Mac Kenzie v. Howerton

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

DONALD MAC KENZIE, an individual, Plaintiff/Third-Party
Defendant/Appellee,

v.

CHERYL HOWERTON; CHERYL L. HOWERTON, DVM, P.C., Appellants.

v.

SAMANTHA PAGE and JAKE PAGE; MIDTOWN ANIMAL CLINIC
LLC, Defendants/Third-Party Appellees.

No. 1 CA-CV 23-0728

FILED 10-17-2024

Appeal from the Superior Court in Coconino County
No. S0300CV202000210
The Honorable Elaine Fridlund-Horne, Judge

AFFIRMED IN PART; VACATED IN PART AND REMANDED

COUNSEL

Rose Law Group, PC, Scottsdale
By Shelton L. Freeman, Austin Moylan
Counsel for Defendants/Appellants

Aspey, Watkins & Diesel, PLLC, Flagstaff
By Kathryn G. Mahady, Trevor T. Kortsen, Madison A. Johnson
Counsel for Defendants/Appellees Page, et al.
 MAC KENZIE v. HOWERTON, et al.
Decision of the Court

MEMORANDUM DECISION

Presiding Judge Cynthia J. Bailey delivered the decision of the Court, in
which Judge Anni Hill Foster and Judge Angela K. Paton joined.

B A I L E Y, Judge:

¶1 Appellants Cheryl Howerton, D.V.M., and Cheryl L.
Howerton, D.V.M., P.C. (collectively, “Howerton”), appeal summary
judgment on several claims in favor of Appellees Samantha and Jake Page
(collectively, “the Pages”), and Midtown Animal Clinic, LLC (“Midtown”).
For the following reasons, we affirm in part, vacate in part, and remand.

FACTS AND PROCEDURAL HISTORY1

¶2 Howerton owned and operated Alpine Animal Hospital
(“Alpine”) until 2015, when she sold it to Donald Mac Kenzie, D.V.M.
2

(“Mac Kenzie”). Before buying the practice, Mac Kenzie worked as a
veterinarian at Alpine. Mrs. Page worked at Alpine as the office manager
and continued to do so after Mac Kenzie bought the practice. Mr. Page
began working at Alpine as a veterinary technician in 2016.

¶3 As part of the sale, Mac Kenzie leased Alpine’s office from
Howerton for a five-year term ending April 30, 2020. The sale was
structured so Mac Kenzie bought the assets and the goodwill separately.
As a result, there were separate contracts, promissory notes, and security
agreements for each.3 Both notes were due May 5, 2020. The collateral

1 In reviewing summary judgment, we view the facts and all reasonable

inferences drawn from them in the light most favorable to the non-moving
party, Howerton. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12 (2003).

2 The parties refer to Alpine by several different names in the record,
including Alpine Animal Hospital, Alpine Animal Clinic, and Alpine
Veterinary Clinic.

3 Neither party addresses this, but there are two different asset security

agreements in the record. Howerton attached two different asset security
agreements to the third-party complaint. At the same time, Howerton’s

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securing the notes included goodwill, all intangible assets, “documents,
accounts, money, chattel paper and general intangibles.” The contract
terms provided Mac Kenzie could not relocate the practice or remove
collateral without Howerton’s consent until the notes were paid in full.
Under the contracts, Howerton could take over or sell Alpine if Mac Kenzie
defaulted.

¶4 Sometime in 2019, Mac Kenzie asked Mrs. Page, as his office
manager, to help him find a new location for Alpine. Mac Kenzie signed a
lease on the new location on March 5, 2020. On March 23, 2020, Alpine’s
Facebook account announced the anticipated move.

¶5 Soon after, Mac Kenzie and Mrs. Page asked Howerton about
moving the practice and extending the notes. The parties failed to
renegotiate the notes or lease terms, and Howerton denied permission to
relocate the practice. Mac Kenzie was behind on lease payments at this
time. As a result of Mac Kenzie’s breach, Howerton secured the Alpine
office on the last day of the lease—April 30, 2020.

¶6 Several weeks before the lease was set to expire, while Alpine
was still operating, Mrs. Page applied for a Paycheck Protection Program
(“PPP”)4 loan. The loan application requested $74,000 for “Payroll;
Lease/Mortgage Interest.”

¶7 On April 30, 2020, Mrs. Page created a GoFundMe5 account.
The fundraising campaign asked for $22,218 to “fulfill the obligations of our
lease” and stated that any excess funds would help with the loans “so that

statement of facts in response to the summary judgment motion included
only the April 7, 2015 security agreement. Appellees’ statement of facts
included the April 28, 2015 security agreement. For purposes of the appeal,
this is not a material difference because both versions include accounts and
all intangibles as collateral.

