Ryan v. Henry

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

NOLAN RYAN, et al., Plaintiffs/Counter-Defendants/Appellees,

v.

PAULINE A. HARRIS HENRY, et al., Defendants/Counter-
Claimants/Appellants,

AMICABLE MANAGEMENT SERVICES LLC, Intervenor/Appellee.

No. 1 CA-CV 16-0217; 1 CA-CV 16-0601
(Consolidated)
FILED 1-18-2018

Appeal from the Superior Court in Maricopa County
No. CV2013-015048
The Honorable Jo Lynn Gentry, Judge

AFFIRMED

COUNSEL

The Wilkins Law Firm, PLLC, Phoenix
By Amy M. Wilkins, Nancy R. Giles
Co-Counsel for Defendants/Counter-Claimants/Appellants
Osborn Maledon, PA, Phoenix
By Eric M. Fraser, Joshua D. Bendor, Thomas L. Hudson
Co-Counsel for Plaintiffs/Counter-Defendants/Appellees

Stoops Denious Wilson & Murray, PLC, Phoenix
By Frank L. Murray, Stephanie M. Wilson
Co-Counsel for Intervenor/Appellee

MEMORANDUM DECISION

Presiding Judge James P. Beene delivered the decision of the Court, in
which Judge Randall M. Howe and Judge Kent E. Cattani joined.

B E E N E, Judge:

¶1 Defendants Pauline Harris Henry (“Pauline”) and George
Henry (“George”) (collectively the “Henrys”) appeal the superior court’s
judgment following a jury trial in favor of Plaintiffs Nolan Ryan (“Nolan”),
Mark Haile (“Mark”), and Tim Hammer (“Tim”) (collectively “RHH”). For
the following reasons, we affirm.

FACTS AND PROCEDURAL HISTORY

¶2 This appeal involves a dispute about the proper members and
directors of an Arizona non-profit entity. It concerns the five people listed
above and one legal entity, Absolute Healthcare, Inc.

¶3 In 2010, Arizona voters passed the Arizona Medical
Marijuana Act (“AMMA”). See Proposition 203 (2010); Ariz. Rev. Stat.
(“A.R.S.”) §§ 36-2801 to -2819. Pauline was interested in the Arizona
medical marijuana business and discussed it with Mark. She learned that
Mark and Tim had invested in a Colorado medical marijuana dispensary
operated by M.P. When M.P. decided to expand to Arizona, Pauline
invested $500,000 for the specific purpose of opening an Arizona
dispensary. After M.P. allegedly unilaterally modified the agreement,
Pauline, Mark, and Tim decided to go into business together in Arizona
without M.P. Starting an Arizona medical marijuana business would also
allow Pauline to recoup losses from her investment with M.P.

¶4 In furtherance of their business endeavor and to avoid the
same problem they experienced with M.P., in February 2011, Pauline
drafted a joint venture agreement (“JV Agreement”) and presented it to the

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group to sign. The JV Agreement stated that Pauline, George, Mark, and
Tim were “entering into a Medical Marijuana business venture together”
and agreed on several terms, including that “[e]ach person will have equal
shares in the business, (33 1/3%), and all profits, mon[ies], etc., will always
be distributed equally.” The Henrys together held a one-third interest. The
JV Agreement, as drafted by Pauline, also provided that her daughter,
Rhonda Slater, and son, Roger Harris, were to be given positions managing
the dispensary and cultivation/grow facility. The record is unclear why
only Mark and George signed the JV Agreement at that time.

¶5 The group planned to open two dispensaries in Arizona. For
the first, in March 2011, they executed Articles of Incorporation (“Articles”)
for a non-profit entity called Absolute Healthcare Solutions (“Absolute”),
which later became the dispensary opened in Gilbert. The Articles listed
Mark, Pauline, and Michelle Hammer (Tim’s wife) as directors and stated
that Absolute “shall not have a membership.” Shortly thereafter, in mid-
April 2011, the group received communication from M.P., wherein he
accused Mark and Tim of stealing his business idea. Because of the group’s
concern that M.P. might sue once he learned of their business plans, it was
decided to amend Absolute’s Articles to remove any reference to Mark and
Tim.

¶6 Mark, Tim, and Pauline then sought legal assistance from
attorney Christine Forakis to assist them in completing the dispensary
applications to the state. In May 2011, at the group’s direction, Forakis
replaced the previous Articles for Absolute, removing any reference to
Mark and Tim and adopting a new name (Absolute Healthcare Facilities,
Inc.). They later shortened the name to Absolute Healthcare, Inc. In
pertinent part, the Articles stated that the initial board of directors consisted
of the Henrys only and that they would serve “until the first annual meeting
of the members, if a member corporation, or Board of Directors, if the
corporation has no members, or until their successors are elected and
qualifies[.]” The Articles stated that Absolute “shall have members” and
that the directors “shall have the power to provide in the Bylaws guidelines
for membership” including the manner of selection and voting rights. The
group subsequently executed Bylaws for Absolute, stating, in contrast to
the Articles, that Absolute “shall have no members.”

