Jones Capital v. Loiselle

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

JONES CAPITAL INVESTMENTS, LLC, Plaintiff/Appellee,

v.

BRIAN LOISELLE, et al., Defendants/Appellants.

No. 1 CA-CV 21-0535
FILED 7-19-2022

Appeal from the Superior Court in Maricopa County
No. CV2019-093620
The Honorable Roger E. Brodman, Judge (Retired)

AFFIRMED

COUNSEL

Counxel Legal Firm, Mesa
By Kyle Anthony O’Dwyer, Leeza Birko
Counsel for Plaintiff/Appellee

Al Arpad, Esq., Phoenix
By Alexander R. Arpad
Counsel for Defendants/Appellants
 JONES CAPITAL v. LOISELLE, et al.
Decision of the Court

MEMORANDUM DECISION

Judge Jennifer M. Perkins delivered the decision of the Court, in which
Presiding Judge David D. Weinzweig and Judge Brian Y. Furuya joined.

P E R K I N S, Judge:

¶1 Blue River Equity, LLC (“Blue River”) and its sole owner,
Brian Loiselle, appeal from default judgments granted to Jones Capital
Investments, LLC (“Jones Capital”). For the following reasons, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 Jones Capital owns and operates assisted care homes. In 2016,
Jones Capital agreed to purchase an assisted care home (“Property”) from
Blue River for $500,000. Loiselle drafted loan documents (the “Note”) the
parties signed in February 2018 to finalize the Property’s sale for $420,000.
Because a third party held a mortgage on the Property when the parties
signed, they structured the Note as a wrap loan—Jones Capital would make
monthly interest payments to Blue River, and Blue River would keep
paying its mortgage to the third party. The Note also required Jones Capital
to make $10,000 quarterly principal payments to Blue River.

¶3 The parties’ arrangement worked for about one year, until a
dispute arose over the Note’s terminal payment clause, which required a
“[f]inal payment to cash the mortgage” in April 2019. The April 2019
payment would eliminate the difference between the Note’s existing
principal balance and the rest of the third party’s mortgage.

¶4 On March 1, 2019, Blue River notified Jones Capital that the
Note needed to be paid in full by April 1, 2019. Jones Capital did not make
a payment-in-full. On April 2, 2019, Blue River sent a default notice,
alleging Jones Capital owed $122,451 on or before April 12, 2019. Blue River
threatened to take possession of the Property and hold a trustee’s sale.
Loiselle then served Jones Capital notice of a trustee’s sale scheduled for
August 8, 2019.

¶5 Jones Capital sued Blue River and Loiselle seeking:
declaratory relief to clarify the Note’s terms; a preliminary injunction to halt
the trustee’s sale and to prevent Blue River from taking possession of the

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Property; and claims for breach of contract, breach of the implied covenant
of good faith and fair dealing, promissory estoppel, and fraud.

I. Blue River’s Court Proceedings

¶6 Despite not being an attorney, Loiselle repeatedly sought to
represent Blue River in superior court. The court warned Loiselle that
Supreme Court Rule 31 requires companies to hire attorneys to represent
them in court, but Loiselle ignored these warnings. Rather, he assigned to
himself, as an individual, all Blue River’s interests and liabilities and argued
that the transfer and assumption required Blue River’s dismissal.

¶7 The superior court’s admonishment notwithstanding,
Loiselle continued filing documents and appearing in court on Blue River’s
behalf. After a hearing, the court issued a preliminary injunction preventing
the trustee’s sale of the Property. Because Blue River had still not hired an
attorney to appear on its behalf, the court found it failed to appear and
again instructed it to hire an attorney within 20 days or face default.

¶8 Jones Capital applied for a default judgment because no
attorney entered an appearance for Blue River during the 20-day window.
No attorney attended the default hearing for Blue River three months later.
The superior court entered a default judgment against Blue River on Jones
Capital’s claims. The court certified the judgment as final under Rule 54(b)
and granted $126,000 in total damages—$25,200 in compensatory damages
and $100,800 in punitive damages.

