Chatha v. Marwah

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

MANINDER CHATHA, et al., Plaintiffs/Appellants/Cross-Appellees,

v.

DARMINDER MARWAH, et al., Defendants/Appellees/Cross-Appellants.

No. 1 CA-CV 23-0400
FILED 08-15-2024

Appeal from the Superior Court in Maricopa County
No. CV2018-005519
The Honorable Daniel G. Martin, Judge
The Honorable Dewain D. Fox, Judge

REVERSED AND REMANDED

COUNSEL

Fennemore Craig, PC, Phoenix
By Timothy J. Berg, Joseph A. Schenk, Heather A. Macre
Counsel for Plaintiffs/Appellants/Cross-Appellees

Holden Willits, PLC, Phoenix
By Robert G. Schaffer, Nelson A. F. Mixon
Counsel for Defendants/Appellees/Cross-Appellants
 CHATHA, et al. v. MARWAH, et al.
Decision of the Court

MEMORANDUM DECISION

Judge Kent E. Cattani delivered the decision of the Court, in which
Presiding Judge Daniel J. Kiley and Judge D. Steven Williams joined.

C A T T A N I, Judge:

¶1 Dr. Maninder Chatha, Dr. Mandeep Sahani, Arizona Renal
Investments, LLC, and Desert Kidney Associates, PLC, (“DKA”)
(collectively, “Appellants”) appeal the superior court’s grant of summary
judgment in favor of Dr. Dharminder Marwah, (“Marwah”), his wife, Dr.
Gurjot Marwah, Hervinder Consulting, LLC, Marwah Capital Holdings,
LLC, and Healing Minds, PLC (collectively, “Appellees”) on their claims
and Marwah’s contract counterclaims. Marwah cross-appeals the court’s
ruling denying prejudgment interest on his contract claims. For reasons
that follow, we reverse and remand the court’s grant of summary judgment.

FACTS AND PROCEDURAL BACKGROUND

¶2 Doctors Marwah, Chatha, and Sahani (collectively, “DKA
doctors”) are licensed nephrologists. Marwah and Dr. Sean O’Regan (also
a nephrologist) formed DKA in 2000. They hired Chatha in 2003 and Sahani
in 2004.

I. The O’Regan Buyout.

¶3 Marwah and O’Regan had disagreements about DKA’s
management, and Marwah sued O’Regan to dissolve DKA in 2006.
Marwah intended to open a new practice with Chatha and Sahani.
Attorney John Daniels helped Marwah and O’Regan reach a settlement
wherein O’Regan was bought out of DKA. As part of the settlement,
Marwah and O’Regan sold their interests from a separate joint venture
investment, and Marwah used some of the proceeds from the sale to pay
for O’Regan’s interest in DKA. Even after paying O’Regan, Marwah left the
transaction with a sizeable profit.

¶4 After the settlement in 2006, Marwah became the sole owner
of DKA. Chatha and Sahani were acting members of DKA but were not
formally made members and managers until April 2012. As acting
members, they received equal payments from the DKA business, which
included medical director fees from operating dialysis centers.

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¶5 After the buyout, Marwah told Chatha and Sahani they
needed to reimburse him for buying out O’Regan. Marwah indicated the
buyout had left his family in a “difficult financial position,” claiming that
he took out a mortgage on his home to fund the transaction. To compensate
Marwah for his alleged financial sacrifice, Chatha and Sahani agreed to give
him extra compensation from their work in dialysis centers. The record
does not show how much Chatha and Sahani paid Marwah or how long
this arrangement lasted.

II. The DKA, ADKHC, and Fresenius Joint Venture.

¶6 Fresenius Medical Care (“Fresenius”) is a company that
primarily operates outpatient dialysis facilities around the United States.
Arizona Kidney Disease and Hypertension Centers, LLC, (“AKDHC”) is a
private medical practice specializing in nephrology in Arizona. In early
2008, Doctors Chatha, Sahani, Marwah, and Sanjay Lamba (who is not a
party to the present lawsuit) invested with AKDHC and Fresenius in a joint
venture (“JV”) involving three dialysis centers. AKDHC and DKA doctors
owned their shares of the JV through AKDHC Dialysis Holdings, LLC
(“Holdings”), which owned 49 percent of the JV, with Fresenius owning the
remaining 51 percent. AKDHC owned 65 percent of Holdings, while DKA
doctors and Lamba split the remaining 35 percent, with each owning 8.75
percent.

