC appeals the superior court's order finding a promissory note between Solarium and JW Ranch null and void for failure and lack of consideration. We affirm.
FACTUAL AND PROCEDURAL HISTORY
¶2 On July 8, 2011, JW Ranch signed a one-page $1.2 million Trust Deed Note (the 2011 note) in Solarium's favor. JW Ranch also signed an associated Deed of Trust and Assignment of Rents on property it owns near Colorado City, Arizona, which was recorded.
¶3 The 2011 note stipulated JW Ranch would pay Solarium
$60,000.00 interest only payments, due and payable on or before AUGUST 15, 2011 and a like amount or more on or before the first day of each succeeding month thereafter until JANUARY 15, 2012 at which time the remaining principal balance together with accrued interest, is due and payable in full.
JW Ranch never made payments. Solarium did not demand payments until August 2017, when it sought judicial foreclosure on the property. JW Ranch counterclaimed, saying it never received any loan proceeds and the 2011 note lacked consideration. Later, JW Ranch amended its answer asserting several defenses, including lack of consideration.
¶4 Following a bench trial, the superior court found the parties disputed the purpose of the transaction and found the 2011 note void for failure and lack of consideration. JW Ranch argued the 2011 note granted Solarium a future line of credit. Solarium, however, argued the 2011 note secured antecedent debts held by Arvin Lee Black II (Lee) and his company, Sole Group. Lee's father, Arvin Black (Arvin), and several of Lee's uncles were JW Ranch shareholders.
¶5 Solarium relied on nine promissory notes signed by Lee or Sole Group -but not JW Ranch. The superior court found those nine notes were "cobbled together to create [the] illusion" they collectively formed $1.2 million in debt. The superior court also determined "[a]ll funds from the antecedent loans were placed in accounts controlled by Lee . . . or . . . Sole Group," not JW Ranch.
¶6 Solarium argues it paid about $30,000 in delinquent property taxes on the property when the parties executed the note and recorded the deed of trust. Those monies, however, did not come from Solarium, but instead were in the form of a cashier's check from Robert Crosby. Crosby, who worked with Solarium, provided the funds directly to a title company, and the title company in turn paid the property taxes. Moreover, the 2011 note did not mention or require Solarium to pay the delinquent taxes. On these facts, the superior court found Solarium did not pay the taxes, and JW Ranch never controlled those funds. As such, the superior court ruled "JW Ranch received no benefit from Solarium for its execution of the" 2011 note and deed of trust.
¶7 The superior court granted summary judgment in JW Ranch's favor on the remaining claims, quieted title in the property in JW Ranch, and awarded JW Ranch attorney fees. After entry of final judgment, Solarium timely appealed. This court has jurisdiction under article VI, section 9, of the Arizona Constitution, and A.R.S. §§ 12-120.21.A.1 and -2101.A.1.
DISCUSSION
¶8 Following a bench trial, this court reviews the superior court's legal conclusions de novo but defers to its findings of fact unless clearly erroneous. Town of Mar ana v. Pima Cnty., 230 Ariz. 142, 152, ¶ 46 (App. 2012). If substantial evidence supports a factual finding, the finding is not clearly erroneous even if substantial conflicting evidence exists. Castro v. Ballesteros-Suarez, 222 Ariz. 48, 51-52, ¶ 11 (App. 2009). A finding supported by evidence is clearly erroneous only if, after considering the evidence, this court "is left with the definite and firm conviction" the superior court committed a mistake. State v. King, 250 Ariz. 433, 438, ¶ 21 (App. 2021) (citation omitted).
I. The superior court did not err when it found the 2011 note void for failure and lack of consideration under Arizona's version of the Uniform Commercial Code (AUCC).
¶9 Solarium argues the 2011 note was a valid contract supported by consideration. JW Ranch argues it was not. JW Ranch bore the burden of proving a failure or lack of consideration. See Dunlap v. Fort Mohave Farms, Inc., 89 Ariz. 387, 393 (1961).
¶10 The parties agree the 2011 note is a negotiable instrument under the AUCC. See A.R.S. § 47-3104. The maker of a negotiable instrument, here JW Ranch, "has a defense if the instrument is issued without consideration." A.R.S. § 47-3303.B; see also Amos Flight Operations, Inc. v. Thunderbird Bank, 112 Ariz. 263, 267 (1975) ("Personal defenses are available between immediate parties to an instrument under" the AUCC). Consideration need only be "sufficient to support a simple contract." A.R.S. § 47-3303.B. Additionally, any instrument issued for value under § 47-3303.A is also issued for consideration. Id. The court may consider parol evidence to evaluate a failure of consideration defense to a promissory note. Amos Flight, 112 Ariz. at 267.
