Judson C. Ball Revocable Trust v. Phoenix Orchard Group I, L.P., et al.

¶1 Judson C. Ball Revocable Trust (the “Trust”) appeals from the

declaratory judgment in favor of Phoenix Orchard Group I, LP and Phoenix

Orchard Group II, LP (collectively, “POG”); and the denial of its motion to

stay release of rescission payments to the Trust’s judgment creditor, PJI-2

Collection, LLC (“PJI-2”). For the following reasons, we affirm the

declaratory judgment and accept jurisdiction, but deny relief from the

denial of the Trust’s motion to stay.

FACTS AND PROCEDURAL HISTORY

¶2 In October 2015, the Trust brought this action pursuant to the

Arizona Securities Act, alleging two counts of securities fraud against POG

and others in connection with the Trust’s investment in citrus orchards in

California’s San Joaquin Valley.1 In its complaint, the Trust, which still

owned the securities it purchased, demanded damages or rescission. As a

part of the Trust’s claim for rescission it tendered the securities to POG.2

1 The Trust also alleged a common-law fraud claim, which is not the

subject of this appeal.

2 In its complaint, the Trust made the following explicit tender and

demand for rescission:

Plaintiff tenders to Defendants all consideration [with] . . . the

securities and offers to do any other acts necessary for

rescission under the common law or A.R.S. § 44-2001(A). In

return, Plaintiff demands rescission with interest and

attorney fees as provided in A.R.S. § 44-2001(A).

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POG accepted the Trust’s tender, and counterclaimed for a declaratory

judgment that acceptance of the tender created a valid, mutually binding

rescission obligation, and that a charging order3 be entered against the Trust

in an unrelated case (the “Charging Order”) that any rescission payments

owed to the Trust be paid to PJI-2.4

¶3 The superior court granted POG’s application for declaratory

relief, ruling that rescission is the sole remedy available to a purchaser who

still owns securities and is suing under A.R.S. § 44-2001(A) (2013). On this

basis, the court ordered POG to deposit with the clerk of the court the

consideration paid by the Trust for the securities (plus interest, costs, and

reasonable attorneys’ fees). On May 16, 2016, POG deposited with the clerk

rescission payments totaling $776,725.68.

¶4 In granting POG’s application for declaratory relief, the court

also found the rescission payments could be released to PJI-2 pursuant to

the Charging Order. The Trust did not challenge PJI-2’s rights as a

judgment creditor or the enforceability of the Charging Order, but it moved

to stay release of the payments to PJI-2 pending the Trust’s “intended

appeal” from the underlying ruling. The superior court denied the Trust’s

request to stay enforcement of the Charging Order, finding that the Trust’s

request was “extraordinary” because the court “may, in the future, enter a

Rule 54(b) final judgment that [the Trust] would appeal[,]” and if

overturned on appeal, “PJI-2 will be legally obligated to return the funds.”

¶5 Accordingly, the superior court ordered the clerk of the court

to release the rescission payments to PJI-2 consistent with the Charging

Order.

¶6 In the meantime, the Trust moved for entry of a final

judgment pursuant to Arizona Rule of Civil Procedure 54(b) regarding the

superior court’s grant of rescission for Counts One and Two. The court

3 A charging order allows a judgment creditor to charge a judgment

debtor’s membership interest in a limited liability company to the extent of

the unsatisfied amount of the judgment plus interest. Ariz. Rev. Stat.

(“A.R.S.”) section 29-655(A) (2014).

4 PJI-2 cross-claimed against the Trust seeking a declaratory judgment

to the same effect with respect to the Charging Order.

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granted the motion as to Count One, and entered a final judgment in favor

of POG “on the First Claim for Relief in [its] Counterclaim: Declaratory

Judgment—Acceptance of Tender and Demand for Rescission.” The Trust

timely appealed from (1) the August 19, 2016 final judgment (the “August

Judgment”) and (2) “the Court’s issuance of the funds to a third party that

were lodged with the Clerk for the benefit of the Trust.”5

ANALYSIS

I. The August Judgment

¶7 We have jurisdiction of the Trust’s appeal from the August

Judgment pursuant to A.R.S. § 12-2101(A)(1) (2016). See Brumett v. MGA

Home Healthcare, L.L.C., 240 Ariz. 420, 426, ¶ 4 (App. 2016).