¶7 From May 2011 to January 2012, due to pending litigation,
Arizona’s medical marijuana program was suspended. In February 2012,
once the group was free to proceed, Pauline, George, Mark, and Tim signed
a new draft of the original JV Agreement (same terms as in February 2011),
and Mark, Tim, and Pauline signed attorney Forakis’ fee agreement and

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dual representation disclaimer forms. They submitted Absolute’s
dispensary application to the state, listing Mark, Tim, Pauline, and George
as employees. In April 2012, the group formed another non-profit entity
called Perpetual Healthcare, Inc. (“Perpetual”) that later opened in Wellton
as the group’s second dispensary. The public filings for Perpetual listed
Mark, Tim, and Pauline as directors.

¶8 Soon after, Pauline introduced Nolan to the group because he
had experience in cultivating marijuana and had capital to invest. Because
Nolan joined the group later, he had not signed the JV Agreement and was
not included on the Articles of either Absolute or Perpetual. The parties
agreed, however, that Nolan would be the “fourth partner” and the group
would split everything equally. In February 2013, the group formed a for-
profit entity to manage Absolute and Perpetual called PNTM Management
Services, LLC (“PNTM”). PNTM stood for Pauline, Nolan, Tim, and Mark.

¶9 By mid-May 2013 however, the group began having disputes
about various issues, including voting rights and the capital investments
each made to the business. Given these disagreements, the group’s effort
to execute an operating agreement for PNTM failed. In early June 2013, in
an attempt to resolve the group’s concerns, they executed promissory notes
from Absolute, PNTM, and Perpetual and a conflict of interest policy
reaffirming their commitment to each other and the venture. The group
agreed that instead of receiving profit sharing/distributions in repayment
of their investments, each would receive membership interests in PNTM.
That membership percentage in PNTM would then determine the manner
of distributions. Pauline agreed to reduce the repayment of her original
$500,000 investment to $300,000 in exchange for a 42.5% membership
interest. Nolan received a 37.5% interest, and Mark and Tim each received
a 10% interest. In essence, execution of the promissory notes changed the
split of profits each would receive from PNTM.

¶10 For the next several months, the group proceeded with their
venture, including holding “board meetings” in advance of the opening of
Absolute in Gilbert. But by September 2013, the group experienced
additional difficulties and began discussing a possible split. When RHH
requested an accounting for Absolute and PNTM from Pauline in her role
as the group’s “CFO,” she refused and said they were “strangers to the
business.” The group participated in an informal mediation, but it was
unsuccessful. In response, in October 2013, RHH sent the Henrys a demand
letter. The Henrys responded by stating that they were “the only board
members of Absolute” and had called the police to ensure “that nobody
trespasses on Absolute’s property.”

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¶11 In November 2013, RHH filed suit against the Henrys seeking
(1) injunctive relief as to the relationship between Absolute and PNTM and
a finding that PNTM was Absolute’s management provider, (2) declaratory
judgment that RHH were the co-owners of PNTM and members of
Absolute, and (3) an accounting of the entities. The Henrys answered and
counterclaimed for (1) declaratory judgment regarding the control of
Absolute and PNTM, (2) accounting of Absolute and PNTM, (3) breach of
fiduciary duty, (4) fraud, (5) unjust enrichment, (6) conversion, (7) aiding
and abetting, (8) consumer fraud, (9) securities fraud, and (10) conspiracy.

¶12 In January 2014, the superior court granted RHH’s
preliminary injunction and appointed a receiver for Absolute and PNTM.
The receiver then appointed Mark, Tim, and Nolan to oversee business
operations for Absolute and PNTM during litigation. The parties
eventually agreed (1) to dismiss most of the Henrys’ counterclaims
(counterclaim counts 4-10), and stipulated that RHH would be the
prevailing parties on those counterclaims and could apply for attorneys’
fees, costs, and sanctions; (2) to dismiss the Henrys’ breach of fiduciary duty
claim (counterclaim count 3); and (3) that the accounting claims of both
parties were moot (count 3 and counterclaim count 2).

¶13 Pursuant to the stipulated order and joint pretrial statement,
the only remaining contested issues for the jury were declaratory judgment
regarding (1) the identity of the members of Absolute’s board of directors,
(2) the identity of the members of Absolute, and (3) whether PNTM was the
exclusive management services provider for Absolute.

¶14 After an eight-day jury trial in August and September 2015,
the jury found that (1) PNTM was the exclusive management services
provider for Absolute; (2) Absolute’s board of directors consisted of Tim,
Nolan, Mark, Pauline, and George; and (3) Absolute’s members were Tim,
Nolan, Mark, Pauline, and George. Final Judgment was entered in June
2016, and the court awarded RHH attorneys’ fees and costs, plus interest,
in the amount of $651,454.51. The Henrys unsuccessfully moved for
judgment as a matter of law and for a new trial under Arizona Rules of Civil
Procedure 50(b) and 59(a)(8).1

1 We cite to the procedural rules in effect at the time of trial in 2015.

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¶15 The Henrys timely appealed. We have jurisdiction pursuant
to Article 6, Section 9, of the Arizona Constitution and A.R.S. §§ 12-
120.21(A)(1) and -2101(A)(1).

DISCUSSION

I. Standard of Review

¶16 We review the denial of a motion for new trial based on the
verdict being against the weight of evidence for an abuse of discretion.2
Dawson v. Withycombe, 216 Ariz. 84, 95, ¶ 25 (App. 2007). And in reviewing
a jury verdict, we view the evidence in the light most favorable to sustaining
the verdict and will affirm if substantial evidence supports the verdict.
Warrington v. Tempe Elementary Sch. Dist. No. 3, 197 Ariz. 68, 69, ¶ 4 (1999).
Substantial evidence is proof that permits reasonable persons to reach the
jury’s result. In re Estate of Pouser, 193 Ariz. 574, 579, ¶ 13 (1999).