4 The PPP was a loan program backed by the U.S. Small Business
Administration to help businesses keep workers employed during the
COVID-19 pandemic. See Paycheck Protection Program | U.S. Small
Business Administration (sba.gov) (https://www.sba.gov/funding-
programs/loans/covid-19-relief-options/paycheck-protection-program).

5 GoFundMe is an internet crowdfunding platform.
See How GoFundMe
Works (https://www.gofundme.com/c/how-it-works).

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Alpine Animal Clinic can remain in business at the new location – which
we were scheduled to move into this coming weekend.”

¶8 During the first week of May, several Alpine employees,
including Mac Kenzie and the Pages met, at which time the Pages agreed
to form Midtown. They hired Mac Kenzie as the managing veterinarian. In
all, six of Alpine’s nine employees went to work for Midtown. Midtown
filed articles of organization on May 7, 2020, and opened for business on
June 1, 2020.

¶9 On May 13, 2020, Mac Kenzie filed a complaint against
Howerton for wrongful eviction, alleging she violated the Governor’s
Executive Order 2020-21, which prohibited certain commercial evictions
during the pandemic. In response, Howerton asserted counterclaims
against Mac Kenzie individually6 and brought a third-party complaint
against the Pages, Midtown, and Mac Kenzie’s PLLC. The third-party
complaint alleged claims for (1) intentional interference with contract, (2)
intentional interference with business expectancies, (3) conversion, (4)
fraudulent transfer, (5) successor liability, (6) defamation, (7) constructive
trust, and (8) declaratory judgment.

¶10 Appellees moved for summary judgment on all claims in the
third-party complaint. After oral argument, the court granted summary
judgment on six claims, leaving the defamation and fraudulent transfer
claims for trial. After entry of an appealable judgment under Arizona Rule
of Civil Procedure 54(b), Howerton filed a timely notice of appeal. We have
jurisdiction under Arizona Revised Statutes (“A.R.S.”) section 12-
2101(A)(1).

DISCUSSION

¶11 We review the grant of summary judgment de novo.
Andrews, 205 Ariz. at 240, ¶ 12. Summary judgment is appropriate when
“there is no genuine dispute as to any material fact and the moving party is
entitled to judgment as a matter of law.” Ariz. R. Civ. P. 56(a); accord Orme
Sch. v. Reeves, 166 Ariz. 301, 305 (1990).

6 In a ruling separate from this appeal, the superior court granted partial

summary judgment against Mac Kenzie on count one of the counterclaim
and third-party complaint after he failed to respond.

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I. Intentional Interference with Contractual Relations or Business
Expectancies

¶12 The tort of intentional interference with contractual relations
or business expectancies imposes liability on a party “who intentionally
and improperly interferes with the plaintiff’s rights under a contract with
another [and thereby] causes the plaintiff to lose a right under the contract.”
Snow v. W. Sav. & Loan Ass’n, 152 Ariz. 27, 33 (1986) (citations omitted). A
plaintiff must show (1) the existence of a valid contractual relationship or
business expectancy, (2) knowledge of the relationship or expectancy on the
part of the defendant, (3) intentional interference inducing or causing a
breach, (4) resulting damage to the party whose relationship has been
disrupted, and (5) improper acts by the defendant. Id. (citations omitted).

¶13 Appellees do not dispute the existence of a valid contractual
relationship or business expectancy between Howerton and Mac Kenzie.
They do, however, challenge the remaining elements on appeal.

A. Knowledge of the Contract or Business Expectancy

¶14 According to the Pages, they had only a “cursory knowledge”
of the contracts between Howerton and Mac Kenzie. However, at oral
argument in superior court, Appellees’ attorney conceded for purposes of
summary judgment that they were aware of the contractual relationship.
Appellees are bound by that concession and cannot now dispute this fact
on appeal. See Rutledge v. Ariz. Bd. of Regents, 147 Ariz. 534, 549 (App. 1985)
(holding that parties are bound by their attorneys’ stipulations in a judicial
proceeding unless relieved of them by the court).

¶15 In any event, there is a question of fact as to the extent of Mrs.
Page’s knowledge: Mrs. Page contends she acted as Alpine’s office
manager and, therefore, had only a cursory knowledge of the contracts.
According to Howerton, however, she and Mrs. Page communicated
multiple times about the lease and refinancing the note between March and
May 2020. Howerton contends their emails show Mrs. Page knew Mac
Kenzie was behind in payments and the amounts owed. In these emails,
they also discussed Howerton’s refusal to approve the relocation. Mrs.
Page applied for the PPP loan and set up the GoFundMe account, so she
knew these funds were intended to pay Mac Kenzie’s debts. Given this
evidence, the level of Mrs. Page’s familiarity with contracts is a disputed
material fact.