A. The Plain Language of A.R.S. § 44-2001

¶8 The Trust argues A.R.S. § 44-2001 does not limit a purchaser’s

remedy to rescission, but allows a purchaser to seek rescission and damages,

and to defer any election of remedies until the time of trial. We review

questions of statutory interpretation de novo. E. Vanguard Forex, Ltd. v. Ariz.

Corp. Comm’n, 206 Ariz. 399, 406, ¶ 19 (App. 2003). When interpreting a

statute, we give “words their ordinary meaning unless the context of the

statute requires otherwise.” Hirsch v. Ariz. Corp. Comm’n, 237 Ariz. 456, 466,

¶ 38 (App. 2015) (citing Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., Inc., 177

Ariz. 526, 529 (1994)). See also Mercy Healthcare Ariz., Inc. v. Ariz. Health Care

Cost Containment Sys., 181 Ariz. 95, 98 (App. 1994) (“We look primarily to

the language of the statute and give effect to the terms according to their

commonly accepted meaning.”).

¶9 Our goal in “interpreting a statute is to give effect to the

legislature’s intent.” Blevins v. Gov’t Emps. Ins. Co., 227 Ariz. 456, 459, ¶ 13

(App. 2011) (citing Blum v. State, 171 Ariz. 201, 205 (App. 1992)). “When the

language of a statute is clear and unambiguous, a court should not look

beyond the language.” Cundiff v. State Farm Mut. Auto. Ins. Co., 217 Ariz.

358, 360, ¶ 8 (2008). Although the Arizona Securities Act is a “remedial

5 The final judgment included an award to the Trust of $47,532 in

attorneys’ fees and costs. POG deposited this amount with the clerk of the

court after the Trust filed its notice of appeal; thereafter, PJI-2 filed a request

for distribution of the award pursuant to the Charging Order. The Trust

objected, arguing the superior court was divested of jurisdiction over these

funds. The court granted PJI-2’s request, and released the remaining

judgment amount of $36,343.35.

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measure for the protection of the public[,]” it may be liberally construed

only if a provision’s language is ambiguous. Sell v. Gama, 231 Ariz. 323, 325,

¶ 8 (2013) (quoting 1951 Ariz. Sess. Laws, ch. 18, § 20 (1st Reg. Sess.)). See

also Caruthers v. Underhill, 235 Ariz. 1, 10, ¶ 38 (App. 2014) (discussing A.R.S.

§ 44-2002). Section 44-2001(A) is not ambiguous, thus, we construe it

according to its ordinary meaning.

¶10 Section 44-2001(A) provides:

A sale or contract for sale of any securities to any purchaser

in violation of § 44-1841 or 44-1842 or [§§ 44-1991 through

2000] is voidable at the election of the purchaser, and the

purchaser may bring an action in a court of competent jurisdiction

to recover the consideration paid for the securities, with interest,

taxable court costs and reasonable attorney fees, less the

amount of any income received by dividend or otherwise

from ownership of the securities, on tender of the securities

purchased or the contract made, or for damages if the purchaser

no longer owns the securities.

A.R.S. § 44-2001(A) (emphasis added.)

¶11 The language of A.R.S. § 44-2001 is clear—a purchaser of

securities must seek rescission if it owns the securities, but, if it does not, it

may seek damages. See Bullard v. Garvin, 1 Ariz. App. 249, 251 (1965)

(finding that if A.R.S. § 44-2001 were to be construed to “permit a purchaser

of securities sold in violation of the Act to sell the securities and still sue for

damages . . . [it would] negate the supposed purpose of the legislature in

requiring a strict tender”).

B. Legislative History

¶12 This court generally does not review or refer to legislative

history if the language of the subject statute is clear; however, we do so here

only to address the issues raised by the Trust. The Trust suggests that, by

not interpreting A.R.S. § 44-2001(A) to allow rescission and/or damages,

the superior court essentially permitted POG to “buy” its way out of a

securities fraud claim. Specifically, the Trust urges that we interpret A.R.S.

§ 44-2001(A) more liberally to provide a defrauded purchaser or a

purchaser of unregistered securities, the same opportunity to seek

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rescission and/or damages as provided to a defrauded seller under A.R.S.

§ 44-2002(A).6

¶13 The Trust acknowledges that while A.R.S. § 44-2002(A)

expressly grants a seller the right to sue for damages, A.R.S. § 44-2001(A)

does not contain the same express grant to the purchaser. The Trust,

however, suggests the Arizona Securities Act drafters intended the same

remedies for sellers be applied to purchasers. This contention is not

supported by the legislative history.