II. Absolute’s Membership and Board of Directors

¶17 The Henrys argue that the superior court erred in entering
judgment that the parties’ JV Agreement determined the board composition
and membership of Absolute, a medical marijuana non-profit, because
governance of a non-profit is controlled by statute and the jury’s verdict
adding additional members and directors to Absolute is contrary to law.3

2 The Henrys argue that the superior court erred in denying their
motion for judgment as a matter of law (“JMOL”). Because the Henrys
failed to properly present a JMOL before the superior court, except for one
narrow argument related to shared losses, we deem it waived and do not
address it. See Trantor v. Fredrikson, 179 Ariz. 299, 300 (1994) (“Because a
trial court and opposing counsel should be afforded the opportunity to
correct any asserted defects before error may be raised on appeal, absent
extraordinary circumstances, errors not raised in the trial court cannot be
raised on appeal.”); Englert v. Carondelet Health Network, 199 Ariz. 21, 26, ¶
13 (App. 2000) (“we generally do not consider issues . . . raised for the first
time on appeal”). As for the Henrys’ preserved argument that the group
did not agree to share losses, and, thus, RHH failed to establish a joint
venture, we discuss it supra ¶¶ 40-47.

3 The Henrys argue that the superior court erred in finding that the
parties’ JV Agreement controlled Absolute’s membership and board of
directors because no evidence indicated that Absolute submitted additional

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Specifically, the Henrys contend that Absolute’s Articles listed only them
as the initial board of directors, additional directors must be added
pursuant to A.R.S. § 10-3804, and the Bylaws state that it will not have
members. Thus, because the Henrys did not elect Mark, Tim, and Nolan as
directors and no evidence indicated the Bylaws were amended to allow for
membership, the jury verdicts naming Mark, Tim, and Nolan as directors
and members are contrary to law. We disagree.

¶18 Among other things, a corporation’s articles of incorporation
must set forth the initial board of directors and whether it will have
members. See A.R.S. § 10-3202(a)(6), (7). A corporation’s bylaws “may
contain any provision . . . that is not inconsistent with . . . the articles of
incorporation.” A.R.S. § 10-3206(B). Additional directors may be added
pursuant to A.R.S. § 10-3804 as follows:

A. If the corporation has members, the members shall elect all
the directors except the initial directors at the first annual
meeting of members, and at each annual meeting after the
first annual meeting[.]

B. If the corporation does not have members, all the directors
except the initial directors shall be elected, appointed or
designated as provided in the articles of incorporation or

names of directors in its dispensary renewal certificate to the state under
the Arizona Administrative Code. Because the Henrys failed to raise this
argument before the superior court, however, we deem it waived and do
not address it. See Trantor, 179 Ariz. at 300; Englert, 199 Ariz. at 26, ¶ 13.
Moreover, the Henrys fail to cite any authority for the proposition that the
reporting requirements for medical marijuana dispensaries under the
Arizona Administrative Code control the governance of a non-profit legal
entity. As such, we deem it waived. See ARCAP 13(a)(7)(A) (stating that
the opening brief must include an “[a]ppellant’s contentions concerning
each issue presented for review, with supporting reasons for each
contention, and with citations of legal authorities and appropriate
references to the portions of the record on which the appellant relies”).

Also, in their opening brief, the Henrys argue that the superior court erred
in (1) entering judgment that PNTM was the exclusive management
services provider for Absolute because the arrangement is illegal under
Arizona law; and (2) approving the receiver’s final report, accountings, and
tax returns. Because both issues have been dismissed on appeal by the
parties, we do not address them.

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bylaws. If no method of designation or appointment is set
forth in the articles of incorporation or bylaws, the board of
directors shall elect the directors other than the initial
directors.

¶19 Here, the Henrys were listed as the initial directors on
Absolute’s Articles. The Articles stated that Absolute “shall have
members,” whereas the Bylaws stated it “shall have no members.” When
the Articles and Bylaws conflict, the Articles control. See A.R.S. § 10-
3206(B). Thus, Absolute has members, and, under § 10-3804(A), those
members elect the directors.

¶20 The primary issue at trial was whether the parties had an
enforceable contract — RHH alleged that the parties entered a binding JV
Agreement to operate a medical marijuana business, whereas the Henrys
alleged that no enforceable agreement existed and, even if it did, RHH
forfeited any such rights when they abandoned the business. The parties
agreed, both in the stipulated order/joint pretrial statement and jury
verdict forms, that based on whether they entered into an enforceable
contract, the jury would have to specifically identify Absolute’s members
and directors.

¶21 Whether a contract exists, including whether the parties had
a meeting of the minds and intended to be obligated, is “to be determined
in case of doubt, not only from the words used, but also from the situation,
acts and conduct of the parties, and from the attendant circumstances.”
Malcoff v. Coyier, 14 Ariz. App. 524, 526 (1971); see also Schade v. Diethrich, 158 Ariz. 1, 9 (1988) (“ultimate element of contract formation—the question
whether the parties manifested assent or intent to be bound.”). A written
agreement is not required where one party has undertaken acts in reliance
on and consistent with the agreement. Owens v. M.E. Schepp Ltd. P’ship, 218
Ariz. 222, 226, ¶¶ 15-16 (2008). Such acts establish the existence of a contract
“only if they cannot be explained in the absence of the contract.” Id. at ¶ 16.

