Stratton v. Burton

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

STRATTON RESTORATION LLC, et al., Third-Party Plaintiffs/Appellees,

v.

BRIG BURTON, et al., Third-Party Defendants/Appellants.

No. 1 CA-CV 20-0455
FILED 4-28-2022

Appeal from the Superior Court in Maricopa County
No. CV2015-051357
CV2015-051698
The Honorable Andrew J. Russell, Judge

VACATED AND REMANDED

COUNSEL

Manolio & Firestone PLC, Scottsdale
By Veronica L. Manolio
Counsel for Third-Party Plaintiffs/Appellees

Mark Deatherage Law Office, Phoenix
By Mark Deatherage
Counsel for Third-Party Defendants/Appellants
 STRATTON, et al. v. BURTON, et al.
Decision of the Court

MEMORANDUM DECISION

Presiding Judge D. Steven Williams delivered the decision of the Court, in
which Judge Jennifer B. Campbell and Judge James B. Morse Jr. joined.

W I L L I A M S, Judge:

¶1 Brig and Carly Burton (the “Burtons”) appeal the superior
court’s award of attorney’s fees and costs against them. For reasons that
follow, we vacate the award and remand.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 In 2014, two of Brig Burton’s companies, 363, LLC, d/b/a The
363 Group, and 363 Business Alliances, LLC (collectively the “363 Entities”)
entered into contracts to purchase Stratton Restoration, LLC. When the
purchase did not materialize, the 363 Entities and Stratton Restoration,
LLC, including its principals, TK and Michelle Stratton (collectively the
“Strattons”), filed claims against each other in the superior court. The
Strattons also filed a third-party claim against the Burtons personally.
Meanwhile, the Burtons petitioned for Chapter 13 Bankruptcy protection in
the U.S. Bankruptcy Court. Following notice of the Burtons’ bankruptcy
filing, the superior court placed this case on its dismissal calendar.

¶3 In 2018, while the bankruptcy was pending, the 363 Entities,
the Strattons, the Burtons, and Kevin Erdmann (who was involved in
unrelated litigation against the Burtons) entered into a global settlement
agreement (the “Agreement”). The Burtons personally owed non-party
Erdmann $35,000.00, which the Strattons agreed to pay in exchange for an
end to all pending or future claims between the signatories. The Burtons
signed the Agreement for themselves, and Brig Burton signed for the 363
Entities. The Strattons timely paid off the Burtons’ debt to Erdmann in
accordance with the terms of the Agreement.

¶4 No one informed the superior court of the Agreement, and in
March 2019, the court dismissed the case for failure to prosecute. Several
months later, the 363 Entities moved for relief from the court’s dismissal
claiming the excusable neglect of legal staff caused missed deadlines that
could have taken the case off of the dismissal calendar. See Ariz. R. Civ. P.
60(b)(1). The motion did not mention the Agreement and asserted that the

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Decision of the Court

Strattons would not be prejudiced by reinstatement. Over the Strattons’
objection, the court vacated its dismissal order and reinstated the case.

¶5 The Strattons then moved to enforce the Agreement, dismiss
the matter, and requested their attorney’s fees and costs under the terms of
the Agreement and A.R.S. §§ 12-341, -341.01, and -349. After briefing, the
court entered judgment in favor of the Strattons. The 363 Entities did not
contest the amount of fees or costs sought and did not object to entry of an
award under the Agreement or A.R.S. § 12-341.01. The 363 Entities did,
however, object to any fee award under A.R.S. § 12-349. The court awarded
the Strattons $11,472.63 in fees under both A.R.S. § 12-341.01 and under the
terms of the Agreement, as well as $50.63 in costs.

¶6 The Strattons lodged a proposed form of judgment obligating
not just the 363 Entities for the attorney’s fees and costs, but also the Burtons
personally. Once the court endorsed the judgment, the Burtons appealed to
this court. We have jurisdiction under Article 6, Section 9, of the Arizona
Constitution and A.R.S. § 12-120.21.