¶14 The legislature has amended both statutes twice since original

enactment, but not in ways material to this issue. See 1993 Ariz. Sess. Laws,

ch. 257, § 5 (1st Reg. Sess.); 2000 Ariz. Sess. Laws, ch. 108, §§ 41-42 (2d Reg.

Sess.). This creates a “strong inference” the legislature did not intend to

incorporate the seller’s damages remedy under A.R.S. § 44-2002(A) into the

purchaser’s damages remedy under A.R.S. § 44-2001(A). See Cemex Constr.

Materials S., LLC v. Falcone Bros. & Assocs., Inc., 237 Ariz. 236, 241, ¶ 18 (App.

2015). Accordingly, we will not read into A.R.S. § 44-2001(A) what the

legislature has omitted or excluded. See Stambaugh v. Killian, 242 Ariz. 508,

511, ¶ 15 (2017) (citing City of Flagstaff v. Mangum, 164 Ariz. 395, 398 (1990)

(quotations omitted)).

C. Case Law

¶15 The Trust contends Arizona case law supports its argument

that A.R.S. § 44-2001 allows a purchaser to seek both rescission and

damages. In large part, the authorities relied on by the Trust address the

remedies available to (1) purchasers who sold their securities before filing

for relief; (2) purchasers who, like the Trust, assert other distinct causes of

6 Section 44-2002(A) (2013) provides:

A purchase or contract for purchase from a seller of securities

made in violation of section 44-1842, 44-1991 or 44-1994 is

voidable at the election of the seller of the securities, and the

seller may bring an action in a court of competent jurisdiction

to recover the amount of the seller’s damages, with interest,

taxable court costs and reasonable attorney fees.

A.R.S. § 44-2002(A) (emphasis added.)

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action; or (3) sellers. For example, the Trust cites Wash. Nat’l Corp. v. Thomas

to support its argument that the court should not limit its remedy to

rescission, if rescission cannot make the Trust whole. 117 Ariz. 95 (App.

1977), disapproved on other grounds, Greenfield v. Cheek, 122 Ariz. 57 (1979).

The Trust’s reliance on Wash. Nat’l Corp. is misplaced. Wash. Nat’l Corp.

addressed the recovery of damages sought by a seller of stock, under A.R.S.

§ 44-2002. Id. at 103. As mentioned above, there are significant differences

between A.R.S. § 44-2001 and § 44-2002, which demonstrate that the

legislature did not intend for the same remedies to apply to both statutes.7

¶16 The Trust also argues that case law supports its interpretation

that A.R.S. § 44-2001 does not “limit a defrauded buyer to rescission when

the buyer still owns the securities.” In this regard, the Trust relies primarily

on Grand v. Nacchio, 214 Ariz. 9 (App. 2006). Grand involved a situation

where the purchaser sold the subject shares before instituting the securities

fraud action, and argued it could establish a right to rescind the original

transaction if it replaced the shares it originally owned with “substitute”

shares. Id. at 13, ¶ 2. These facts, clearly, are not the facts of the instant

appeal. In allowing the purchaser to rescind, the Grand court interpreted

§ 44-2001(A) to “permit[] a plaintiff to elect a remedy rather than []

prescrib[e] the remedy.” Id. at 22, ¶ 42. Grand, however, does not stand for

the proposition that a purchaser who still owns the shares can assert a right

to rescission and successfully tender the shares while simultaneously

asserting a statutory claim for damages.8 Neither does Grand modify the

underlying directive of A.R.S. § 44-2001—that rescission is the appropriate

remedy if a purchaser still owns the securities.9 Grand, 214 Ariz. at 22, ¶ 42.

Grand merely gives a plaintiff who has previously sold the subject securities

7 It is undisputed that a seller under A.R.S. § 44-2002 may also seek

damages.

8 The superior court’s ruling in this regard does not affect the Trust’s

ability to seek damages arising out of its common law misrepresentation

and non-disclosure claims, which remain pending in superior court.

9 Grand explicitly recognized that rescission is a proper remedy if a

purchaser of securities still owns the securities. Id. at 24, ¶ 48. See also

Randall v. Loftsgaarden, 478 U.S. 647, 655 (1986) (finding under federal

securities law, the remedy of rescission is prescribed “except where the

plaintiff no longer owns the security” (citing Wigand v. Flo-Tek, Inc., 609 F.2d

1028, 1035 (2d Cir. 1979))).

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the opportunity to purchase substitute securities prior to trial, and thereby

qualify to seek rescission.