¶22 “A joint venture is formed when two or more parties agree to
pursue a particular enterprise in the hope of sharing a profit.” Ellingson v.
Sloan, 22 Ariz. App. 383, 386 (1974). “There are five specific elements which
must be present in order to establish a joint venture: (1) a contract, (2) a
common purpose, (3) a community of interest, (4) an equal right of control
and (5) participation in both profits and losses.” Id. “A contract of joint
venture may be express or implied . . . [and] is founded upon a mutual
understanding between the parties that they will associate themselves in a

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particular venture, and their intent to do so may be inferred from their
conduct.” Id. at 387.

¶23 Over eight days, the jury heard extensive testimony from
eight witnesses and 368 exhibits were received into evidence.

A. Tim’s Testimony

¶24 Tim testified that the group formed a partnership when they
first decided to move forward with the medical marijuana business after
the M.P. agreement ended. Additionally, Tim understood that when
Pauline drafted the JV Agreement, she wanted to make clear that her intent
was for the group to have equal partnership shares from that day forward.
At no time did Pauline place conditions or restrictions on that business
relationship. Tim testified that he and Mark together initially invested
approximately $150,000, and while Arizona’s medical marijuana program
was suspended, the group used that money to pay rent and utilities at the
Absolute and Perpetual locations to preserve those sites with the cities. He
admitted that from November 2012, the group did not invest equal amounts
into the business. However, the disparate contributions only changed the
percentage everyone would receive in PNTM profits, as evidenced by the
promissory notes. It did not, in Tim’s view, change their original agreement
to be equal partners in all the companies.

¶25 With respect to his name’s removal from Absolute’s Articles,
Tim testified that he and Mark became concerned after receiving
communications from M.P. threatening litigation. Thus, it was
recommended that the group remove them from the Articles. But the fact
that the Henrys were listed as the only directors did not change the group’s
partnership agreement of equal splits. When asked why they kept their
names off the Absolute filings, but included them on the Perpetual filings,
Tim explained that Absolute was to be in Gilbert, a desirable location,
whereas Perpetual was to be in Wellton, a less desirable location, viewing
it as a “sacrificial lamb” if M.P. tried to interfere. Tim reiterated this still
did not change the equal 1/3 joint venture partnership, stating they “were
partners on all the entities. So it didn’t matter who was on what . . . We
verbalized it. We talked about it several times. So we were partners. We
were always partners.” Tim denied the need to have a side agreement with
Pauline documenting that he and Tim would be added back on Absolute’s
Articles after it opened “[b]ecause we trusted Pauline. I mean, we were all
partners” operating on “devotion, money, contributions, everything that
the four of us had put together to move the business to the next level.”

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¶26 Tim testified the relationship with Pauline began to
deteriorate a few weeks after Absolute opened. He, Mark, and Nolan
worried that Pauline’s children (Rhonda and Roger) did not have the
experience or skills necessary to carry out their roles as dispensary and
cultivation managers. When they discussed it with Pauline, “all hell broke
loose.” She became angry and told them that Roger would be the
cultivation manager, “[i]t’s my building and that’s it.”

B. Mark’s Testimony

¶27 Mark testified that before the group could form legal entities
or submit dispensary applications, the state required applicants to secure
physical site locations. In that effort, before the group formed Absolute,
Mark negotiated the real property leases and paid the security deposits.
While the medical marijuana program was suspended, Mark said they
continued to pay rent on the real property locations and, by October 2011,
he had invested $140,000 to keep the venture running. During that delay,
Mark testified he stayed in constant communication with Pauline, and
believed they were still in a partnership relationship/business venture
together because they all behaved like they were still partners. Mark said
he interpreted the JV Agreement to mean that “we were all partners. We
were all married. We were all going to go through the challenge of getting
to the end of the line together.”

¶28 After receiving communication from M.P. accusing them of
stealing his business idea, Mark said he did not want to use the original
Absolute Solutions entity for the dispensary application because his and
Tim’s names were listed, and he was concerned about M.P.’s “vicious ways
that . . . would create some sort of turmoil somewhere that would either get
an application slid to the side or otherwise.” When the group met to discuss
M.P. and the next step, everyone agreed to remove Mark and Tim’s names
from the Articles. Mark controlled the lease to the Gilbert facility location,
but he agreed to have Absolute tied to that location even though only the
Henrys were listed on the Articles because he “100 percent trusted the fact
that we were partners. We were partners in every aspect of this entire
endeavor.” Mark testified that if Pauline had said that he and Tim were not
on Absolute’s board and would never be, he would have acted differently.
He would have directed that Perpetual be designated the dispensary tied
to the Gilbert location because he was on Perpetual’s filings and Gilbert
would be more lucrative as more medical marijuana patients lived in that
area. Moreover, Mark testified he would not have devoted all the effort into
getting Absolute up and running in Gilbert if he was not on the board.