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B. Intentional Conduct Causing or Inducing a Breach of Contract or
Business Expectancy

¶16 Howerton argues that Appellees interfered with her contract
and business expectancy with Mac Kenzie and Alpine in two ways. First,
she alleges Appellees diverted funds from the PPP loan and GoFundMe
account. Second, she claims Appellees interfered with her contractual right
to take over Alpine after Mac Kenzie’s default by appropriating Alpine’s
goodwill, digital presence, and phone number for Midtown.

1. PPP and GoFundMe Funds

¶17 The PPP funds were deposited into Alpine’s bank account on
May 7, 2020. As a secured creditor, Howerton had an interest in Alpine’s
accounts. Howerton argues that by using Alpine’s PPP funds to operate
Midtown or pay Mac Kenzie’s personal expenses, Appellees interfered with
her contractual right to recover her collateral.7 Howerton also arguably had
an interest in the GoFundMe proceeds raised to pay down the lease and
note. Viewing the facts in the light most favorable to Howerton, a
reasonable inference is that Appellees’ actions interfered with the intended
use of these funds and Howerton’s interest in them as collateral under the
security agreement. It is this conduct, not Mac Kenzie’s earlier breach of
the lease and promissory notes, that forms the basis of the intentional
interference with contractual relations and business expectancy claims.

¶18 As to the use of the funds, Mac Kenzie testified that Alpine
continued to pay employees after April 30 because he had not decided
whether to close Alpine for good. In fact, through June 12, 2020, Alpine
continued to pay employees. But Mrs. Page formed Midtown on May 7,
2020, and several former Alpine employees went to work for Midtown.
Given the timing of these payments, it is reasonable to infer that the Pages
used Alpine’s PPP funds to pay Midtown employees. Thus, a question of
fact exists whether Mrs. Page used Howerton’s collateral (the funds in
Alpine’s account) to pay Midtown employees.

¶19 Additionally, a significant portion of the PPP funds went to
Alpine and Mac Kenzie’s attorney. This was not one of the stated purposes
on the PPP loan application, and Mrs. Page appears to have written those
checks. By directing Alpine’s funds to something other than Alpine’s

7 The PPP application was not applied for under Alpine’s name but under

“Donald S[.] MacKenzie DVM PLLC.”

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payroll, lease, or mortgage interest, Appellees arguably interfered with
Howerton’s interest in the collateral.

¶20 Mrs. Page created the GoFundMe account specifically to raise
money to “fulfill the obligations of our lease.” She claimed the funds raised
would cover two months’ rent, late fees, and unpaid property taxes. The
initial GoFundMe page also stated that loans owed to Howerton were “in
jeopardy” and any excess funds raised would “go directly to helping us
handle those loans, so that Alpine Animal Clinic can remain in business at
the new location.” They raised $22,218 in several hours. A few days later,
Mrs. Page updated the site, clarifying that the loan payments were current
and any excess funds would be reserved for payroll and legal fees. The
total amount raised was $32,393.8

¶21 Mrs. Page deposited the GoFundMe proceeds into her
personal bank account and then transferred $30,000 to Midtown’s newly-
opened bank account. Howerton contends that Appellees paid Midtown’s
operating expenses from these funds. Appellees deny this and claim the
GoFundMe proceeds went almost exclusively to pay Mac Kenzie’s legal
fees.9 Regardless how the GoFundMe proceeds were spent, they were in
the Midtown bank account, which supports the inference that Appellees,
not Mac Kenzie, controlled these funds. Mac Kenzie himself was
inconsistent on this point. Thus, there is a factual dispute on this issue.

2. Goodwill and Digital Media Accounts

¶22 The contract allowed Howerton to take over the practice in
the event of a default. Howerton argues that Appellees misled Alpine
clients by implying that Alpine would continue at the new location, when
it was actually Midtown. According to Howerton, this interfered with her
contractual right to take over the Alpine practice upon Mac Kenzie’s breach.

¶23 Howerton contends that Appellees relied on Alpine’s
goodwill and digital media accounts—such as Yelp, Facebook, and
Google—to market and promote Midtown. She also notes that calls to
Alpine were forwarded to Midtown, whose employees managed calls from

8 The net amount was $31,381.47 after fees.

9 Bank records show that after Mrs. Page deposited the GoFundMe
proceeds into Midtown’s account, she used the account to pay various
expenses. Although some expenses may have included Mac Kenzie’s
attorneys’ fees, many appear to be regular business expenses.

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Alpine clients. On March 23, 2020, Alpine’s Facebook page announced that
Alpine was moving in May, and Mrs. Page also emailed notice of the move
to Alpine clients. Alpine’s digital accounts merged with Midtown’s digital
accounts, and reviews of Mac Kenzie from his time at Alpine appeared on
Midtown’s accounts.

¶24 Appellees do not dispute that Alpine’s Facebook and Yelp
accounts were “inadvertently” changed to provide Midtown’s information,
but claim it was only for a short time and did not confuse any clients.
Whether it was inadvertent, quickly corrected, or confused clients are
disputed facts. And although customer reviews of Mac Kenzie are personal
to him, Midtown’s digital accounts included several reviews of Alpine
Animal Clinic, not just Mac Kenzie personally. Although Mac Kenzie was
free to practice at another clinic, a jury could reasonably conclude that
Appellees’ actions intentionally capitalized on Alpine’s goodwill and
digital accounts to divert Alpine clients to Midtown, thereby interfering
with Howerton’s contractual right to take over the Alpine practice.

3. Agency Defense

¶25 The Pages argue that because they acted as Mac Kenzie’s
agents, they could not have interfered with his contracts or business
expectancies. See Barrow v. Ariz. Bd. of Regents, 158 Ariz. 71, 78 (App. 1988)
(holding that employees acting for their company cannot interfere with the
company’s contract); see also Lindsey v. Dempsey, 153 Ariz. 230, 233 (App.
1987) (same). However, the parties dispute when the Pages stopped acting
as Mac Kenzie’s employees and began acting as Midtown’s owners.

¶26 Many of the alleged acts occurred between the date Alpine
closed and the date the Pages started Midtown. Although the Pages claim
they acted as Mac Kenzie’s employees, they admit their employment ended
on April 30, 2020. The Pages incorporated Midtown on May 7, 2020, and
opened for business on June 1, 2020. As of May 7, 2020, the Pages owned
and operated Midtown, and Mac Kenzie was their employee.

¶27 It is unclear whether or for how long Mrs. Page acted as Mac
Kenzie’s agent after Alpine closed on April 30, 2020. Some evidence
indicates Mac Kenzie directed using the PPP funds to continue paying
Alpine employees. For example, Mrs. Page continued writing checks on
the Alpine account until September 9, 2020. But if Alpine closed and the
Pages no longer worked for Alpine as of April 30, then it is also reasonable
to infer that the Pages acted in concert with Mac Kenzie after they formed
Midtown and were not acting as his agents when they used the PPP funds

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to pay Midtown employees who no longer worked for Alpine.
Furthermore, the GoFundMe proceeds were always in Midtown’s account,
and Mac Kenzie was only a Midtown employee, so the Pages’ use of those
funds could not have been as his agent. Therefore, whether the Pages acted
as Mac Kenzie’s agents is a disputed fact question.

C. Wrongful and Improper Conduct

¶28 Howerton must also show that Appellees’ interference was
improper. See Neonatology Assocs., Ltd. v. Phoenix Perinatal Assocs., Inc., 216
Ariz. 185, 187-88, ¶ 8 (App. 2007) (citations omitted). To determine whether
conduct is improper, courts consider seven factors: (1) “the nature of the
actor’s conduct,” (2) “the actor’s motive,” (3) “the interests of the other with
which the actor’s conduct interferes,” (4) “the interests sought to be
advanced by the actor,” (5) the social interests in protecting the actor’s
freedom to act and the other’s contractual interests, (6) “the proximity or
remoteness of the actor’s conduct to the interference,” and (7) “the relations
between the parties.” Id. at 188, ¶ 8 (quoting Wagenseller v. Scottsdale Mem’l
Hosp., 147 Ariz. 370, 387 (1985), superseded by statute on other grounds).
Usually, determining the propriety of an actor’s motive is a question of fact,
unless “there is no reasonable inference to the contrary in the record.” Id.
at ¶ 9 (citing Woerth v. City of Flagstaff, 167 Ariz. 412, 419 (App. 1990)).

¶29 Appellees argue that Howerton provided no evidence to
dispute their claim that their motive in opening Midtown was to earn a
living after Alpine closed. Although it is not improper for a competitor to
advance their own economic interest, see Miller v. Hehlen, 209 Ariz. 462, 471,
¶ 32 (App. 2005) (citing Bar J Bar Cattle Co. v. Pace, 158 Ariz. 481, 485 (App.
1988); Restatement (Second) of Torts (“Restatement”) § 768 (1979)),
Appellees miss the mark. The conduct at issue was not opening a
competing practice. Rather, it was Appellees’ use of Alpine’s PPP funds,
GoFundMe proceeds, digital accounts, and goodwill to further their
practice. Thus, there is a question of fact as to the Pages’ motives in using
these assets.

¶30 It is also reasonable to question Appellees’ motives because
the superior court found questions of fact existed on the fraudulent transfer
claim. This finding shows at least a debatable issue existed as to the nature
of the Pages’ conduct and their motive. See Restatement § 767 cmt. c (1979)
(explaining that fraudulent or defamatory representations may show that
the actor’s interference is improper).

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¶31 Appellees again argue they acted at all times as Mac Kenzie’s
agent, not on their own, and they only formed Midtown once Alpine closed
and they were left unemployed. The underlying facts are not in dispute,
but a reasonable jury could draw conflicting inferences about the propriety
of Appellees’ conduct from those facts. The court erred in granting
summary judgment.

D. Damages

¶32 Appellees contend there were no damages because they did
not interfere with Howerton’s contractual rights or business expectancies.
But the issue of damages is still in question until the interference claims
discussed above are resolved.

¶33 Because material factual disputes exist, the superior court
erred by granting summary judgment on the intentional interference with
contractual relations and business expectancy claims.

II. Conversion

¶34 Howerton contends that Appellees converted the collateral
securing the promissory notes, specifically the PPP funds, GoFundMe
proceeds, Alpine’s clients, client lists, digital accounts, and goodwill. She
does not contend that Appellees converted any Alpine equipment or
inventory.

¶35 “Conversion is an intentional exercise of dominion or control
over a chattel which so seriously interferes with the right of another to
control it that the actor may justly be required to pay the other the full value
of the chattel.” Miller, 209 Ariz. at 472, ¶ 34 (quoting Restatement § 222A(1)
(1965)). If the plaintiff proves these elements, then the court considers the
seriousness of the interference and whether the converting party must pay
full value. Id. A party can only convert tangible personal property or
intangible property that is merged with or identified with a document. Id.
at ¶ 35 (citations omitted).

¶36 Appellees argue that the goodwill, clients, client lists, and
digital accounts are intangible and thus cannot be converted. Conversely,
Howerton argues that because these intangibles are listed as collateral in
the promissory notes and security agreements, they are merged with a
document and subject to a conversion claim.

¶37 Appellees argue that Howerton’s claim for conversion of
intangible property must fail because Arizona has not recognized such a

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claim. Not so. Miller recognized the rule that an action for conversion lies
for “intangible property that is merged in, or identified with, some
document.” Id. (quoting 18 Am. Jur. 2d Conversion § 7 (2004); see also
Restatement § 242 cmt. a (1965)). But the court found the customer list in
Miller did not constitute intangible property merged with a document for
purposes of conversion because the list had no value “in the same sense as
a stock certificate or an insurance policy.” Id.

¶38 Although Miller did not address promissory notes
specifically, the Restatement § 242, comment b, lists “promissory notes,
bonds, bills of exchange, share certificates, and warehouse receipts” among
the types of documents in which an intangible right may be merged for
purposes of asserting a conversion claim. “These documents all share in
common the fact that they are tangible documents containing intangible
rights which are easily converted into tangible assets, not dissimilar to
currency.” The Film & Tape Works, Inc. v. Junetwenty Films, Inc., 856 N.E.2d
612, 624 (Ill. App. Ct. 2006).

A. Goodwill

¶39 Although the goodwill security agreement lists goodwill as
collateral, we have found no cases holding that intangible property such as
goodwill becomes subject to conversion because it is included as collateral
in a promissory note or security agreement. Goodwill is unlike other forms
of intangible property rights that can merge or be identified with a
document. A stock certificate or warehouse receipt represents a specific
sum of money or item that can be controlled to the exclusion of the other
party. Although parties can (and did here) place a monetary value on
goodwill, it is, nevertheless, an intangible form of collateral unlike
inventory, equipment, or money. See Restatement § 242 cmt. f (“It is at
present the prevailing view that there can be no conversion of . . . such
intangible rights as the goodwill of a business or the names of customers.”);
but see Mitchell v. Mitchell, 152 Ariz. 317, 323 (1987) (holding in a dissolution
case that valuing goodwill is difficult, but courts have discretion to
determine the value of goodwill based on the unique facts of each case).

¶40 Although Howerton, as a secured creditor, had a possessory
interest in the collateral, the collateral must be property subject to a
conversion action. Howerton’s reliance on Citicorp Homeowners, Inc. v.
Western Surety Co., 131 Ariz. 334 (App. 1981), is misplaced. The collateral
in Citicorp was tangible property, unlike the intangible goodwill at issue
here. Id. at 336. Appellees cannot be liable for the conversion of any
goodwill.

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B. Digital Client Records, Social Media, and Marketing Accounts

¶41 Howerton also listed clients, client records, and digital
accounts as converted property. Clients are not property and, therefore,
cannot be converted. To the extent Howerton asserts a conversion claim for
Alpine clients, summary judgment was proper.

¶42 The client medical records were maintained in a cloud-based
system. Although digital client records are intangible, they contain the
same information that would be found in physical records. See Thyroff v.
Nationwide Mut. Ins. Co., 864 N.E.2d 1272, 1277-78 (N.Y. 2007). The client
medical records, digital or physical, are collateral to which Howerton was
entitled under the security agreement. Regardless of the security
agreement, this conversion claim is no different than if Alpine had
maintained paper client records and Appellees retained exclusive control
over the documents.

¶43 Howerton alleged that Appellees maintained access to the
client records after Alpine closed and she could not access them. According
to Mac Kenzie, only he and Mrs. Page had access to client records after
Alpine closed. This statement supports an inference that Appellees
exercised control over the client records in a manner inconsistent with
Howerton’s right to do so after the default.

¶44 Digital marketing and social media accounts exist on the
internet and are, therefore, intangible in that sense. The digital marketing
and social media accounts and phone number belonged to Alpine, and as
such they are also assets that Howerton had a right to control after the
default. See Bearoff v. Craton, 830 S.E.2d 362, 376 (Ga. Ct. App. 2019)
(holding that a business’s social media accounts constituted collateral
under a security agreement subject to a conversion claim when the
defendants continued to use the social media accounts for their own
business); but see Low v. LinkedIn Corp., 900 F. Supp. 2d 1010, 1030 (N.D. Cal.
2012) (holding that under California law, user identification numbers and
user resource locators of users’ profile pages on a social media website were
not capable of exclusive control so the consumer had no property interest
in the information to support a conversion claim). Although they lack a
physical format, these are online resources that clients can use to do
business with Alpine. Unlike goodwill, Appellees could control this digital
property to the exclusion of Howerton. Whether they did so is unclear from
the record.

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¶45 Appellees concede there was some overlap in the digital
accounts and phone numbers for a short time. They claim this was so they
could inform Alpine clients calling for appointments to call another clinic
and was not done in bad faith. Appellees’ “alleged good faith is
immaterial.” Mezey v. Fioramonti, 204 Ariz. 599, 608, ¶ 37 (App. 2003),
disapproved of on other grounds in Bilke v. State, 206 Ariz. 462, 468, ¶ 28 (2003).
The relevant issue is whether Appellees exercised control in a manner
inconsistent with Howerton’s rights in the property. Id. This is a disputed
question of fact on this record.

C. PPP and GoFundMe Funds

¶46 Lastly, Appellees concede that the PPP funds and GoFundMe
proceeds are tangible assets but argue that Mac Kenzie directed the
disbursement of these funds, so they are not liable. “[M]oney can be the
subject of a conversion action if the funds can be described, identified or
segregated and there is an obligation to treat the funds in a specific
manner.” Koss Corp. v. Am. Express Co., 233 Ariz. 74, 90, ¶ 54 (App. 2013)
(citations omitted). As stated above, see supra ¶ 27, there are disputed
factual issues on the agency defense precluding summary judgment. Thus,
summary judgment on the conversion of funds was also improper.

III. Successor Liability

¶47 Howerton argues that Appellees are liable for Mac Kenzie’s
obligations under the theory of successor liability. A successor company is
liable for the predecessor company’s obligations when (1) the successor is a
mere continuation or reincarnation of the predecessor or (2) clear and
convincing evidence shows the predecessor transferred assets to the
successor for the fraudulent purpose of escaping debt liability. Warne Invs.,
Ltd. v. Higgins, 219 Ariz. 186, 191, ¶ 16 (App. 2008).10

A. Mere Continuation Theory

¶48 To be liable under the mere continuation theory, “there must
be ‘a substantial similarity in the ownership and control of the two
corporations,’ and ‘insufficient consideration running from the new
company to the old’ for the assets passing to the new company.” Warne,

10 Two other bases exist for imposing successor liability, but neither apply

here. See Warne, 219 Ariz. at 191, ¶ 16 (stating that successor liability also
exists if the successor expressly agreed to assume the predecessor’s
liabilities or if the alleged transactions between the two companies
amounted to a consolidation or merger).

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219 Ariz. at 192, ¶ 18 (citing A.R. Teeters & Assocs., Inc. v. Eastman Kodak Co., 172 Ariz. 324, 330 (App. 1992)). The basis for this liability is to prevent a
company from escaping liability by merely changing its form without
significantly altering the substance of the company. Id. at 191-92, ¶ 18
(citation omitted).

¶49 Here, there is a substantive difference in ownership. Mac
Kenzie owned Alpine, and Mrs. Page owns Midtown. Despite this change
in ownership, Howerton contends there was no real change in how the
practice operated. To be sure, Mac Kenzie admitted that while Alpine
operated, Mrs. Page handled the business side of the practice, and he
focused on the medical aspects. But, in most jurisdictions, the relevant
inquiry “is whether there is a continuation of the corporate entity of the
seller—not whether there is a continuation of the seller’s business operation.”
Vernon v. Schuster, 688 N.E.2d 1172, 1176 (Ill. 1997).

¶50 Howerton argues the continuation of corporate identity is but
one of several factors that courts consider. In addition to the similar
directors, officers, and stockholders, courts consider other similarities such
as customers, products, employees, geographic area, and operations. See
Warne, 219 Ariz. at 192, ¶ 19 (companies had similar names, services
provided, customers, and business partners); Teeters, 172 Ariz. at 328, 330
(companies had similar customers, products, customer contracts, and
geographic area); Bogart v. Phase II Pasta Machs., Inc., 817 F. Supp. 547, 549
(E.D. Penn. 1993) (companies had similar business operations and
products); Gladstone v. Stuart Cinemas, Inc., 878 A.2d 214, 223-24, ¶¶ 24-25
(Vt. 2005) (companies had similar business operations, telephone numbers,
and employees). But in each case, the two companies also had the same
owners, officers, or directors. See Warne, 219 Ariz. at 192, ¶ 19; Teeters, 172
Ariz. at 330; Bogart, 817 F. Supp. at 549; Gladstone, 878 A.2d at 217, ¶ 5.

¶51 Although Alpine and Midtown operate in the same manner
and the ownership change is unlikely to affect the clients, the change in
ownership is a substantive difference with legal ramifications. A similarity
in ownership is required. Warne, 219 Ariz. at 192, ¶ 18 (citing Teeters, 172
Ariz. at 330). “The reason for this requirement is that corporate liability
adheres not to the nature of the business enterprise but to the corporate
entity itself.” Bud Antle, Inc. v. E. Foods, Inc., 758 F.2d 1451, 1458 (11th Cir.
1985) (citing Fehl v. S.W.C. Corp., 433 F. Supp. 939, 945 (D. Del. 1977)). Thus,
the successor liability claim cannot rely on the mere continuation theory.

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Decision of the Court

B. Fraudulent Purpose

¶52 Successor liability also exists when “the transfer of assets to
the purchaser is for the fraudulent purpose of escaping liability for the
seller’s debts.” Teeters, 172 Ariz. at 329 (citation omitted). According to
Appellees, they did not receive any assets from Alpine, so there can be no
fraudulent transfer. Although Appellees may not have received any
inventory or equipment from Alpine, the PPP funds and GoFundMe
proceeds are Alpine’s assets. In fact, the superior court denied summary
judgment on the fraudulent transfer claim based on the transfer of PPP
funds. Similarly, the client records, digital accounts, and telephone
numbers are Alpine property that Appellees arguably transferred to the
new practice at Midtown. Although Appellees contend they had no
fraudulent intent, direct proof of a fraudulent intent is not required. “A
party can meet its burden of proof by showing circumstantial evidence
through which fraud may reasonably be inferred.” Premier Fin. Servs. v.
Citibank (Ariz.), 185 Ariz. 80, 85 (App. 1995) (citing Ollason v. Glasscock, 26
Ariz. 193, 202 (1924)).

¶53 Howerton’s allegations support several “badges of fraud,”
i.e., facts that tend to show the existence of fraud. See id. at 84 n.2. The
factors set forth in A.R.S. § 44-1004(B) list badges of fraud that courts may
consider in deciding a fraudulent transfer claim. Because a claim for
successor liability based on a fraudulent transfer is analogous, we consider
the same factors in determining whether summary judgment was
appropriate. See Gibbons v. Kodiak Concepts, LLC, 1 CA-CV 21-0211, 2022 WL
453999 at *5, ¶¶ 24-26 (Ariz. App. Feb. 15, 2022) (mem. decision) (applying
factors in § 44-1004(B) to determine a successor liability claim based on a
fraudulent purpose theory); Airbus DS Optronics GmbH v. Nivisys LLC, CV-
14-02399-PHX-JAT, 2017 WL 1197105, at *10 (D. Ariz. Mar. 31, 2017) (order)
(holding that “fraudulent transfer claims are governed by the same rules
for a finding of fraud to impose successor liability” (citation omitted)).

¶54 The Pages were arguably insiders because Mrs. Page
managed the Alpine practice, and both were Alpine employees. See A.R.S.
§ 44-1004(B)(1) (“The transfer or obligation was to an insider.”). There is
some evidence that Mac Kenzie also retained control of at least some
property. See A.R.S. § 44-1004(B)(2) (“The debtor retained possession or
control of the property transferred after the transfer.”). According to the
Pages, Mac Kenzie directed the use of all funds. Along with Mrs. Page, he
also controlled client records after Midtown opened. Appellees argued this
is because he is legally required to maintain client records, but this does not
necessarily negate a fraudulent intent.

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Decision of the Court

¶55 At the time they formed Midtown, the Pages were aware of
Mac Kenzie’s obligations, although they dispute the extent of that
knowledge. See A.R.S. § 44-1004(B)(3) (“The transfer or obligation was
disclosed or concealed.”). Howerton also alleged that the GoFundMe
proceeds transfer was concealed to the extent the funds were not used for
the reasons stated in the public fundraising announcement. Again,
Appellees claim they did not use the funds improperly, but direct evidence
is not required. Premier Fin. Servs., 185 Ariz. at 85. A contrary inference is
also reasonable.

¶56 The Pages knew (1) Mac Kenzie was consulting an attorney
about the dispute with Howerton and (2) Howerton had secured the
premises after the default. Thus, it is reasonable to infer the Pages knew
Mac Kenzie was subject to a lawsuit. See A.R.S. § 44-1004(B)(4) (“Before the
transfer was made . . . the debtor had been sued or threatened with suit.”).
Howerton argued that Mac Kenzie transferred substantially all of Alpine’s
assets to Midtown. See A.R.S. § 44-1004(B)(5) (“The transfer was of
substantially all of the debtor’s assets.”). Whether Midtown received
“substantially all” of Alpine’s assets is unclear from the record, but the
amount of assets transferred was not de minimis.

¶57 The superior court erred in granting summary judgment on
the successor liability claim based on the fraudulent transfer theory.
However, the court properly granted summary judgment on the mere
continuation theory.

IV. Constructive Trust and Declaratory Judgment

¶58 Howerton’s third-party complaint sought a constructive trust
on the GoFundMe proceeds and a declaration that Howerton is entitled to
a constructive trust on the GoFundMe proceeds. “A court may impose a
constructive trust when title to property has been obtained through actual
fraud, misrepresentation, concealment, undue influence, duress, or similar
means, or if there has been a breach of fiduciary duty.” Cal X-Tra v.
W.V.S.V. Holdings, L.L.C., 229 Ariz. 377, 409, ¶ 107 (App. 2012) (citations
omitted).

¶59 Appellees argue they were entitled to summary judgment on
these claims because they did not benefit from these funds or act in bad
faith. Questions of fact exist about the propriety of Appellees’ use of these
funds. But we may affirm the superior court’s ruling if it reached the right
result for any reason. See Schooley v. Pena, 253 Ariz. 185, 188, ¶ 10 (App.
2022) (citing Gen. Elec. Cap. Corp. v. Osterkamp, 172 Ariz. 191, 193 (App.

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Decision of the Court

1992)). Howerton’s request for a constructive trust and related declaratory
judgment is limited to the GoFundMe proceeds. Although she identified a
specific fund, the money has been spent. Thus, money damages is an
appropriate remedy, and “[a] general claim for money damages will not
give rise to a constructive trust.” Burch & Cracchiolo, P.A. v. Pugliani, 144
Ariz. 281, 286 (1985) (citing Amtitle Tr. Co. v. Fitch, 25 Ariz. App. 182, 184
(1975)). Howerton is not entitled to a constructive trust. Therefore,
summary judgment on the constructive trust and declaratory judgment
claims is affirmed.

V. Attorneys’ Fees and Costs on Appeal

¶60 Both parties request attorneys’ fees and costs on appeal under
A.R.S. § 12-341.01, which authorizes an award of fees to the prevailing party
in a contract action. Only the successor liability claim is based on a contract,
and neither party was entirely successful on that claim. The remaining
claims sound in tort, not contract. See Bar J Bar Cattle Co., 158 Ariz. at 486
(“The duty not to interfere with the contract of another arises out of law,
not contract.”). Nor are Appellees entitled to an award of attorneys’ fees
under A.R.S. § 12-349. Each party shall pay their own fees and costs on
appeal.

CONCLUSION

¶61 We vacate summary judgment on the intentional interference
with contractual relations and business expectancy claims. We affirm
summary judgment on the conversion of goodwill and clients but vacate
summary judgment on the remaining conversion claims. The judgment on
successor liability is vacated as to the fraudulent purpose theory, but we
affirm the ruling that Howerton cannot base the successor liability claim on
the mere continuation theory. We also affirm the entry of summary
judgment on the constructive trust and declaratory judgment claims. We
remand the matter to the superior court for further proceedings consistent
with this decision.

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

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