¶11 Relevant to this appeal, a party issues an instrument for value if the party issued it "as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due" or "in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument." A.R.S. §§ 47-3303. A.3, .5.
¶12 Solarium argues it issued the 2011 note "as security for an antecedent claim against Lee," relying on $600,000 in promissory notes Lee or Sole Group signed in September 2010, and January and March 2011.
¶13 But those notes predated the 2011 note. Lee also testified he paid off those notes in September or October of 2011. And several of those notes had handwritten notations saying "paid" or "paid in full" after JW Ranch executed the 2011 note. Though the superior court found Lee's testimony was "generally lacking in credibility," it found his testimony on this issue credible because it aligned with the cancelled notes. Solarium argues the superior court also should not have believed Lee's testimony on this issue, but this court does not second-guess credibility determinations on appeal from a bench trial. See Van Emden v. Becker, 6 Ariz.App. 274, 275 (1967). And the record does not suggest the superior court's finding on this point was clearly erroneous, particularly given the conflicting evidence the superior court considered. See King, 250 Ariz. at 438-39, ¶ 21.
¶14 Solarium also argues Lee signed four other promissory notes showing Solarium partnered with another company, 435 Funding, to fund the 2011 note. The superior court found no evidence showing 435 Funding indorsed or transferred any of these notes to Solarium. See A.R.S. §§ 47-3203.A, -3204.A. Indeed, none of those notes bear any indorsement, and "Solarium" does not appear on any of them. Solarium argues Lee "acknowledged the connection between Solarium and 435 Funding when he testified that even after allegedly paying Solarium, in full, he still needed to 'smooth' it over with [435 Funding]." In support, Solarium cites only its counsel's closing argument. A counsel's argument, when made during opening or closing arguments, is not evidence. Quine v. Godwin, 132 Ariz. 409, 412 (App. 1982).
¶15 Last, Solarium argues it incurred "an irrevocable obligation to Lee/Sole Group to pay the final $300,000 of the $1,200,000." See A.R.S. § 47-3303. A.5. But third party, Crosby, not Solarium, paid the final $300,000, thus, it was not consideration supporting the 2011 note. See Keg Restaurants Ariz., Inc. v. Jones, 240 Ariz. 64, 76, ¶ 43 (App. 2016). As Keg noted, "adequate consideration need only consist of a benefit to the promisor and a detriment to the promisee." Id. Citing Crosby's testimony, Solarium argues Crosby provided those funds to "complet[e] Solarium's already existing loan with Lee." Consideration for a promise does not exist when "no benefit is conferred on the promisor or a detriment suffered by the promisee." K-Line Builders, Inc. v. First Fed. Sav. & Loan Ass'n, 139 Ariz. 209, 212 (App. 1983). Crosby's testimony, however, does not show Solarium incurred any detriment. See id. Moreover, Crosby admitted he never spoke with anyone associated with JW Ranch and only lent the funds because he trusted Solarium's principal.
¶16 The superior court, thus, committed no error in finding Solarium did not issue the 2011 note for value and thus did not issue it for consideration.
II. The superior court did not err in finding the 2011 note failed for lack of consideration under Arizona's common law.
¶17 Solarium next argues common law consideration, in the form of payment of then-outstanding taxes on the property, supported the 2011 note. Because the title company paid those taxes with Crosby's funds, that payment does not constitute consideration for the 2011 note.
¶18 Solarium also argues JW Ranch signed the 2011 note after meeting with Lee and believing Lee "would pay a handsome return . . . in exchange for [JW Ranch] pledging its properties as collateral for loans made to Lee/Sole Group." Solarium relies on the following out-of-context testimony from James Black, one of the JW Ranch shareholders:
Q. Okay. How much money did JW Ranch plan on borrowing?
A. That never came up. It was just supposed to be where they could use our ranch for collateral, then give out so much money a month.