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¶29 Mark confirmed that when Nolan joined the group, they all
agreed that he would be the fourth partner. This meant that each partner
would receive 25% of “whatever the business was, whatever it was going
to be, however many entities attached to it, we were all going to be partners
and owners and decision makers.” Mark testified that Pauline and Nolan
started having friction over Nolan’s concerns about Pauline’s son (Roger)
and his ability to run the cultivation facility. When the group discussed
Nolan’s concerns, Pauline became upset, and it created a problem within
the group. Mark testified that at the group’s informal mediation in
September 2013, he learned that Pauline had previously retained counsel.
Mark said he felt “strung along” because he had been working to finish
building the business while Pauline had already retained counsel. Mark
testified they were asking to be added to Absolute as directors and
members because “[t]hat was our agreement . . . [t]hat was our commitment
to each other. That was the whole purpose of all the work and effort and
the time.”

C. Nolan’s Testimony

¶30 Nolan testified that he met Pauline through her son, Roger.
Roger was interested in the medical marijuana business and began working
at Nolan’s cultivation/grow facility. Nolan testified that Pauline also
wanted Roger to learn about cultivation to become a grower and manage a
grow facility. Nolan and Pauline agreed to each pay half of Roger’s salary.
Nolan confirmed that when he joined the group, he became the fourth
partner, meaning he was a member and a director of Absolute. He denied
Pauline’s claim that he was required to meet certain conditions in order to
be added as a member and director of Absolute. Nolan testified by the time
Absolute opened, he had invested $450,000. Nolan believed the breakdown
with Pauline occurred when he expressed concerns about Pauline’s
children and their capabilities as dispensary and cultivation managers.
Nolan said Pauline told him she was worried that if Roger was not the first
employee at the cultivation facility, Roger would no longer speak to her and
she could not afford this to impact her relationship with Roger.

D. Pauline’s Testimony

¶31 In contrast, Pauline testified that Nolan, Mark, and Tim were
never partners with her and George, but, they all were “members together.”
She denied having a joint venture partnership with them for any entity, and
denied ever having “board meetings” with them for Absolute. Pauline
explained those meetings were for PNTM only. Pauline testified that she
insisted that Nolan, Mark, and Tim not be on Absolute’s board of directors

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and would not have moved forward with this endeavor if they were board
members. She explained that she had lost a lot of money in the deal with
M.P. and “needed some security.” Pauline stated she told Nolan, Mark,
and Tim that she would only consider putting them on the board if she was
repaid her $500,000. She said she told Nolan that if he ceased operating his
own medical marijuana cultivation facility/caregiving business, she would
consider adding him to Absolute’s board, but he never met those
conditions; and the first time she heard Mark, Tim, and Nolan demanding
to be on Absolute’s board was in their attorney’s demand letter in October
2013. Pauline admitted that for her $500,000 investment in M.P.’s Colorado
dispensary, she owns 2.5% of his company, but had yet to inquire about the
status of M.P.’s operation.

¶32 Pauline admitted that she allowed Mark and Tim to decide
whether to keep their names listed on Absolute’s Articles, but denied she
was ever told that they were concerned that M.P. would interfere in their
business plan. She also stated that the group was not discussing taking
Mark and Tim off the Articles because of M.P. Pauline said the idea that
Mark and Tim were listed on Perpetual’s filings and not Absolute’s because
Gilbert was more lucrative is “not only ridiculous, it really doesn’t even
calculate.” Pauline testified that Mark and Tim were listed as Perpetual’s
initial board of directors and subsequently added her to the board. She
explained that she originally was not intended to be on Perpetual’s board,
but when the group applied for the dispensary license, they needed to show
financial backing of $150,000 and she was only one with sufficient capital.
Pauline admitted that Mark and Tim could have removed her from
Perpetual’s board by a vote of 2-to-1, but did not. In fact, she was asked to
attend Perpetual’s board meeting, but when she demanded that she be
allowed to bring her attorney and a court reporter, the invitation was
rescinded.

¶33 Pauline testified that in November 2012, Mark and Tim
advised her they were unable to continue to contribute or invest in the
endeavor. At that point, Pauline said the original business venture
agreement changed; she could no longer split profits evenly because Mark
and Tim “dumped everything on me” and broke their agreement “in so
many ways it was amazing.” Pauline said that after the informal mediation
in late 2013 failed, Mark, Tim, and Nolan did not return to work and left
her to run the business. She denied telling Mark, Tim, and Nolan that they
could not come back to work.

¶34 Pauline testified that she originally agreed to invest $1 million
in M.P.’s Colorado endeavor “to get a nice job” for herself, her son, and her

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daughter, and admitted incorporating jobs for her children into the JV
Agreement because that was something she wanted as part of the venture
with Mark and Tim. In fact, Pauline’s daughter (Rhonda Slater) and her
son (Roger Harris) were listed on Absolute’s dispensary application to the
state and received positions at the dispensary when it opened. Although
Rhonda received a job as intended pursuant to the JV Agreement, Roger
did not because Mark, Tim, and Nolan hired someone with more
experience to manage the cultivation facility. Pauline admitted to hiring
someone to help her son fulfill his role in the cultivation facility, but denied
that Mark, Tim, and Nolan concurrently had concerns about Roger’s
competence. She also denied that her conflicts with the group stemmed
from her fear that her children would lose their jobs. Pauline admitted that
in early 2014 (after RHH’s lawsuit was filed but before the injunction was
granted), she and George held a board meeting for Absolute. The only
business conducted was to add Pauline’s children and other family
members to Absolute’s board. The Henrys held no other Absolute board
meetings.

