Giglio v. Mirshahzadeh

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

MICHAEL S. GIGLIO, Plaintiff/Appellee,

v.

MEHRAN ERIC MIRSHAHZADEH, Defendant/Appellant.

No. 1 CA-CV 22-0458
FILED 5-25-2023

Appeal from the Superior Court in Maricopa County
No. CV2019-010471
The Honorable Katherine Cooper, Judge

AFFIRMED

COUNSEL

Stanley R. Lerner, P.C., Phoenix
By Stanley R. Lerner
Co-Counsel for Plaintiff/Appellee

Kevin Koelbel, Esq., Mesa
Co-Counsel for Plaintiff/Appellee

Wilenchik & Bartness PC, Phoenix
By Dennis I. Wilenchik, John D. Wilenchik, Ross P. Meyer
Counsel for Defendant/Appellant
 GIGLIO v. MIRSHAHZADEH
Decision of the Court

MEMORANDUM DECISION

Presiding Judge Samuel A. Thumma delivered the decision of the Court, in
which Judge Randall M. Howe and Judge Anni Hill Foster joined.

T H U M M A, Judge:

¶1 Defendant Mehran Eric Mirshahzadeh challenges the grant of
summary judgment for plaintiff Michael S. Giglio. Because Mirshahzadeh
has shown no error, the judgment is affirmed.

FACTS AND PROCEDURAL HISTORY

¶2 Giglio, Erin Alejandrino, Rebecca Christen and Taylor
Wright-Johnson formed Legacy MMA and Fitness, LLC (Legacy) in
February 2016. They signed Legacy’s Operating Agreement one month
later; at that time, Alejandrino held a 40% ownership interest, Giglio held
30%, Christen held 20% and Wright-Johnson held 10%. Mirshahzadeh later
bought half of Alejandrino’s ownership interest, making him a 20% owner.

¶3 In June 2017, based on Christen’s decision not to participate
in a capital call, the members signed two amendments to the Operating
Agreement. The First Amendment stated that a member who did not
consent to a capital call would be “deemed to have relinquished . . . all . . .
distributions from the Company” until the consenting members received
200% of the non-consenting member’s share of the contribution. The First
Amendment also allowed consenting members to choose to limit their
participation to their membership interest or carry a proportional part of
the non-consenting member’s interest.

¶4 The Second Amendment expanded the Operating
Agreement’s loss allocation provision. Section 4.1 of the original Operating
Agreement provided that “[a]ll Profits and Losses shall be allocated to the
Members in accordance with their Participation Percentages,” to which the
Second Amended (as relevant here) added:

Notwithstanding anything to the contrary
contained herein, each tax year that the
Company incurs an operating loss, the
Members of the Company shall individually
make an election to allocate any and all losses

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Decision of the Court

based upon each Member’s ownership
percentage. Members electing to accept the
allocation will proportionally share the
allocation of any Member(s) who declines to
accept the allocation.

¶5 Later in June 2017, the members signed a “2016 Special
Allocation Agreement.” The Special Allocation Agreement provided that
Legacy owed Giglio $155,000 “for certain assets acquired by Legacy to
operate its business.” All members except Christen agreed “to assume . . .
personal liability” for that debt. The members also agreed to allocate “any
and all losses” for the 2016 tax year as follows:

Giglio: 37.5%
Wright-Johnson: 12.5%
Mirshahzadeh: 25%
Christen: 0%
Alejandrino: 25%

Mirshahzadeh later allocated a $22,450 loss from Legacy as an unallowed
loss from prior years on his 2017 tax return.

¶6 Legacy later failed as a business. In July 2019, Giglio sued
Mirshahzadeh, alleging he had not paid any amounts owed under the
Special Allocation Agreement. Mirshahzadeh moved for summary
judgment, contending the Special Allocation Agreement was void for lack
of consideration and lacked “specificity as to the percentage of personal
liability to which the members [were] agreeing to.” Giglio cross-moved for
summary judgment, contending Mirshahzadeh received adequate
consideration via the “capital loss for the year 2016,” which he “use[d] . . .
in his tax return for 2017.”

¶7 Ruling for Giglio, the court stated that Mirshahzadeh “agreed
to be liable for his share of Legacy’s debt to [Giglio] and, in return, received
a 25% share of Legacy’s 2016 loss (a total of $22,450). His receipt of the
capital loss is evidenced by his 2017 personal tax return where he claimed
the $22,450 loss.” The court also stated the Special Allocation Agreement
“specifically allocates to [Mirshahzadeh] a 25% share of the 2016 operating
losses.”

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¶8 Mirshahzadeh timely appealed from the entry of a final
judgment. This court has jurisdiction under Article 6, Section 9, of the
Arizona Constitution and Arizona Revised Statutes (A.R.S.) sections 12-
120.21(A)(1) and -2101(A)(1)(2023).1

DISCUSSION

¶9 Summary judgment is proper only if there are no genuine
issues of material fact and the movant is entitled to judgment as a matter of
law. Ariz. R. Civ. P. 56(a). In addressing a ruling on a motion for summary
judgment, this court reviews questions of law de novo, viewing the facts in
a light most favorable to the party against whom summary judgment was
granted. In re Est. of Podgorski, 249 Ariz. 482, 484, ¶ 8 (App. 2020).