But James's testimony did not end there. He also testified as follows:
Q. Based on your understanding, who was to receive the money from that business deal?
A. JW Ranch was supposed to be in control of it.
Q. A hundred percent control?
A. Yes.
Q. And did that ever happen?
A. No.
Q. And how do you know?
A. We didn't -- we didn't receive anything.
Lee and Arvin also testified they believed JW Ranch, not Lee or Sole Group, would control funds derived from the 2011 note. Specifically, Lee testified he proposed JW Ranch shareholders "get a loan and then reinvest the money from their [lender] to [Lee]," rather than pledge the property as collateral for money Lee already owed Solarium. And Arvin testified "if [Solarium] wanted to lend money, it had to come to us and we had to have control of it. And then if we elected to invest it, we could." Arvin also testified he did not know Lee and Sole Group were indebted to Solarium and would not have agreed to pledge JW Ranch's property to secure such debts.
¶19 Solarium also cites Arvin's entire 110-page deposition-not any specific testimony-to argue Arvin knew JW Ranch was pledging its real property for current or future loans from Solarium to Lee. Such a generic citation to a deposition transcript spanning more than 100 pages does not preserve the argument. See ARCAP 13(a)(7)(A). An opening brief must include "appropriate references to the portions of the record on which the appellant relies." Id. The deposition testimony Solarium introduced at trial was consistent with Arvin's testimony he believed JW Ranch would control the loan funds:
[W]hat I remember was the money-money was going to be used for investment purposes and . . . the $1.2 million, I don't even remember that. As far as I can recollect, it was never an amount that was named, but it was an account of whatever money was there that JW Ranch would have 100 percent control of and we could-if we decided we didn't find it, we could pull out of it.
In his deposition, Arvin said he believed "any money that [Solarium] leveraged [the property for] would either go into an account or in our bank account that we had control of 100 percent of the time so that we had control of the money."
¶20 As a last point, Solarium used Arvin's deposition for impeachment only and not as substantive evidence. As such, the deposition at best could serve as conflicting impeachment evidence for the superior court to weigh. Because substantial evidence supports the superior court's factual finding, it is not clearly erroneous even if we were to accept Solarium's argument it constitutes substantial conflicting evidence. See Castro, 222 Ariz. at 51-52, ¶ 11.
III. The superior court did not misapply Arizona case law to determine no consideration supported the 2011 note.
¶21 Solarium also contends the court erred in applying Sepo v. First Nat'l Bank of Ariz., 21 Ariz.App. 606 (App. 1974). In Sepo, this court identified three factors to consider in determining whether a maker receives consideration for a note:
(1) who had access to the account in which the note's proceeds were placed;
(2) for what purpose were the funds placed in the account[;] and
(3) for whose benefit were the funds ultimately expended. Id. at 609.
¶22 Solarium does not contend the superior court misapplied the Sepo factors. Indeed, Solarium's principal acknowledged Lee-not JW Ranch-received the $1.2 million in value under the 2011 note. Solarium instead argues Sepo does not address the AUCC. Though true, Solarium does not show how the AUCC mandates a different test.
¶23 Solarium attempts to distinguish Sepo because it did not involve a note received as security for an antecedent debt. Solarium's argument fails. The superior court heard significant conflicting evidence and found the 2011 note was not for antecedent debt. Because we have concluded the superior court did not err, Solarium's distinction is irrelevant.
¶24 Solarium also argues Sepo addressed failure of consideration, not lack of consideration. Though each presents a distinct defense, the superior court's ruling referenced both. See 3 Williston on Contracts § 7:11 (4th ed.) (explaining an agreement lacking consideration is void from its conception but an agreement will subsequently fail for failure of consideration when, "because of some supervening cause, the promised performance fails"). Here, substantial evidence supports the superior court's findings on both defenses. JW Ranch believed "that a line of credit would be extended to it by Solarium" and JW Ranch "never received any funds from the loans or investment arrangements between Solarium and Lee Black." The superior court did not err in finding the 2011 note failed for both lack and failure of consideration.
¶25 Because the 2011 note lacked consideration, we need not reach Solarium's argument the superior court erred in finding no mutual assent.
ATTORNEY FEES
¶26 Both parties request their attorney fees and taxable costs under A.R.S. §§ 12-341 and 12-341.01.A. The issues raised in this appeal arise from the 2011 note. Because Solarium is not the successful party, we deny its request. As the successful party on appeal, we award JW Ranch reasonable attorney fees and taxable costs upon compliance with ARCAP 21. See Rudinsky v. Harris, 231 Ariz. 95, 101, ¶ 27 (App. 2012) ("Even when a contract is alleged by a plaintiff and the defendant successfully proves that there was no contract, the action is considered to have arisen out of contract for purposes of A.R.S. § 12-341.01.").
CONCLUSION
¶27 We affirm.