Murphy Farrell v. Sourant (CA1 2/16/12)

This is not an easy one to wade through but turns out to have some interesting points.

Murphy runs the OX Ranch. (The court describes it as a “’cow-calf’ business.” Things have indeed changed in Arizona if cow-calf is obscure enough to warrant quotes. And we bet that some of the legal types in this case thought “OX” referred to a castrated cow.) (The fact that the OX is a cow-calf operation turns out to have nothing to do with anything, by the way.) As a sideline the ranch sold decorative boulders from land it leased from the State to run cattle. It employed Sourant as its boulder-finder until he had a better idea: he quit, bought from the Santa Fe – which owned the mineral rights – the right to take boulders from the State land, and leveraged that into being Murphy’s business partner. (We simplify and greatly shorten complicated facts that the opinion sets out at length; we don’t criticize that, even though its CA1 and Judge Timmer, since here they’re arguably helpful to the resolution – but not, happily, to the procedural take-away.) The parties had a falling-out; Murphy sued for constructive trusts on certain land and also on proceeds of the boulder business. After a bench trial the court found that Sourant had breached contracts but, concluding that Murphy wasn’t entitled to constructive trusts, gave him judgment. It refused give him fees, though, so both parties appealed.

Murphy argued that the trial judge’s findings and conclusions failed to address a couple of issues. Murphy hadn’t raised them in the Complaint but they were in the pretrial statement, “thereby effectively amending the complaint and presenting the matter for adjudication.” The trial court therefore had an obligation to make express findings and conclusions on them. Sourant argued that Murphy wasn’t entitled to injunctive relief anyway. The court responds, in effect, that even if that’s true Rule 52 requires the trial judge to say so; the rule “is designed to: prompt the judge to consider issues more carefully, enable a defeated party to determine whether the ruling should be appealed, clarify the decision for purposes of applying the doctrines of res judicata and estoppel, and, most significantly, permit the appellate courts to examine the trial court’s reasoning more closely.”

The remedy for that is remand for additional findings and conclusions, which is what the opinion orders.

As to what the trial court did address, Murphy argued that because Sourant breached his agreement it should have a constructive trust on some other acreage he got rocks from. The Court of Appeals holds that because Murphy didn’t lose that property or an opportunity to buy it, it had no equitable interest in it and therefore no right to a trust.

Murphy asked on appeal for a constructive trust on certain of Sourant’s profits because he admitted using information gained when he was its employee to get them. But it hadn’t raised that argument below, so it loses it now.

The court then addresses Sourant’s request for fees. “[E]ven in the face of a breach of contract or other improper conduct by a party seeking fees, the court must assess the overall outcome of the case to determine if that party ‘prevailed’ in the lawsuit.” This court decides that Sourant was the prevailing party since, even though he had breached his agreements, “Murphy  . . . did not succeed on any of its claims” – i.e., it wasn’t entitled to any relief. By refusing fees the trial court abused its discretion. (The trial judge did his cause no good by awarding Sourant costs.) However, with that instruction the trial court will decide on remand which party is ultimately successful.

So, what’s interesting about all this?

First, try to avoid issue-creep in your pretrial statement. That’s not always easy with notice pleading and wide-open discovery but you should at least know and keep an eye on what the Complaint actually says. Its surprising (or, sadly, perhaps not) how often it turns out not to say something it should.

Second, make sure that the findings and conclusions cover the issues. Nowadays trial courts seem to want to write them on their own, no matter how scrupulous you are about providing a proposed version; the result can be a mess. That’s what Rule 52(b) is for (amendment of findings and conclusions).

And remember that if you don’t win relief then you probably aren’t the successful party, no matter how bad the other guy was.


(link to opinion)