¶9 In December 2020, more than one year after the superior court
entered the default judgment, Blue River finally retained an attorney who
entered a notice of appearance. Five months later, Blue River moved to set
aside the default judgment because Jones Capital did not request punitive
damages and failed to plead fraud with sufficient detail in its complaint.
The court issued an amended judgment that vacated the punitive damages
award but left the rest of the judgment intact. Blue River appeals the partial
denial of its motion to set aside and the entry of the default judgment.

II. Loiselle’s Court Proceedings

¶10 While securing the default judgment against Blue River, Jones
Capital also pursued its claims against Loiselle individually. Loiselle
represented himself in the proceedings. He attended the initial court
proceedings and filed an answer and counterclaims. But Loiselle struggled
to adequately represent himself, and the superior court sanctioned him
twice for discovery violations.

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¶11 On July 9, 2020, the superior court held a telephonic trial-
setting conference. Both on the record during the conference and in its
subsequent minute entry, the court set a trial management conference for
April 23, 2021, and scheduled a four-day jury trial to begin May 17, 2021.
On April 14, 2021, the court filed a minute entry confirming the April 23,
2021 trial management conference.

¶12 Before the pretrial conference, Loiselle did not file any
required documents, including joint reports, proposed jury instructions,
proposed jury questionnaires, proposed jury verdict forms, and proposed
voir dire questions. Nor did Loiselle participate in the April 23, 2021 trial
management conference. The superior court struck Loiselle’s pleadings as
a sanction for his failure to disclose and cooperate. The court converted the
May 17, 2021, trial date to a default judgment hearing on damages.

¶13 Loiselle appeared at the default hearing and unsuccessfully
asked the superior court to reconsider its decision to strike his pleadings.
Loiselle claimed he did not receive the court’s minute entries and was
therefore unaware of the April 23, 2021 trial management conference.
Unpersuaded, the court continued with the default hearing on damages.

¶14 After the hearing, the superior court issued an unsigned
ruling interpreting the Note, dismissing Loiselle’s stricken counterclaims,
declining to award Jones Capital damages, and authorizing Jones Capital
to file a fee application. The court ordered that the default judgment against
Blue River would be offset against the amount owed on the Note held by
Loiselle. Two months later, the court used Rule 54(b) language to enter
judgment against Loiselle for $91,454.49 in attorneys’ fees. Loiselle timely
appealed, and we have jurisdiction under A.R.S. § 12-2101(A)(1).

DISCUSSION

I. Blue River

A. Attorney Representation

¶15 Blue River argues now, as Loiselle did before the superior
court, that the court erred by finding Blue River failed to appear. But “[a]
corporation cannot appear in superior court except through counsel. Until
a corporation appears in court by counsel, its appearance is defective.” State
v. Eazy Bail Bonds, 224 Ariz. 227, 229, ¶ 12 (App. 2010) (citation omitted).
Blue River also argues Loiselle has a right to represent Blue River in court
because Blue River is his alter ego and a “defunct entity.”

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¶16 We will not lightly disregard the corporate status. See JTF
Aviation Holdings Inc v. CliftonLarsonAllen LLP, 249 Ariz. 510, 514, ¶ 20
(2020). We disregard corporate entities only 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. at ¶ 21 (quoting Loiselle v. Cosas Mgmt. Grp.,
LLC, 224 Ariz. 207, 214, ¶ 30 (App. 2010)).