E. George’s Testimony

¶35 George testified that when the group first decided to start a
medical marijuana business and Pauline drafted the JV Agreement in
February 2011, it was agreed to proceed with the business, including
Absolute, as partners. The partnership formed as of February 2011,
included Mark, Tim, Pauline, and George. Additionally, George confirmed
that when Pauline brought Nolan into the partnership, it was agreed Nolan
would be the fourth partner and he, Pauline, Mark, Tim, and Nolan were
equal partners with equal rights in Absolute, Perpetual, and PNTM.
Despite being equal partners with equal rights, George testified that he
never agreed that Mark, Tim, and Nolan were to be members or directors
of Absolute, and only discussed adding them “if certain things had
happened.” George stated he and Pauline eventually added family
members to Absolute’s board of directors. He testified that the original
agreement to be equal partners ceased in June 2013 when Mark, Tim, and
Nolan had no more money to invest in the venture and the group executed
the promissory notes. George admitted, however, that personally he was
“not involved hardly at all” in this business enterprise, had no personal
knowledge of what was discussed at the various meetings, having attended
only one or two meetings with Mark and Tim in 2011, and his
understanding about the venture was an assumption based on
conversations he had with Pauline.

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F. Jury Instructions and Verdicts

¶36 The jury was instructed on contract and joint venture law.
During deliberations, the jury returned with a question: “It’s our
understanding that the bylaws are in conflict with the articles. We wanted
to know if the members of Absolute have the power to control the makeup
of the board of directors for Absolute Healthcare.” The court and counsel
engaged in a lengthy discussion, with the Henrys’ counsel stating, “there
are no members and assuming, I guess, that they want to claim people are
members, then I think the members -- yes, the members could then vote the
board of directors. I think we’re all in agreement on that. I think that’s the
only way you can answer it.” Upon which the court instructed the jury “if
the jury determines that there are members of Absolute [Healthcare], those
members would have the power to control the makeup of the board of
directors for Absolute Healthcare.”

¶37 Based on the evidence presented, the jury could reasonably
conclude that the parties had an enforceable agreement, through written
documentation, words, and actions, to form a joint venture partnership to
operate a medical marijuana business. See In re Estate of Reinen v. N. Ariz.
Orthopedics, Ltd., 198 Ariz. 283, 287, ¶ 12 (2000) (“The credibility of a
witness’ testimony and the weight it should be given are issues particularly
within the province of the jury.”) (citation omitted). Because Absolute’s
Articles stated that it “shall have members,” the jury properly found that
the members of Absolute were Pauline, George, Mark, Tim, and Nolan, and
that those members chose the directors. Thus, the superior court did not
abuse its discretion in entering judgment in favor of RHH and denying the
Henrys’ motion for a new trial.

¶38 Nevertheless, the Henrys contend that because the first JV
Agreement of February 2011 was signed by George and Mark only, it was
invalid. Thus, because Absolute was formed before the second JV
Agreement was signed by all the parties in February 2012, the JV
Agreement is an “illegal attempt to circumvent the non-profit corporation
act” by amending an existing entity by agreement, not by statute. The
Henrys cite Conn v. Bates, 1 CA-CV 13-0737, 2015 WL 7454096, * 1, ¶ 1 (Ariz.
App. Nov. 25, 2015) (mem. decision) and Vortex Corp. v. Denkewicz, 235 Ariz.
551 (App. 2014) for support. Their reliance is misplaced as both cases rely
on the documents specific to those parties and are factually distinguishable
from the situation here. See Conn, 1 CA-CV 13-0737, at * 1, ¶¶ 1-2 (LLC
created before parties met or had any type of relationship — new
membership interest must be added pursuant to operating agreement of
LLC created before new employee was hired); Vortex, 235 Ariz. at 554, ¶¶

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4-5 (LLC created before parties met or had any type of relationship —
terminated employees seeking additional stock interest under LLC’s
operating agreement).

¶39 Here, the JV Agreement, Articles, and words and conduct of
the parties control. The jury was instructed, and the relevant case law
holds, that the parties’ agreement to enter a joint venture together need not
be written. See Owens, 218 Ariz. at 226, ¶¶ 15-16. Meaning, the jury could,
and apparently did, conclude that the parties agreed to enter into a joint
venture together in early 2011 through their actions, notwithstanding that
the original draft of the JV Agreement was not signed by all parties.
Substantial evidence in the record supports the jury’s verdicts.

III. Sharing of Profits and Losses

¶40 The Henrys argue the superior court erred in denying their
motion for judgment as a matter of law (“JMOL”) and motion for a new
trial because there can be no joint venture (which requires sharing of profits
and losses) of Absolute because, by its very nature, the parties cannot share
profits of a non-profit, and no evidence produced at trial proved the parties
agreed to share losses. We disagree.

¶41 We review whether the superior court should have granted a
JMOL motion de novo. A Tumbling-T Ranches v. Flood Control Dist. of
Maricopa Cnty., 222 Ariz. 515, 524, ¶ 14 (App. 2009). A JMOL motion should
be granted “if the facts produced in support of the claim or defense have so
little 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.” Id. (citation omitted).