¶7 To fund the investment, Holdings took out a loan that DKA
doctors personally guaranteed. Over time, DKA doctors suspected that
AKDHC and its managing member, Susan Price, were not correctly
distributing the money owed to them under the JV investment. In January
2012, DKA doctors sued Price and AKDHC, alleging that payments had not
been properly distributed. DKA doctors were represented by Daniels and
his law firm. Fresenius was not a party to the litigation.

¶8 At some point, DKA doctors felt an urgency to settle due to
the financial pressures of the lawsuit and other mounting expenses, and
AKDHC, Price, and DKA doctors entered a settlement effective January 1,
2014. Marwah explained to Chatha, Sahani, and Daniels that he was told
he needed to leave DKA, go work at Fresenius, and sell his JV interest as a
condition of AKDHC agreeing to settle the lawsuit. True or not, Chatha,
Sahani, and Daniels did not question Marwah’s assertion.

¶9 The settlement included: compensation to DKA doctors for
the missed payments, reissuance of checks DKA doctors never cashed, and
a restructuring of the JV interests such that each DKA doctor owned his

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percentage directly, not through Holdings. Section 12 of the settlement
required restructuring the JV’s operating agreements and alluded to
Fresenius purchasing Marwah’s interest.

¶10 Daniels represented Marwah in the agreement by which
Marwah sold Fresenius his JV interest. For this sale, Marwah received $8.2
million. Meanwhile, Marwah told Chatha and Sahani that he only received
$1.5 million, what he described as “peanuts.”

¶11 To compensate Marwah for his “financial sacrifice” to help
reach a settlement agreement with AKDHC, Chatha and Sahani entered
into several post-settlement contracts with Marwah. First, they agreed to
continue paying Marwah the medical director fees he would have been
owed had he not left DKA. Next, Chatha and Sahani (and Lamba) formed
Arizona Renal Investments and entered into a consulting agreement with
Marwah, effective January 1, 2014. They agreed to pay Marwah 25 percent
of the cash generated from the JV after the first two million dollars was
distributed to active DKA partners participating in the JV. Lastly,
Marwah’s resignation from DKA to work for Fresenius included language
allowing Marwah to buy back his partnership interest at DKA for one
dollar.

¶12 This arrangement lasted until early 2016 when Chatha and
Sahani became concerned about their agreements with Marwah and
stopped paying him. On April 19, 2016, Chatha, Sahani, Marwah, and
Daniels met at Daniels’s house to discuss the payment situation. At this
meeting, Marwah repeated his assertion that he only received $1.5 million
for the sale of the JV interest, to which Daniels replied, “[Marwah], you got
more than that.” In the summer of 2017, Marwah met with Sahani and
Daniels at the DKA offices and admitted that he had not been truthful about
the amount of money he received from Fresenius in return for his JV
interest. On November 8, 2017, Chatha and Sahani terminated the
consulting agreement between Arizona Renal Investments and Marwah.

III. This Lawsuit.

¶13 On September 12, 2018, Chatha, Sahani, Arizona Renal
Investments, and DKA brought suit against Marwah, Marwah’s wife, and
Marwah’s LLC companies, alleging fraud, negligent misrepresentation,
breach of fiduciary duty, conspiracy to defraud, and aiding and abetting.
Marwah answered and asserted counterclaims for breach of contract,
breach of fiduciary duty, conversion, and unjust enrichment.

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¶14 Both sides moved for partial summary judgment, which the
court granted in favor of Marwah on Appellant’s claims of fraud, negligent
misrepresentation, and breach of fiduciary duty. The court also found for
Marwah on the counterclaims, except for the conversion claim, but left the
issue of damages to be decided at trial. A jury awarded over ten million
dollars to Marwah. The court then denied Marwah’s request for
prejudgment interest.

¶15 Both sides timely appealed, and we have jurisdiction. See
A.R.S. § 12-2101(A)(1).

DISCUSSION

¶16 Summary judgment may be granted if there is no genuine
dispute of material fact and the moving party is entitled to judgment as a
matter of law. Ariz. R. Civ. P. 56(a). We review a summary judgment ruling
de novo, Coulter v. Grant Thornton, LLP, 241 Ariz. 440, 447, ¶ 23 (App. 2017),
viewing the facts in the light most favorable to the party against whom
judgment was entered. KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 236
Ariz. 326, 329, ¶ 14 (App. 2014). We consider only the evidence presented
in the summary judgment record. See Brookover v. Roberts Enters., Inc., 215
Ariz. 52, 57, ¶ 17 n.2 (App. 2007) (noting that review of summary judgment
is limited to the evidence before the superior court when ruling, not
additional evidence first presented in a motion for reconsideration).

I. Summary Judgment on Appellants’ Claims.

¶17 Appellants contend the superior court erred by granting
summary judgment in favor of Marwah on their fraud, negligent
misrepresentation, and breach of fiduciary duty claims. The court found
(1) Appellants were not justified in relying on Marwah’s assertion that he
sold his interest in the JV for $1.5 million and (2) the claims were time-
barred. We conclude to the contrary that there are genuine disputes of
material fact about when Appellants discovered or should have discovered
Marwah’s alleged fraud and about whether Daniels’s knowledge of
Marwah’s dealings should be imputed to Appellants. Accordingly, we
reverse summary judgment on these claims.

A. Actual Knowledge and Duty to Investigate.

¶18 A two-year limitations period applies to claims for negligent
misrepresentation and breach of fiduciary duty. Coulter, 241 Ariz. at 444,
¶ 9. A three-year limitations period applies to claims for common law
fraud. Id.; see A.R.S. § 12-543(3). Accrual of these claims is governed by the

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discovery rule, meaning that “a cause of action does not ‘accrue’ until a
plaintiff discovers or by the exercise of reasonable diligence should have
discovered that he or she has been injured by the defendant’s [tortious]
conduct.” Coulter, 241 Ariz. at 444, ¶ 10 (quoting Anson v. Am. Motors Corp., 155 Ariz. 420, 423 (App. 1987)). If the failure to investigate is reasonably
justified, a “blamelessly uninformed plaintiff” should not be punished by
the statute of limitations. Walk v. Ring, 202 Ariz. 310, 315–16, ¶¶ 21, 23
(2002). Fraudulent concealment tolls the statute of limitations and
encompasses acts like “mislead[ing] the party who claims the cause of
action” and “fail[ing] to disclose true facts.” Anson, 155 Ariz. at 427–28.
When a plaintiff discovers or should have discovered the bias of his claim
and a cause of action accrues are questions of fact generally reserved for the
jury. Walk, 202 Ariz. at 316, ¶ 23.

¶19 Appellants argue there are disputed issues of fact concerning
when they knew or should have known of Marwah’s alleged fraud that,
taken in the light most favorable to Appellants, preclude summary
judgment. The court found that Appellants had no right to rely on
Marwah’s representations that he sold his interest in the JV for $1.5 million
because they: (1) signed a term sheet indicating Marwah would be paid
“Fair Market Value” for his interest, (2) received an email from Daniels
indicating their shares in the JV were worth $9.75 million each using a
multiple-of-earnings approach and “that is how [Marwah’s] interest was
acquired,” and (3) that “any reasonable person” would have then
questioned Marwah’s representations. But these facts are not dispositive
and there were other facts that supported Appellants’ assertion that they
did not know or have reason to know of Marwah’s alleged fraud.

¶20 First, as detailed above, there was evidence from which jurors
could conclude that Marwah led Chatha and Sahani to incorrectly believe
that selling his shares in the JV and leaving DKA were critical to reaching a
settlement with AKDHC. Similarly, there was evidence from which jurors
could conclude that Marwah led Chatha and Sahani to believe he was
making a financial sacrifice by selling his interest in the JV and leaving
DKA, and that he did so for the benefit of DKA and to settle the lawsuit.
Marwah does not dispute that he told Chatha and Sahani, as well as other
partners at DKA, that he was only getting paid “peanuts” ($1.5 million) for
his interest in the JV. And the final settlement agreement between DKA
doctors and AKDHC did not include any language indicating what
Marwah had been paid for his interest, and did not include the fair market
value language the initial term sheet referenced. From these facts, a jury
could find that Chatha and Sahani reasonably believed Marwah was
making a financial sacrifice by accepting only $1.5 million for his JV interest.

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¶21 Additionally, there is evidence that Marwah took steps to
conceal his alleged fraud from Chatha and Sahani. Marwah’s sale of his
share to Fresenius included a confidentiality provision preventing
disclosure of the sale price. Marwah then told Chatha and Sahani that he
was only getting the $1.5 million, or “peanuts,” for his share. And the jury
could believe that Chatha and Sahani did not learn this was false until the
meeting at Daniels’s house in April 2016, when Marwah repeated that he
“only got a million five” and Daniels corrected him. Additionally, Chatha
and Sahani only learned at that point that Daniels had represented Marwah
in the sale of his JV interest to Fresenius, something Marwah had not
previously disclosed. Accordingly, there are factual issues on the question
of fraudulent concealment, and those must be decided by a jury. See Walk,
202 Ariz. at 321, ¶ 42.

¶22 In finding that Appellants were on notice that Marwah
received more than $1.5 million for his sale of the JV interest, the court
relied, in part, on emails sent from Daniels to Chatha and Sahani on May 2,
2014. The emails informed Chatha and Sahani that their JV interests were
worth “around 8-10 million,” based on a “multiple of earnings approach
that is how [Marwah’s] interest was acquired.” But the emails do not state
what multiple of earnings was used in Marwah’s sale and whether that
same multiplier was used for Chatha and Sahani’s interests. Nor do the
emails indicate what Marwah’s actual sale price was or whether it was
identical to the value suggested in the initial email. Whether these emails
should have put Appellants on notice to investigate for fraud is a question
of fact precluding summary judgment.

¶23 Lastly, the superior court relied on Coronado Development
Corp. v. Superior Court, in which this court held that a three-year statute of
limitations for fraud had run before the plaintiffs sued the defendant even
though “[plaintiffs] did not have actual knowledge that fraud had
occurred.” 139 Ariz. 350, 352 (App. 1984). In so holding, the Coronado
Development court stated that the plaintiffs were “put on notice” of the
potential fraud when they met with a lawyer more than three years earlier
and the lawyer had told them that the defendant’s representative “had lied
to them.” Id. at 351–52. Noting that “a person does not have to know every
fact about his fraud claim before the statute begins to run,” the court held
that the lawyer’s statement put them on notice that they needed “to either
investigate further, or commence their lawsuit.” Id. at 352. Here, although
the emails Daniels sent may have put Appellants on notice to investigate,
there is a reasonable inference to the contrary, particularly given Marwah’s
express misrepresentations and the absence of specific information

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disputing what Marwah said he had received for selling his JV interest.
Thus, this is an issue of disputed fact that should be decided by a jury.

B. Imputed Knowledge.

¶24 Under general rules of agency law, which apply to the
attorney–client relationship, Tilley v. Delci, 220 Ariz. 233, 238, ¶ 14 (App.
2009), an attorney’s knowledge can be imputed to his client. Wyatt v.
Wehmueller, 167 Ariz. 281, 284 (1991). The question of whether agency exists
is one of fact, but if no material facts are in dispute, it is a question of law.
Ruesga v. Kindred Nursing Ctrs., L.L.C., 215 Ariz. 589, 595, ¶ 21 (App. 2007).

¶25 Appellants argue the superior court erred by imputing to
them Daniels’s knowledge of the price Marwah received for his interest in
the JV, arguing that there are disputed facts as to whether Daniels was
acting in his capacity as Appellants’ agent when he learned the information.
Appellees assert to the contrary that Daniels’s involvement in the sale of
Marwah’s JV interest was part of Daniels’s representation of Appellants in
the AKDHC settlement and the post-settlement contracts.