¶17 Here, in an unusual reversal of roles, Loiselle argues we
should disregard his corporation’s separate status. Setting aside whether
the disregarded entity test can be employed by the entity itself, Loiselle’s
arguments are unpersuasive. The record contains no evidence beyond
Loiselle’s self-serving assertions that Blue River is defunct, such as articles
of dissolution. And Loiselle never adequately explained why defunct status
would prevent Blue River from being forced to defend a lawsuit. See A.R.S.
§ 29-3705(C) (a dissolved LLC may still be sued within three years after
dissolution). In contrast, evidence shows Blue River remained an active
entity, continued to make and receive loan payments, and even assigned its
assets and liabilities after Jones Capital filed its complaint. Further, Loiselle
offered no evidence to establish that disregarding Blue River’s corporate
status was necessary to prevent injustice or fraud. See JTF Aviation Holdings
Inc, 249 Ariz. at 514, ¶ 21. Thus, sufficient evidence does not support
disregarding Blue River’s separate corporate status. Id. And we decline Blue
River’s invitation to upset the long-standing requirement that corporate
entities must hire attorneys to represent them in Arizona courts. See State ex
rel. Frohmiller v. Hendrix, 59 Ariz. 184, 191 (1942).

B. Appellate Jurisdiction

¶18 Blue River argues the superior court erred when it included
Rule 54(b) finality language in its default judgment ruling because the same
claims remained to be litigated against Loiselle individually. Blue River
asserts that this purported error sweeps into our review the court’s entry of
default judgment against Blue River. We review de novo whether the
superior court appropriately certified a judgment as final and appealable
under Rule 54(b). Dabrowski v. Bartlett, 246 Ariz. 504, 511, ¶ 13 (App. 2019).

¶19 The purpose of Rule 54(b) is to promote judicial economy. See
Cont’l Cas. v. Superior Court, 130 Ariz. 189, 192 (1981). The circumstances
under which a trial court can make the requisite express determination and
certify a judgment as final under Rule 54(b) is an issue committed to the
court’s sound discretion. See id. at 191. Entry of a Rule 54(b) judgment
requires only (1) final resolution of at least one claim against all parties or

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all claims against one party and (2) no just reason for delay. Ariz. R. Civ. P.
54(b).

¶20 The superior court properly found the default judgment
resolved all claims against Blue River. See Sw. Gas Corp. v. Irwin, 229 Ariz.
198, 202, ¶ 10 (App. 2012) (“By permitting trial courts to certify a judgment
as final and appealable as to one but not all parties, the rule essentially
allows that piece of the case to be severed from the rest.”). Jones Capital
would be prejudiced if it had to wait for its other claims to be settled before
enforcing its judgment against Blue River. The court appropriately certified
the default judgment under Rule 54(b), and the only ruling properly before
us is the court’s partial denial of Blue River’s Rule 60(b) motion to set aside
the default judgment.

C. Blue River’s Rule 60(b) Motion

¶21 Blue River argues the default judgment against it should be
set aside because (1) Loiselle had a right to defend Blue River in propria
persona and (2) the complaint was not sufficient to give fair notice of the
fraud claim or any damages arising from it. We have already rejected the
first contention, see Section I.A infra.

¶22 “The scope of an appeal from a denial of a Rule 60 motion is
restricted to the questions raised by the motion to set aside.” Hirsch v. Nat’l
Van Lines, Inc., 136 Ariz. 304, 311 (1983). A default judgment “must not
differ in kind from, or exceed in amount, what is demanded in the
pleadings.” Ariz. R. Civ. P. 54(d). And a judgment that violates Rule 54(d)
is “null and void at least to the extent that it exceeded the demand.” Darnell
v. Denton, 137 Ariz. 204, 206 (App. 1983). “To support a default judgment, a
complaint need not be technically sufficient, but must contain a plain and
concise statement of the cause of action[s] and give defendants fair notice of
the allegations as a whole.” Cockerham v. Zikratch, 127 Ariz. 230, 234 (1980)
(emphasis added). An “erroneous” judgment is not necessarily “void”; only
errors that undermine jurisdiction render a judgment void under Rule
60(b)(4). Id. at 235.

¶23 Blue River correctly claimed that Jones Capital did not request
punitive damages in its complaint. The superior court appropriately
vacated the punitive damages part of the award.

