Workman v. Verde Wellness Center (CA2 10/18/16)

Substantively this is about a corporation’s attempt to deprive a plaintiff of standing by throwing her off its board of directors. Procedurally it concerns a motion to dismiss converting to a motion for summary judgment.

Workman was on the board of Verde, a non-profit that dispenses “wellness” in the form of marijuana. She filed suit for dissolution, alleging various corporate misdeeds; the statute (10-11430) allows a director to do this. So the other members simply removed her from the board (though for them it wasn’t simple since they fouled it up the first time and had to go back and try again) and moved to dismiss, arguing that she had no standing since she was no longer a director. The trial court reviewed the corporate records of the removal and granted – yes, you read that right, granted – the motion. And then it doubled down on dumb by granting Verde Rule 11 sanctions. Workman appealed.

(The Court of Appeals had to kick the case back because the parties forgot to put Rule 54(c) language in the judgment. You can argue about whether we really needed another subdivision to Rule 54 but not that lawyers now have another thing they’ll forget about.)

Verde first argued that Workman should have appealed the order dismissing the case rather than the later judgment, which came a few months later (after the Rule 11 order). An order of dismissal with prejudice is appealable. The court mentions that, while the order didn’t say “with prejudice,” under Rule 41 that’s normally the default.  But dismissals with prejudice can be appealed because they prevent the entry of a judgment. Here, as the court is about to explain, a judgment was entered – a summary judgment.

Many moons ago we opined that how a Rule 12 motion converts to a Rule 56 “isn’t rocket science.” The courts at that time issued a spate of opinions to explain it, after which we said that it “used to be a fairly simple subject until repeated attention from appellate courts turned it into a quagmire, made made worse by the fact that most trial judges have no clue.” In fairness to the Court of Appeals, its still not hard and this opinion explains it; the problem is that too many judges and trial lawyers – who should know it like the backs of their hands – either don’t know how it works or don’t even know that it exists. From the looks of this opinion (which is all we have to go on; one hopes it doesn’t tell the whole story), in the trial court Verde threw corporate records into its Motion to Dismiss and it didn’t occur to anybody that this caused a complication. But those records, and Verde’s argument, dealt with things that happened after Workman filed suit so they were clearly outside the Complaint. Verde argued that they were “immaterial” because Workman admitted that the Board had removed her. But “we see no distinction between the factual allegations raised in Verde’s motion to dismiss and Workman’s admission”; what matters is that the trial court considered facts outside the Complaint. Verde also argued that the records fell within the exception, mentioned in Strategic Development (CA1 2010), for matters “central to the Complaint.”  The court notes that the Supreme Court left that one out when discussing the subject (Coleman 2012) but, in any event, these records were not central to the Complaint. So the motion converted and the trial court’s ruling was on summary judgment.

Workman argued that the facts the trial court considered were the wrong ones, that it should have accepted her Complaint’s allegation that she was a director. But taking as true all facts alleged is the standard for dismissal, not summary judgment. If she wanted to contest the facts she should have provided evidence in her opposition, as under Rule 12, or moved for additional discovery.

The court gives the substantive issue four pages (including a long paragraph explaining that litigants must have standing; for a Bar that doesn’t know how to argue motions or write judgments, maybe that’s necessary) but comes to the conclusion you knew going in: a party “cannot by its own voluntary conduct ‘moot’ a case and deprive a court of jurisdiction.” “Workman’s standing to maintain this action came into question only after she initiated it“ and “it is reasonable to infer that the board removed Workman in response to her claims . . .” The court analogizes to shareholder derivative actions, in which the corporation can’t unilaterally deprive the plaintiff of standing.

The court reverses the trial court’s orders and remands. A very competent civil opinion from CA2.

(Opinion: Workman v. Verde Wellness Center)

McNally v. Sun Lakes (CA1 10/13/16)

In which a homeowners’ association tries to blaze new trails in corporate law

Plaintiff was an elected member of  the Board of the Sun Lakes HOA. She received an email accusing HOA employees of malfeasance. The Board, in executive session,  discussed the email with its lawyer, who advised it to do nothing and to shut up about the email. (Apparently he thought the information too serious to reveal but not serious enough to investigate.) The Board also passed a strange resolution disavowing any responsibility for “maligning” the employees. Plaintiff then tried to read the email in open session but the chairman shut down the meeting. On the further advice of its attorney the Board “banned” Plaintiff from attending the Board’s executive sessions. She sued, seeking among other things an injunction to attend them. She sought a preliminary injunction; the trial court denied it. She appealed.

The Court of Appeals reverses. Nothing in the law or the HOA bylaws allows such action. Plaintiff had both a right and a duty to attend meetings, A.R.S. 10-3825. Apparently the Board’s only legal argument was that by excluding Plaintiff it was simply creating a committee. It hadn’t actually thought to try that at the time, inventing the excuse after the fact (presumably after insurance defense counsel was retained), but in any event the Board “could not have done so for the sole purpose” of excluding Plaintiff. Otherwise a Board could nullify 3825 “by creating a special executive session committee.”

The Board argued that it had no other way to keep executive-session information confidential. Whether Plaintiff had refused to do so was apparently in dispute; in any event, the Court points out that there are things called “injunctions.” It doesn’t explicitly say that an injunction would lie here but suggests that a court may exclude a Director from executive sessions that address, for example, misconduct, conflict of interest, or potential litigation involving the Director. There is also a statutory process for removing Directors for cause.

The Court remands with instructions to grant the preliminary injunction. It awards Plaintiff her fees on appeal but because other issues are pending below it denies her earlier fees, deferring to the trial court’s eventual determination of who is the prevailing party.

(Opinion: McNally v. Sun Lakes)

Griggs v. Oasis (CA1 10/6/16)

We blog this case about an adoption because it says some things about judicial immunity.

Plaintiffs agreed to adopt an unborn child. The statutes say that prospective parents must first file a report about themselves, prepared by a third party, on the basis of which the court  can certify them as “acceptable.” For that Plaintiffs hired Defendant, one of several private outfits that provide such reports. But it seems – the details aren’t given – that Defendant had doubts about Plaintiffs’ acceptability; in any event, there were “disagreements” between them. So Plaintiffs fired Defendant and hired another company. The baby was born; Plaintiffs obtained temporary custody; the new outfit filed a report pronouncing them acceptable. But then the court, without explanation, denied certification. At a later status conference the judge revoked the temporary custody and had the child picked up by CPS.

It turned out that when Plaintiffs fired Defendant it had sent a letter to the judge “expressing concerns” about Mr. Plaintiff. The judge mentioned this at the status conference; its not clear whether this was the first Plaintiffs had heard of it but they hadn’t seen it. The judge ordered Defendant to produce it for them. He also set, as Plaintiffs had requested, an evidentiary hearing. After that hearing, at which the judge heard testimony from Plaintiffs and both reporting outfits, he certified the Plaintiffs. But by then – months after CPS took the baby – CPS had placed it with another family. Plaintiffs sued Defendant for various torts, including negligence, alleging “untruths and misstatements” in the letter. Defendant moved for summary judgment, arguing judicial immunity. The trial court granted the motion; Plaintiffs appealed.

The Court of Appeals reverses. Courts have extended immunity to “court officer, employees, or agents who perform functions intimately related to or . . . an integral part of the judicial process” – e.g, probation officers, doctors, and various social workers. There are limits, though; probation officers are immune regarding presentence reports, for example, but not for supervising probationers. The court assumes, without deciding, that immunity exists for those who submit certification reports as called for in the statute. But “in submitting its ex parte letter, [Defendant] was not acting pursuant to delegated judicial authority or any mandate from the legislative or executive branch.” The letter wasn’t in the form of, and didn’t contain some information the statutes require of, a certification report. (One might ask why, if the letter was nothing official, the judge considered it. Or why, if Defendant was merely a witness, it can be sued in negligence for inaccuracies in its evidence. And what about the form of the report? If somebody forgets to put into it an element that the statute requires does that destroy immunity?)

“In evaluating whether conduct is protected by judicial immunity, some courts consider whether due process protections exist for individuals potentially aggrieved by the underlying conduct – a consideration we also deem relevant.” What the court means is that the statutory report must be copied to the prospective parents whereas they didn’t get a copy of the letter. Defendant’s argument that it should have immunity because it was acting in the best interest of the child “sweeps too broadly” because “if [Defendant] had qualms about [Plaintiffs’] suitability as adoptive parents, it could have communicated those concerns in a court filing that afforded [Plaintiffs] notice and an opportunity to be heard . . . .” (Does that mean that if, instead of sending a letter to the judge, Defendant had filed the same letter with the clerk and sent a copy to Plaintiffs then it would have immunity?)

Speaking of judicial immunity, shouldn’t that judge should be happy he has it? As far as we can tell from the opinion, he got a letter. He didn’t tell the parties about it. He based a ruling on it (denying certification while having nothing else before him contesting it). When confronted with the fact that Plaintiffs never saw it he issued an order for Defendant to produce it rather than give them a copy himself right away. At the same time, he revoked custody and ordered an evidentiary hearing two months in the future. After that hearing he sat on his ruling for at least another month before issuing it. And by then the baby was gone.   

An alternative is that he assumed that the letter was a report, even though it didn’t meet the requirements of one and even though he also had another one that contradicted it. (Most likely this is what he did; should the Court of Appeals have paid some attention to that, or at least explained why it didn’t mean anything?) In either event, how could the instinctive reaction of a judge not be to alert the parties and set a hearing sua sponte to sort things out? He is the only player in this tragedy who will suffer no consequence of his failures.

Eight footnotes in this, nothing unusual by Division One standards. But it has something we hadn’t noticed before: a footnoted section heading. The heading “Conclusion” is footnoted to a note that addresses an argument the court decided not to address. Wrong on so many levels.

(Opinion: Griggs v. Oasis)