King v. King

ARTHUR SCOTT KING, Personal Representative ofthe ESTATE OF ARTHUR KING, Plaintiff/Appellee, v. CHRISTINE B. KING, a single woman; andMAHLON ZELLER, a single man, Defendants/Appellants.

No. 1 CA-CV 14-0617

ARIZONA COURT OF APPEALS DIVISION ONE

April 5, 2016

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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

Appeal from the Superior Court in Maricopa County

No. CV2012-051164

The Honorable Katherine Cooper, Judge

AFFIRMED IN PART, REVERSED IN PART

COUNSEL

The Law Offices of Mary T. