Nbd Enterprises, LLC v. James Christopher Arnold; Acp Investments

IN THE
ARIZONA COURT OF APPEALS
DIVISION TWO

NBD ENTERPRISES, LLC,
AN ARIZONA LIMITED LIABILITY COMPANY,
Plaintiff/Appellee,

v.

JAMES CHRISTOPHER ARNOLD AND STACEY L. ARNOLD, ARIZONA RESIDENTS;
UCI CAPITAL INC., AN ARIZONA CORPORATION;
AFG, INC., AN ARIZONA CORPORATION,
Defendants/Appellants.

No. 2 CA-CV 2024-0396
Filed September 30, 2025

Appeal from the Superior Court in Maricopa County
No. CV2024013750
The Honorable M. Scott McCoy, Judge

AFFIRMED

COUNSEL

May, Potenza, Baran & Gillespie P.C., Phoenix
By Jesse R. Callahan, Philip C. Wilson, Andrew S. Lishko, Carrie A.
Laliberte, and Kathleen A. Shaffer

and

Rai Duer PC, Phoenix
By Peter B. Swann
Counsel for Plaintiff/Appellee

Burch & Cracchiolo P.A., Phoenix
By Daryl Manhart, Susanne E. Ingold, Jake D. Curtis, and Ryan Anderson
Counsel for Defendants/Appellants
 NBD ENTERS., INC. v. ARNOLD
Opinion of the Court

OPINION

Judge Sklar authored the opinion of the Court, in which Vice Chief Judge
Eppich and Judge O’Neil concurred.

S K L A R, Judge:

This case requires us to address how equitable principles
affect a court’s power to appoint a receiver under A.R.S. § 12-1241. The
statute allows a court to “appoint a receiver to protect and preserve
property or the rights of parties therein.” Although the statute does not
reference equity, Rule 66(c)(4) of the Arizona Rules of Civil Procedure does
so. It provides, “If applicable, principles of equity govern all matters
relating to the appointment of receivers.”

We address the relationship between the statute and rule in
reviewing the trial court’s appointment of a receiver for ACP Investments,
LLC. The appellants, including ACPI’s manager, James Christopher
Arnold, argue that, consistent with Rule 66(c)(4), equity generally does not
allow a receiver to be appointed for an ongoing business that is solvent and
capable of continuing to operate. They argue that ACPI satisfied these
conditions, so the court erred by appointing a receiver.

We disagree. Under the statute, the trial court concluded that
a receiver was necessary to protect ACPI and its property. And consistent
with the rule, the court’s decision was guided by equitable principles. It
was also supported by the evidence. Plaintiff NBD Enterprises, LLC, an
ACPI member, presented evidence that ACPI had overstated its loans from
Arnold by tens of millions of dollars, suffered significant financial losses,
and misled investors. ACPI’s satisfaction of the conditions identified by
Arnold did not preclude the appointment of a receiver, which we affirm.

BACKGROUND

Arnold and NBD’s principal, Taylor Lewan, organized NBD
in 2014 to manage and operate Lewan’s business and finances. Initially,
Lewan’s trust held a ninety-nine percent interest in NBD, and an entity
managed by Arnold, either AFG or UCI, held the remaining one percent.
Arnold was NBD’s manager. Arnold was also the manager of ACPI, in
which his entities hold an approximately fifty-percent interest. NBD holds
a roughly twenty-percent interest.

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Opinion of the Court

In 2024, NBD applied for a receiver over ACPI. It alleged that
Arnold had misappropriated NBD’s investment in ACPI and fraudulently
diluted NBD’s interest. It also alleged that Arnold had used ACPI to siphon
money from NBD to his entities. And it alleged that Arnold had induced
NBD to sign multiple loan documents that, in effect, increased Arnold’s
capital contributions to ACPI. As a result, NBD argued that so long as
Arnold remained ACPI’s manager, NBD’s rights in ACPI were at risk.

After an evidentiary hearing, the trial court appointed a
receiver over ACPI. Arnold appealed, along with his wife, AFG, and UCI.
We refer to the appellants collectively as “Arnold.” ACPI, which is now
subject to the receivership, is not a party to the appeal.