¶26 The superior court apparently determined that Marwah’s sale
of his JV interest to Fresenius and leaving DKA were part of the settlement
between DKA and AKDHC. But there was evidence to the contrary. In
particular, Susan Price avowed that she and AKDHC did not condition the
settlement on Marwah’s resignation from DKA or his sale of the JV interest.
Additionally, Brian Gauger, an officer of Fresenius, testified that Marwah’s
employment with Fresenius did not require him to resign from DKA.
Gauger instead stated that Marwah was offered a job for a variety of
reasons, one of which was to try to alleviate the friction between AKDHC
and DKA. Thus, viewing the facts in the light most favorable to Appellants,
there is evidence from which a jury could conclude that Marwah’s sale of
his interest and leaving DKA were not a required part of the settlement.

¶27 In light of that evidence, we next address whether Daniels’s
knowledge of the sale price should be imputed to Appellants. We are
unaware of any case holding that knowledge an attorney gains during the
representation of one client is imputed to a different client. See In re Perle,
725 F.3d 1023, 1028 (9th Cir. 2013) (“Perle has identified no case, nor are we
able to find one, that imputes to a client knowledge that his lawyer gained
while representing a different client.”).

¶28 Appellees point to the Restatement (Third) of the Law
Governing Lawyers § 28 cmt. b (2000), which provides that “a lawyer’s
knowledge relating to the representation is attributed to the lawyer’s

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client.” But the same comment goes on to say that “[a] client is not charged
with a lawyer’s knowledge concerning a transaction in which the lawyer
does not represent the client.” Id.

¶29 Appellees also argue that the principle that “knowledge of a
dual agent is normally imputed to both principals” applies here. Manley v.
Ticor Title Ins. Co. of Cal., 168 Ariz. 568, 573 (1991). A dual agent is an agent
who represents both parties to the same transaction. Ariz. Title Ins. & Tr.
Co. v. Smith, 21 Ariz. App. 371, 376 (App. 1974). But here, as detailed above,
there is a dispute regarding whether Marwah’s sale of his JV interest was
part of the same transaction as the settlement between DKA and AKDHC.
Accordingly, the representation issue cannot be resolved on summary
judgment.

II. Summary Judgment on Marwah’s Counterclaims.

¶30 Appellants next contend the superior court erred by granting
summary judgment in favor of Marwah on his counterclaims for breach of
contract. When a party is induced to enter a contract by fraudulent
misrepresentations, the contract is voidable by that party. John Munic
Enters., Inc. v. Laos, 235 Ariz. 12, 16, ¶ 10 (App. 2014). A contract that lacks
mutuality of obligations is void due to a lack of consideration. Allen D.
Shadron, Inc. v. Cole, 101 Ariz. 122, 123 (1966).

¶31 First, Appellants argue the superior court erred because the
post-settlement contracts lacked consideration. The superior court found
Marwah’s consideration was the “[sale of] his ownership interest in the joint
venture and [his withdrawal] as the founder and leader of DKA.” As
discussed above, whether Marwah’s departure from DKA and the sale of
his JV interest were a part of the settlement are disputed facts and
inappropriate for summary judgment. Thus, whether Marwah made
fraudulent misrepresentations to induce Chatha and Sahani into the post-
settlement contracts is a question of fact to be decided by the jury. See John
Munic, 235 Ariz. at 16, ¶ 10.

¶32 Next, Appellants claim the superior court erred by stating
that “Plaintiffs’ fraud claim fails as a matter of law, and accordingly cannot
be argued as a basis to void the [] consulting agreement.” But we have
reversed the superior court’s summary rejection of Appellants’ fraud claim.
Accordingly, we reverse and remand on this issue.

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III. Other Arguments.

¶33 Appellants raise additional arguments concerning the
superior court’s denial of their motions for new trial and judgment as a
matter of law. Additionally, Marwah cross-appeals the court’s ruling
denying prejudgment interest on his counterclaims. Because we remand to
determine liability, we decline to address those arguments.

CONCLUSION

¶34 We reverse and remand for proceedings consistent with this
decision.

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

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