¶42 At the close of a party’s case-in-chief, if “there is no legally
sufficient evidentiary basis for a reasonable jury to find for that party . . .
the court may . . . grant a motion for judgment as a matter of law against
that party with respect to a claim or defense that cannot under the
controlling law be maintained or defeated without a favorable finding on
that issue.” Ariz. R. Civ. P. (“Rule”) 50(a). Under Rule 50(b), if the court
denies a party’s Rule 50(a) motion and the case is submitted to the jury, that
party may renew its motion and request that the court decide the legal
questions raised in the initial motion.

¶43 The Henrys made an oral JMOL motion at the close of RHH’s
case-in-chief. They argued only that RHH had failed to prove that the
parties agreed to share losses as required for a joint venture — a narrow

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issue. After substantial argument and taking the matter under advisement,
the superior court denied the motion.

¶44 To establish a joint venture, there must exist, among other
things, participation in both profits and losses. Ellingson, 22 Ariz. App. at
386. “The term ‘losses’ is not limited to monetary losses, but includes time
expenditures and out-of-pocket expenses[.]” Id. The parties’ JV Agreement
stated, “[e]ach person will contribute equal amounts of money for all start
up expenses,” and that “an accounting will be presented exhibiting . . . all
expenses paid out to date for the business.”

¶45 Evidence at trial showed that all parties, including Tim, Mark,
and Nolan, had significant losses throughout this endeavor. Tim testified
that without compensation, he met with the zoning authorities in Gilbert
and Wellton, retained an architect to create plans for submission to both
cities for approval, obtained permits for construction, and oversaw
inspection and construction. Mark testified that without pay, he oversaw
and maintained the real property leases, worked with the landlords,
worked on construction issues, met with the city managers, and by October
2011 had invested approximately $140,000. Nolan testified that also
without pay, he designed the cultivation facility and dispensaries, worked
with the architects and engineers, and trained employees. And, as
evidenced by the promissory notes, the group loaned the business
significant sums of money — Mark was owed $150,000, Nolan was owed
$500,000, Tim was owed $150,000, and Pauline was owed $300,000.

¶46 As for the sharing of profits, the Henrys argue that there can
be no joint venture of Absolute because the parties cannot share profits of a
non-profit. The Henrys, however, fail to cite any authority for the
proposition that the parties cannot agree to share profits from another
entity that is part of the same joint venture, such as PNTM. The JV
Agreement stated that “[e]ach person will have equal shares in the business,
(33 1/3%), and all profits, mon[ies], etc., will always be distributed
equally.” Evidence at trial showed that the group understood that the for-
profit entity PNTM would own all the assets, and profits would be
distributed from PNTM. Pauline stated that “[a]ll the assets are going to
belong to the Management Company as I understand it[.]”

¶47 For the forgoing reasons, the superior court did not err in
denying the Henrys’ JMOL motion.

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IV. Attorneys’ Fees

¶48 The Henrys argue the superior court erred in granting RHH’s
attorneys’ fees under A.R.S. § 12-341.01. Specifically, the Henrys contend
that none of RHH’s claims nor their own counterclaims arise out of contract,
the amount of fees requested was unreasonable, and the court awarded the
entire requested amount without explanation.

¶49 We review the application of § 12-341.01 de novo and the
amount of an award of attorneys’ fees for an abuse of discretion. Dooley v.
O’Brien, 226 Ariz. 149, 152, ¶ 9 (App. 2010). “In any contested action arising
out of a contract, express or implied, the court may award the successful
party reasonable attorney fees.” A.R.S. § 12-341.01(A). The stated public
policy behind awarding fees under § 12-341.01(A) is “to mitigate the burden
of the expense of litigation to establish a just claim or a just defense.” A.R.S.
§ 12-341.01(B). In determining whether the claim is one “arising out of a
contract,” we look to the nature of the action and the surrounding
circumstances, regardless of the form of the pleadings. Marcus v. Fox, 150
Ariz. 333, 335 (1986); see also Rudinsky v. Harris, 231 Ariz. 95, 101, ¶ 27 (App.
2012) (action considered to have arisen out of contract when plaintiff asserts
a contract); Associated Indem. Corp. v. Warner, 143 Ariz. 585, 589 (App. 1983)
(declaratory judgment action is action arising out of contract within the
meaning of A.R.S. § 12-341.01) mod. on other grounds, 143 Ariz. 567 (1985);
Nationwide Mut. Ins. Co. v. Granillo, 117 Ariz. 389, 394 (App. 1977) (fees
awarded for declaratory judgment action under A.R.S. § 12-341.01).

¶50 This action arose out of a controversy between RHH and the
Henrys as to the meaning of the parties’ agreements. In their complaint,
RHH sought a determination of their rights, status, and legal relationship
to the effect that the parties agreed they would be members and directors
of Absolute — a contract. Specifically, RHH alleged the Henrys “promised”
that RHH would be members of Absolute, further “promised” to put that
in writing, and the Henrys “breached their promises.” Thus, RHH brought
this action to adjudicate facts and law regarding the parties’ JV agreement,
words, and conduct throughout this endeavor. In RHH’s motions for
summary judgment, they confirmed they sought declaratory judgment
under the “writings constituting a contract,” including the JV Agreement,
that “it was agreed that [RHH] would be on Absolute’s board[.]”

¶51 The Henrys contend none of their counterclaims arose out of
contract. They counterclaimed for (1) declaratory judgment regarding the
control of Absolute and PNTM, (2) accounting of Absolute and PNTM, (3)
breach of fiduciary duty, (4) fraud, (5) unjust enrichment, (6) conversion, (7)

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aiding and abetting, (8) consumer fraud, (9) securities fraud, and (10)
conspiracy. In their counterclaim, the Henrys sued not only Mark, Tim, and
Nolan, but also Mark’s company, Mark’s daughter (Devon), and Tim’s wife
(Michelle) for the various torts listed. From January 2015 to May 2015, the
parties filed at least 23 motions and cross motions for summary judgment,
responses, and replies on the Henrys’ counterclaims. During the summary
judgment proceedings, RHH continuously claimed the parties had a
contract. For example, RHH alleged that the Henrys’ counterclaim for
unjust enrichment cannot be maintained where the parties have a contract,
and here, “there is and always has been a contractual relationship between
[RHH] and the Henrys[.]” At oral argument in May 2015 on the summary
judgment motions, the parties stipulated to dismiss counts 4-10 of the
Henrys’ counterclaims. They also agreed that RHH “will be the prevailing
parties on the counterclaims after the dismissal and the [Henrys] agree that
[RHH] may apply for attorneys’ fees, costs, and sanctions and the Court
may consider those issues.” Of note, the record on appeal includes only the
minute entry of the oral argument, not the transcript. Because the Henrys
failed to provide a copy of the transcript, we presume it supports the court’s
subsequent grant of attorneys’ fees to RHH based on the parties’
stipulation. See In re Mustonen’s Estate, 130 Ariz. 283, 284 (App. 1981);
ARCAP 11 (a party is responsible for making certain the record on appeal
contains all transcripts or other documents necessary for us to consider the
issues raised on appeal).

¶52 The only remaining claim and counterclaim for trial were
mirror images of declaratory judgment relief as to the members and
directors and control of Absolute. The Henrys’ breach of fiduciary duty
claim had been previously dismissed and the parties agreed that both
claims for an accounting were moot.

¶53 The joint pretrial statement and statement of the case, which
was read to the jury, reiterated and verified that this case was a contract
dispute. RHH alleged that they and the Henrys “entered into a joint
venture agreement to operate [] medical marijuana dispensaries and
cultivation facilities in Arizona, including one called Absolute Healthcare.”
And they alleged “according to the parties’ joint venture agreements,”
Pauline and RHH would be members and directors of Absolute. Whereas,
the Henrys alleged that “there is no enforceable agreement for them to be
members and directors of Absolute[.]”

¶54 The Henrys argue that because RHH did not request
attorneys’ fees in their complaint, they are precluded from receiving them.
We disagree. A claim for attorneys’ fees must be made in the pleadings,

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which includes an answer to a counterclaim. See Ariz. R. Civ. P. 54(g)(1)
(“A claim for attorney’s fees must be made in the pleadings.”); Ariz. R. Civ.
P. 7(a) (answer to a counterclaim is a “pleading”). In RHH’s answer to the
Henrys’ counterclaims, they requested attorneys’ fees pursuant to § 12-
341.01. In fact, despite the Henrys’ assertion that none of RHH’s claims nor
their own counterclaims arise out of contract under § 12-341.01, in their
answer and counterclaim, they too requested attorneys’ fees under § 12-
341.01 “resulting from and incurred as a result of defendants’ breach and
other wrongful actions[.]” Moreover, the pretrial statement stipulated this
was a dispute whether there was an enforceable agreement, controlling the
subsequent litigation and amending the pleadings. See Carlton v. Emhardt, 138 Ariz. 353, 355 (1983) (“The pretrial statement controls the subsequent
course of the litigation . . . ha[ving] the effect of amending the pleading[.]”)
(internal citations omitted).

¶55 By the conclusion of trial, RHH was the successful party on
all claims and counterclaims, either by jury verdict, stipulation to dismiss
with an express agreement that RHH could seek attorneys’ fees, or order of
the court. Considering the nature of the action, surrounding circumstances,
and evidence produced at trial, this case arose out of contract, whether
express or implied. The superior court properly applied § 12-341.01 in
awarding RHH’s attorneys’ fees.

¶56 The Henrys also argue the amount of fees requested was
unreasonable and the court abused its discretion by awarding the entire
requested amount without explanation. The Henrys, however, fail to cite
any authority or develop any argument why the award of $651,454.51, plus
interest, was unreasonable or the court was required to explain its
reasoning. Thus, we deem such arguments waived and do not address
them. See City of Tucson v. Clear Channel Outdoor, Inc., 218 Ariz. 172, 195, ¶
88 (App. 2008) (noting that an appellate court will not address issues or
arguments waived by party’s failure to develop them adequately); see also
ARCAP 13(a)(7)(A) (stating that the opening brief must include an
“[a]ppellant’s contentions concerning each issue presented for review, with
supporting reasons for each contention, and with citations of legal
authorities and appropriate references to the portions of the record on
which the appellant relies”).

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CONCLUSION

¶57 For the foregoing reasons, we affirm the superior court’s
judgment in favor of RHH. RHH requests attorneys’ fees and costs on
appeal under A.R.S. §§ 12-341, -341.01, and -342. In the exercise of our
discretion, and based upon our determinations above, because RHH is the
successful party on appeal, we award them a reasonable amount of
attorneys’ fees and costs incurred on appeal upon compliance with ARCAP
21.

AMY M. WOOD • Clerk of the Court
FILED: AA

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