EQUITY’S ROLE IN A TRIAL COURT’S
SECTION 12-1241 AUTHORITY

Because Arnold challenges the trial court’s exercise of its
authority under Section 12-1241, we begin by describing the scope of that
authority, including the role of equity in constraining that authority. This
is an issue of law subject to de novo review. Gravel Res. of Ariz. v. Hills, 217
Ariz. 33, ¶ 7 (App. 2007).

A receiver is an officer of the court that is authorized to
manage a defendant’s property, subject to court-imposed limits. See Mashni
v. Foster, 234 Ariz. 522, ¶ 15 (App. 2014); cf. A.R.S. § 33-2601(14)–(15)
(defining “receiver” and “receivership” in real-estate context). A
receivership has been described as a “drastic remedy” that courts
reluctantly impose. Johnson Utils, L.L.C. v. Ariz. Corp. Comm’n, 249 Ariz. 215,
¶ 111 (2020) (Bolick, J., concurring in part and dissenting in part) (quoting
Tate v. Phila. Transp. Co., 190 A.2d 316, 321 (Pa. 1963)).

A receivership is also “an equitable remedy,” rooted in the
common law. UMB Bank, NA v. Parkview Sch., Inc., 254 Ariz. 383, ¶ 16 (App.
2023); see also Mosher v. Lount, 29 Ariz. 267, 273 (1925) (applying common
law in reviewing court’s decision to appoint receiver). Rule 66(c)(4)
comports with this understanding by providing, “If applicable, principles
of equity govern all matters relating to the appointment of receivers, their
powers, duties and liabilities, and the court’s power.”

As noted, though, the statutory basis for the receivership was
Section 12-1241, which allows courts to appoint a receiver “to protect and
preserve property or the rights of parties therein.” By its text, this statute
does not limit the court’s authority based on equitable principles. See

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Opinion of the Court

Garibay v. Johnson, 259 Ariz. 248, ¶ 23 (2025) (requiring statutory
interpretation to “begin with the text”).

Arnold argues, though, that Rule 66’s reference to equity
nevertheless constrains the court’s authority. He reasons that the
appointment of a receiver is a procedural matter governed by our supreme
court’s rulemaking power. See Ariz. Const. art. 6, § 5 (vesting supreme
court with “[p]ower to make rules relative to all procedural matters in any
court”). Under that power, “in the event of irreconcilable conflict between
a procedural statute and a rule, the rule prevails.” Seisinger v. Siebel, 220
Ariz. 85, ¶ 8 (2009).

If possible, however, we must interpret the rule and statute to
avoid a conflict. See State v. Brearcliffe, 254 Ariz. 579, ¶ 22 (2023). Doing so
is possible here. Rule 66(c)(4) limits equitable principles to situations where
“applicable.” And as our supreme court recently reaffirmed, “When rights
are clearly established and defined by a statute, equity has no power to
change or upset such rights.” Aroca v. Tang Inv. Co. LLC, 259 Ariz. 302, ¶ 21
(2025) (quoting Valley Drive-In Theatre Corp. v. Superior Court, 79 Ariz. 396,
399 (1955)); see also A.R.S. § 1-201 (adopting common law “only so far as it
is . . . not repugnant to or inconsistent with . . . the constitution or laws of
this state”). By using the language “[i]f applicable,” Rule 66(c)(4)
acknowledges this limiting principle. Thus, the equitable principles
recognized in Rule 66(c)(4) do not constrain the trial court’s authority to
appoint a receiver under Section 12-1241.

Rule 66(c)(4) still makes equitable principles relevant in
aspects of receiverships where the legislature has not spoken. These
include, as applicable, the receiver’s “powers, duties and liabilities, and the
court’s power.” We also interpret Rule 66(c)(4) as directing courts to
consider equitable principles in exercising their authority under Section
12-1241. This makes sense, as that authority is discretionary. See Gravel Res.
of Ariz., 217 Ariz. 33, ¶ 6. This interpretation gives meaning to the rule’s
incorporation of equity into the “appointment of receivers,” while not
infringing on the legislature’s power to define the court’s authority. See
Magee v. Olson, No. 1 CA-SA 25-0103, ¶ 9, 2025 WL 1936508 (Ariz. App. July
15, 2025) (requiring courts to give meaning to each word in interpreting
rules). In short, Rule 66(c)(4) does not constrain the court’s statutory
authority, but it requires that equity guide the court’s exercise of its
discretion.

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 NBD ENTERS., INC. v. ARNOLD
Opinion of the Court

EXERCISE OF TRIAL COURT’S EQUITABLE DISCRETION

Arnold argues that the trial court abused its equitable
discretion under Section 12-1241. Gravel Res. of Ariz., 217 Ariz. 33, ¶ 6. In
reviewing this issue, we defer to the court’s weighing of conflicting
evidence and witness credibility. Swain v. Bixby Vill. Golf Course Inc, 247
Ariz. 405, ¶ 32 (App. 2019). We also defer to its factual findings unless they
are clearly erroneous. Flying Diamond Airpark, LLC v. Meienberg, 215 Ariz.
44, ¶ 9 (App. 2007).

I. Equitable limitations guiding trial court’s exercise of discretion

In arguing that the trial court abused its discretion, Arnold
relies on the equitable principle that receiverships are a “drastic remedy”
and should typically be imposed only as a “last resort.” Relying on a long
list of Arizona cases, Arnold distills the principle that equity counsels
against appointing a receiver for a “solvent, ongoing business that is
capable of continuing to operate,” such as ACPI. Rather, in his view, equity
typically justifies appointing a receiver where an entity is (1) insolvent or
defunct, (2) facing foreclosures or plummeting secured-property values, or
(3) unable to continue operating. ACPI faced none of these circumstances.

Much of that case law, however, derives from an earlier
statute that enabled trial courts to appoint receivers in fewer circumstances
than Section 12-1241. Courts could do so only in pending actions “when no
other adequate remedy is given by law for the protection and preservation
of property, or the rights of parties therein pending litigation” regarding
those rights. Ariz. Civ. Code, § 323 (1901). And even with these limitations,
our supreme court interpreted the statute to allow receiverships in more
circumstances than Arnold asserts. See generally Mosher, 29 Ariz. 267; United
Sanders Stores, Inc. v. Messick, 39 Ariz. 323 (1931). These included when
property was “in great danger of being dissipated or destroyed.” Mosher,
29 Ariz. at 273.

When the property is a business entity, that danger could
occur due to mismanagement, including the likelihood that a manager will
completely dissipate the company’s assets. Id. at 273-74; cf. State v. Alianza
Hispano-Americana, 60 Ariz. 1, 7-8 (1942) (affirming denial of state’s
receivership request over previously mismanaged corporation where new
management could restore the corporation to solvency). It could also occur
when it appears that a company is “organized and operated” on the basis
of fraud. Messick, 39 Ariz. at 329-30. Thus, ample case law supports the

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view that even under the earlier statute, the equitable limitations asserted
by Arnold did not exist.

Those cases are even less relevant in light of the legislature’s
1993 amendment of the statute to its current form. See 1993 Ariz. Sess.
Laws, ch. 43, § 1; Gravel Res. of Ariz., 217 Ariz. 33, ¶¶ 10-11. With that
amendment, the legislature removed the requirements that a receivership
be coupled with a pending action and that “no other adequate remedy”
exist. 1993 Ariz. Sess. Laws, ch. 43, § 1. Now, a party may seek appointment
of a receiver “even if the action includes no other claim for relief” and
regardless of whether the property or these rights face irreparable harm
without a receiver. See 1993 Ariz. Sess. Laws, ch. 43, § 1; Gravel Res. of Ariz.,
217 Ariz. 33, ¶¶ 10-11. That statutory change expanded courts’ powers to
appoint receivers beyond those recognized in the earlier cases.

Arnold does cite some post-1993 cases. But only one of them,
Gravel Resources of Arizona v. Hills, concerns the court’s authority to appoint
a receiver under Section 12-1241. 217 Ariz. 33, ¶¶ 10-14. In that 2007 case,
this court affirmed the appointment of a receiver over a deadlocked
partnership. Id. The partners’ “opposing interests were unmanageable,”
and the receiver was needed to wind down the company’s affairs. Id. ¶ 13.
Although Gravel Resources is distinguishable, nothing about its reasoning
suggests that a court would abuse its discretion simply by appointing a
receiver for solvent, operating businesses.

II. Relevance of Patel v. Patel factors

We turn next to the trial court’s analysis here. In exercising
its equitable discretion, the court looked to seven factors that another
superior-court division had identified in Patel v. Patel, No. CV 2017-005472,
2017 WL 6042244 (Ariz. Super. Ct. Nov. 27, 2017). Those factors are: (1) the
defendant’s solvency; (2) whether the defendant engaged in fraud; (3) the
danger of the property being lost, concealed, injured, diminished in value,
wasted, or squandered without a receiver; (4) the adequacy of available
remedies; (5) the harm that would be caused without a receiver; (6) the
plaintiff’s likelihood of success in the lawsuit; and (7) whether the
receivership would protect the interest of the party seeking the
receivership. Id. at *3.

This court is not bound by Patel, and we decline to require
trial courts to follow it. Nor do we view Patel’s seven factors as the only
potentially relevant factors. But they are broadly consistent with the case
law we have described above, to the extent still applicable under Section

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12-1241. We agree that courts might find the factors helpful in guiding their
equitable discretion, especially before imposing the “drastic remedy” of a
receivership. Johnson Utils., 249 Ariz. 215, ¶ 111 (Bolick, J., concurring in
part and dissenting in part). We discern no error in the trial court’s decision
to rely on Patel. But in our review, we instead focus on whether the
evidence supports the court’s exercise of its equitable discretion under the
statutory standard.

III. Evidence considered in trial court’s decision to appoint receiver

The trial court found ACPI’s financial state “debatable” and
that the weight of the evidence indicated “significant peril.” The court also
found a “significant risk” that Arnold had committed fraud and could not
“be trusted” to protect “ACPI’s remaining assets or whatever is left of”
NBD’s interest. Its conclusion was driven in part by large discrepancies in
loan balances owed by ACPI to Arnold. In 2022, ACPI’s year-end balance
sheet reflected a roughly $83-million loan balance owed to Arnold’s
entities. Its balance sheet from 2023, however, reflected a year-end balance
of $54 million. Soon after, promissory notes executed in 2024 showed
balances of $65 million. During the litigation, also in 2024, Arnold filed a
declaration asserting ACPI owed his entities $62 million.

None of these balances was accurate. An auditor testified that
an audit of ACPI’s 2023 financial position revealed that $18 million of
claimed debt “should not be on the books.” That debt instead appeared to
be based on ACPI’s acquisition of a right to use a license. Ultimately, the
audit showed that Arnold was owed only about $40 million—tens of
millions of dollars less than reflected on the balance sheets or his
declaration.

Aside from the shifting balances, Arnold’s conduct
surrounding the loans raised significant questions. ACPI did not document
all the loans from Arnold’s entities, which were large. The auditor could
not precisely identify the consideration Arnold provided, though Arnold’s
loans appeared to be substantiated with “reinvested equity fees and
distributions.” NBD’s expert witness, a certified fraud examiner, also noted
that Arnold had recharacterized reinvestments of equity distributions as
debt. In addition, ACPI purportedly paid off notes but did not provide
supporting documentation during the litigation. And NBD’s expert
testified that Arnold had recorded an increase of $15.6 million in ACPI’s
goodwill, then offset it with an identical amount of debt.

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Moreover, the audit required $127 million in adjusting journal
entries due to nontrivial misstatements in ACPI’s books “as maintained by
current management.” The auditor similarly testified that he was unable to
identify millions of dollars in credit-card reimbursements that ACPI
reported as owed to Arnold’s entities. NBD’s expert testified that the
shifting loan balances and financial discrepancies indicate potential fraud.

The trial court also relied on evidence that ACPI had suffered
significant financial losses. The audit report showed a net loss for 2023 in
excess of $9 million. It also showed, though, that ACPI generated $11.4
million in earnings before interest, taxes, depreciation, and amortization.

The trial court further noted Arnold’s deceptive conduct
toward investors. As for NBD, Arnold caused it to pay $6 million to ACPI
from 2018 to 2022, as well as $19 million to Arnold’s entities. This
$25-million total was largely management funds and access fees. But
Lewan, NBD’s majority member, had believed it was only $6.5 million.
And of that, he believed $6 million was a loan convertible to equity. In
addition, Arnold unilaterally transferred part of NBD’s original investment
in ACPI to one of his wholly owned entities.

Also, Arnold sought to restrict NBD’s ability to copy ACPI’s
records and learn the identity of other investors. He did so close in time to
when NBD sought to sell its interest in ACPI. Indeed, ACPI’s principal
investor, a separate entity, did not learn of the proceedings until two weeks
before the evidentiary hearing. And until the second day of the evidentiary
hearing, ACPI did not disclose to NBD its plan to liquidate $80 million in
real estate soon after the hearing.

IV. The trial court acted within its equitable discretion

Based on this evidence, the trial court found, “[I]t requires
little imagination to see the significant risk that Mr. Arnold built ACPI
largely with Mr. Lewan’s and other investors’ money. Once Mr. Lewan
began asking questions, Mr. Arnold arranged to have his (overstated) loans
paid first if ACPI goes bust.” The evidence supports this finding. Absent
a receiver, Arnold could have continued to dissipate ACPI’s assets,
including by repaying his own overstated loans while leaving NBD and
other investors with limited recourse. We have identified no equitable
principle that precludes appointing a receiver under these circumstances.
See Gravel Res. of Ariz., 217 Ariz. 33, ¶¶ 12-14 (affirming appointment where
court found it was “best method of protecting” assets). Likewise, these

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circumstances satisfy Section 12-1241, given the need to “protect and
preserve” ACPI and its property against Arnold’s conduct.

This is true even though, as Arnold asserts, damages could
theoretically supply a remedy. The trial court acknowledged this
possibility, noting that “Mr. Lewan can be made whole in many respects by
damages.” It was appropriate for the court to weigh this possibility against
other factors. But as we have discussed, the receivership statute no longer
requires irreparable injury, so the availability of damages is not dispositive.
See 1993 Ariz. Sess. Laws, ch. 43, § 1; Gravel Res. of Ariz., 217 Ariz. 33,
¶¶ 10-11; IB Prop. Holdings, LLC v. Rancho Del Mar Apartments Ltd. P’ship,
228 Ariz. 61, ¶ 10 (App. 2011) (injury may be irreparable where damages
are insufficient remedy).

Further, although Arnold characterizes the underlying issues
as primarily involving “interpersonal claims as between Lewan and
Arnold,” those claims turn largely on Arnold’s alleged dissipation of
ACPI’s assets. Absent preservation of those assets, it is not clear that
Arnold could ultimately pay a damages award, especially of the magnitude
that NBD is seeking. Indeed, the trial court concluded that Arnold “cannot
be trusted to safeguard ACPI’s remaining assets or whatever is left of
Mr. Lewan’s investment.” Given the court’s findings about Arnold’s
conduct, the record supports this conclusion.

We acknowledge that Arnold offered contrary explanations
for ACPI’s loan-balance discrepancies, financial losses, restriction of access
to records, and other evidence indicating potential fraud. But the trial court
found his explanations not “credible or worthy of significant weight.” We
defer to that finding. See Swain, 247 Ariz. 405, ¶ 32. Likewise, much of
Arnold’s argument asks us to reweigh conflicting evidence or direct the
court to exercise its discretion differently. We will not do so. See id. We
instead conclude that the court did not abuse its equitable discretion in
appointing a receiver.

ATTORNEY FEES

NBD, which is the prevailing party on appeal, requests its
attorney fees. It does so under A.R.S. § 12-341.01, which permits a court to
award fees arising out of contract, and A.R.S. § 12-1840, which permits a
court to award costs if “equitable and just” in declaratory-judgment actions.
But it characterizes its request for fees as arising out of the underlying
claims in the litigation, which have not yet been adjudicated. We therefore
decline to award attorney fees. Our decision is without prejudice to the trial

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court considering appellate fees after the litigation concludes. But because
NBD is the prevailing party on appeal, it is entitled to recover its reasonable
costs on appeal under A.R.S. § 12-342(B).

DISPOSITION

We affirm the trial court’s appointment of a receiver.

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