DISCUSSION

¶7 The Burtons argue the superior court erred by awarding fees
and costs against them because they were: (1) not parties to the underlying
business dispute, (2) not named in the fee application, and (3) not named in
the minute entry ruling granting the fee award. First, the record makes clear
the Burtons became a party when the Strattons sued them personally in
their counterclaim. Second, though the fee application requested that fees
“be imposed against both Plaintiffs” (meaning both 363 Entities) and their
counsel, the Strattons’ original request for fees and costs also named “the
Burtons and counsel.” Third, while the court’s minute entry does not
specify the Burtons were obligated personally for the fee and cost award,
the judgment clearly does.

¶8 We review an award of attorney’s fees and costs for an abuse
of discretion. Maleki v. Desert Palms Prof’l Props., L.L.C., 222 Ariz. 327,
333-34, ¶ 32 (App. 2009). “However, we review questions of law, including
the superior court’s authority to award attorney’s fees and contract
interpretation, de novo.” Bennett Blum, M.D., Inc. v. Cowan, 235 Ariz. 204,
205, ¶ 5 (App. 2014).

¶9 The 363 Entities breached the Agreement when they moved
to reinstate the superior court matter with “no credible evidence that the
Strattons ha[d] failed to fully comply with the . . . Agreement.” As a result,
the Strattons incurred attorney’s fees. Section 12-341.01 authorized the court

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Decision of the Court

to award the Strattons their reasonable attorney’s fees incurred enforcing
the Agreement, and the express terms of the Agreement required it. But the
compulsory attorney’s fee award was only authorized against “the
non-prevailing party or parties.” The non-prevailing parties were the 363
Entities.

¶10 Although Brig Burton is a principal of both 363 Entities, the
Burtons, in their capacity as third-party defendants, did not file any
pleadings in the superior court causing the Strattons to incur additional
attorney’s fees and costs to enforce the Agreement. Our task, therefore, is
to determine whether the superior court erred in obligating the Burtons
personally for the Strattons’ fee and cost award.

¶11 Generally, a member of an LLC is “not personally liable,
directly or indirectly, . . . for a debt, obligation or other liability of the
company . . . solely by reason of being or acting as a member or manager.”
A.R.S. § 29-3304(A). Accordingly, “the personal assets of a corporate officer
may not normally be reached to satisfy corporate liabilities.” Loiselle v. Cosas
Mgmt. Grp., LLC, 224 Ariz. 207, 214, ¶ 30 (App. 2010). However, courts will
disregard the corporate entity and pierce the corporate veil “if there is
sufficient evidence that 1) the corporation is the ‘alter ego or business
conduit of a person,’ and 2) disregarding the corporation’s separate legal
status is ‘necessary to prevent injustice or fraud.’” Id. (first quoting Dietel v.
Day, 16 Ariz. App. 206, 208 (1972); and then quoting State v. Angelo, 166
Ariz. 24, 27 (App. 1990)).

¶12 The record does not reflect that the superior court weighed
evidence as required by Loiselle. Neither the superior court’s minute entry,
nor its judgment, address whether the court contemplated or intended to
pierce the corporate veil. Because we cannot discern from the record
whether the court intended to do so, we vacate the award of attorney’s fees
and costs – only so far as it obligated the Burtons personally – and remand
for the superior court to make that determination.

¶13 Both the Burtons and the Strattons seek attorney’s fees on
appeal under A.R.S. § 12-341.01 and the terms of the Agreement. We decline
to award either party its fees, but instead reserve that decision for the
superior court on remand. Baseline Fin. Servs. v. Madison, 229 Ariz. 543, 546,
¶ 17 (App. 2012).

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CONCLUSION

¶14 We vacate the court’s award of attorney’s fees and costs
against the Burtons and remand for further proceedings consistent with this
decision.

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

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