¶17 Here, the Trust in its complaint explicitly elected and

demanded rescission, triggering POG’s right to accept the tender. POG

accepted the tender and completed the rescission process as provided by

the statute. Under these facts, we need not address the hypothetical issue

of whether a purchaser can both demand rescission and tender the subject

shares and, for tactical reasons, reserve its right to later seek an alternative

damages remedy.10

D. Punitive Damages

¶18 Finally, the Trust contends the superior court “impermissibly

abrogated” its right to recover punitive damages. We disagree. The Trust

urges that Hall v. Sec. Planning Servs., Inc., allows an award of punitive

damages under A.R.S. § 44-2001(A). 419 F. Supp. 405 (D. Ariz. 1976). It

does not. In Hall, the district court concluded the defendants’ actions

violated the Arizona Securities Act and constituted common law fraud, and

it was the defendants’ “knowing and willful fraud” that allowed for

punitive damages. Id. at 408. Although the Arizona Securities Act’s

“remedy provisions do not limit ‘any statutory or common law right of any

person in any court for any act involved in the sale of securities,’” they do

not allow us to “superimpose” a common law claim for punitive damages

on A.R.S. § 44-2001(A). Sell, 231 Ariz. at 329, ¶ 26 (quoting A.R.S. § 44-2005).

See also Jones v. CPR Div., Upjohn Co., 120 Ariz. 147, 153 (App. 1978) (finding

the remedy for a violation of A.R.S. § 44-2001(A) is “nonexclusive and an

action may be maintained for common law fraud as well as statutory

securities violation”).

¶19 Accordingly, we agree with the superior court that POG’s

acceptance of the Trust’s unequivocal tender created a valid and mutual

rescission obligation, and the Trust is not entitled to seek punitive damages

on its statutory securities fraud claims.

10 Even assuming such a delayed election might be permitted in some

cases, we note such attempt may in certain circumstances be inappropriate;

for example, if the purchaser “delayed in electing the remedy of rescission

to see if avoidance or affirmance would be more profitable.” Rose v. Dobras,

128 Ariz. 209, 214 (App. 1981).

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II. Release of Rescission Payments

¶20 The Trust argues the superior court erred by releasing the

rescission payments to PJI-2 before the Trust appealed from the August

Judgment. We construe this argument as a challenge to the denial of the

Trust’s motion to stay, which is more properly raised by special action. See

Astorga v. Wing, 211 Ariz. 139, 142, ¶ 14 (App. 2005); Grand, 214 Ariz. at 17,

¶ 20. See also A.R.S. § 12-120.21(A)(4) (stating this court may hear petitions

for special action “without regard to its appellate jurisdiction”). In the

exercise of our discretion, we consider the Trust’s appeal of this issue as a

special action.

¶21 Because we affirm the August Judgment on the merits, the

question of whether the superior court frustrated the appeal process is

moot. See Contempo-Tempe Mobile Home Owners Ass’n v. Steinert, 144 Ariz.

227, 229 (App. 1985) (“A case is moot when it seeks to determine an abstract

question which does not arise upon existing facts or rights.” (citing Freeman

v. Wintroath Pumps-Div. of Worthington Corp., 13 Ariz. App. 182, 183 (1970)));

J.R. Francis Constr. Co. v. Pima Cty., 1 Ariz. App. 429, 430 (1965).

Accordingly, we deny relief. Cf. Best Choice Fund, LLC v. Low & Childers,

P.C., 228 Ariz. 502, 510 n.6, ¶ 23 (App. 2011) (deeming a cross-appeal moot

when affirming judgment for reasons underlying the superior court’s

ruling); Catalina Foothills Unified Sch. Dist. No. 16 v. La Paloma Prop. Owners

Ass’n, Inc., 238 Ariz. 510, 519 n.8, ¶ 37 (App. 2015) (declining to address

issues raised by cross-appeal when affirming judgment on a jury’s verdict).

¶22 For the foregoing reasons, we affirm the August Judgment

and accept jurisdiction of, but deny relief from, the denial of the Trust’s

motion to stay. POG requests an award of attorneys’ fees on appeal

pursuant to A.R.S. § 12-341.01 (2016). We defer this request to the superior

court pending final resolution of the case. See Tierra Ranchos Homeowners

Ass’n v. Kitchukov, 216 Ariz. 195, 204, ¶ 37 (App. 2007). As the successful

parties, POG and PJI-2 upon compliance with ARCAP 21 are entitled to

their costs on appeal.