¶24 Blue River also claimed that Jones Capital did not sufficiently
plead the essential elements of fraud, which violated the applicable
heightened pleading standard. See Ariz. R. Civ. P. 9(b) (“In alleging
fraud . . . a party must state with particularity the circumstances

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constituting fraud.”). The superior court did not explicitly rule on whether
the complaint met the heightened pleading requirements for a fraud claim.
Even assuming Jones Capital did not plead fraud with sufficient
particularity, that deficiency did not undermine the court’s jurisdiction
rendering the judgment void. See Cockerham, 127 Ariz. at 234 (“While it may
be erroneous to enter a default judgment based on a technically deficient
complaint, such a judgment is not necessarily void.”). The superior court
did not abuse its discretion in partially denying Blue River’s Rule 60(b)
motion.

II. Brian Loiselle

¶25 Loiselle argues the superior court abused its discretion by
striking his pleadings and entering a default judgment against him under
Rule 37(c)(1) because he was unaware of the trial management conference.
We review pleadings struck for discovery misconduct for a clear abuse of
discretion. See Estate of Lewis v. Lewis, 229 Ariz. 316, 324, ¶ 20 (App. 2012).
Arizona prefers disposition on the merits, and “drastic sanctions running
counter to that policy therefore are disfavored and must be based on a
determination of willfulness or bad faith.” Id. at 323–24, ¶ 18 (citations
omitted). But grossly negligent conduct such as “flagrant, persistent or
willful or otherwise aggravated” violations “also will support such severe
sanctions against a noncomplying party.” Id. at 324, ¶ 18 (cleaned up).

¶26 “[A] willful disregard of discovery obligations, bad faith, or
other fault by a party may form a valid basis for striking pleadings or
entering default judgment” as a sanction. Roberts v. City of Phoenix, 225 Ariz.
112, 119, ¶ 27 (App. 2010). “When abuses of discovery or disclosure
obligations are found to warrant the imposition of sanctions, those
sanctions must be appropriate to the circumstances and must be preceded
by due process.” Id. at 119–20, ¶ 27.

¶27 The record teems with evidence of Loiselle’s willful disregard
for discovery obligations, ending in what the superior court concluded was
Loiselle’s decision to no longer participate in the process. The court reached
this conclusion after determining that Loiselle failed to submit any required
pretrial documents or to appear for the trial management conference. The
superior court heard from Loiselle why he believed the entry of default was
improper at the beginning of the default hearing on May 17, 2021. Loiselle
argued that he did not receive the court’s minute entries, he had no notice
of the case’s status, and at the July 9, 2020 trial setting conference the trial
date was “not definite.” The court overruled his objections to the hearing
and denied his oral motion for reconsideration.

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¶28 Loiselle argues that the many “returned mail” notices
appearing in the record support his contention that he was unaware of the
trial management conference and thus his failure to appear should be
excused. Not so. The address on Loiselle’s returned mail notices is the one
he provided to the court in a notice of address change filed April 16, 2020.
And he acknowledged in a June 29, 2020 email to the court that he had
rented out his house and he and his wife “haven’t been retrieving mail.”
Loiselle’s failure to monitor his own address provided to the court does not
excuse him from his obligation to remain informed about his case. More
importantly, the record is quite clear that both orally and in writing the
court notified him of the April 23, 2021 trial management conference and
the May 17, 2021 trial setting. Loiselle nonetheless contends he received
insufficient notice of the default hearing because he received the notice of a
Monday hearing on the preceding Thursday. But even if the later notice
Loiselle received from Jones Capital was deficient, Loiselle knew or should
have known about the default hearing from the court’s April 28, 2021
minute entry vacating the trial setting and converting it to a Default
Judgment Evidentiary Hearing.

¶29 This was Loiselle’s third discovery sanction. His trail of
persistent and flagrant violations culminating in his failure to appear
supported the court’s imposition of a drastic sanction. The superior court
did not abuse its discretion by entering default judgment against Loiselle.

CONCLUSION

¶30 We affirm.

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

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