¶10 This court also reviews de novo whether a contract is valid
and enforceable. Armiros v. Rohr, 243 Ariz. 600, 605, ¶ 16 (App. 2018). “[F]or
an enforceable contract to exist there must be an offer, an acceptance,
consideration, and sufficient specification of terms so that the obligations
involved can be ascertained.” Regal Homes, Inc. v. CNA Ins., 217 Ariz. 159,
166 ¶ 29 (App. 2007) (quoting Savoca Masonry Co. v. Homes & Son Const. Co.,
112 Ariz. 392, 394 (1975)). Mirshahzadeh contends, as he did in the superior
court, that the Special Allocation Agreement lacked consideration and
sufficient specificity.

I. The Special Allocation Agreement was Supported by
Consideration.

¶11 To be enforceable, a contract must be supported by
consideration. See Stevens/Leinweber/Sullens, Inc. v. Holm Dev. & Mgmt., Inc.,
165 Ariz. 25, 29 (App. 1990). Mutual promises are sufficient consideration;
they need not be of equal value, and a court does not inquire into their
adequacy on appeal. Nickerson v. Green Valley Recreation, Inc., 228 Ariz. 309,
321 ¶ 29 (App. 2011). As the Arizona Supreme Court declared more than 60
years ago, “[a] written contract imports a consideration. The burden of
showing a lack or failure of consideration is upon the party attacking it.”
Dunlap v. Fort Mohave Farms, Inc., 89 Ariz. 387, 393 (1961) (citations omitted).

1Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.

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¶12 Mirshahzadeh first argues that, before signing the Special
Allocation Agreement, he “already had the right to accept or reject a
percentage allocation of losses according to the Second Amendment” and
that Christen’s allocation was “automatically allocated to the other
members pro rata.” Not so. The Second Amendment allows members to
“make an election to allocate any and all losses” in “each tax year.” The
members made their elections for the 2016 tax year in the Special Allocation
Agreement.

¶13 Mirshahzadeh also argues the Special Allocation Agreement
lacked consideration because Legacy’s debt to Giglio is “a liability that does
not exist” and did not increase his “at risk” basis for purposes of federal tax
law. See 26 U.S.C. § 465(a). Whether a transaction increases a taxpayer’s “at
risk” basis under federal tax law typically depends on the “economic
reality” of the transaction. Oren v. C.I.R., 357 F.3d 854, 859 (8th Cir. 2004); cf.
Goldstein v. C.I.R., 364 F.2d 734, 740 (2d Cir. 1966) (requiring transaction “to
have purpose, substance, or utility apart from their anticipated tax
consequences” for deduction of interest payments under the 1954 Internal
Revenue Code). Mirshahzadeh presented no evidence to challenge the
economic reality of the Special Allocation Agreement; he only baldly
contends on appeal that Giglio did not show that it had “any business
purpose.” And he admitted he used the $22,450 in allocated loss from the
Special Allocation Agreement on his 2017 personal tax return. See Hartford
v. Indus. Comm’n of Ariz., 178 Ariz. 106, 110 (App. 1994) (“Adequate
consideration consists of any performance which is bargained for”). It was
Mirshahzadeh’s burden to show the Special Allocation Agreement lacked
consideration. Dunlap, 89 Ariz. at 393. He failed to discharge that burden.

II. The Special Allocation Agreement Had Sufficient Specificity.

¶14 A contract’s terms “must be established with sufficient
specificity that the obligations involved may be ascertained.” Correa v. Pecos
Valley Dev. Corp., 126 Ariz. 601, 605 (App. 1980). A contract is not
sufficiently specific if it provides no basis to determine breach or fashion a
remedy. AROK Const. Co. v. Indian Const. Services, 174 Ariz. 291, 297-98
(App. 1993) (citing RESTATEMENT (SECOND) OF CONTRACTS § 33(2) (1981)).

¶15 Although arguing “there are numerous aspects as to why the
certainty of the terms is in question,” Mirshahzadeh does not identify any
specific aspect. He instead cites Giglio’s complaint, which alleged
Mirshahzadeh was responsible for the entire $155,000 debt. However,
Giglio later withdrew that allegation, and sought to recover 25 percent of
the debt in his summary judgment motion. In any event, the allegations of

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Giglio’s complaint have no bearing on whether the Special Allocation
Agreement is sufficiently specific to evince the parties’ intent to contract.
See Schade v. Diethrich, 158 Ariz. 1, 10 (1988) (“Any requirement of
‘reasonable certainty’ is satisfied if the agreement that was made simply
provides ‘a basis for determining the existence of a breach and for giving
an appropriate remedy.’”) (citation omitted).2

III. Attorneys’ Fees and Costs on Appeal.

¶16 Both parties request reasonable attorney fees incurred in this
appeal under A.R.S. § 12-341.01(A), which permits a discretionary award to
the successful party in an action arising out of a contract. Because
Mirshahzadeh is not the successful party, his request is denied. Giglio is the
successful party and is awarded his reasonable attorneys’ fees and taxable
costs contingent upon compliance with ARCAP 21.

CONCLUSION

¶17 The judgment is affirmed.

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

2Mirshahzadeh also contends Giglio has not tried to collect from any other
Legacy members. Assuming this is true, it is not relevant to whether the
Special Allocation Agreement is sufficiently specific.

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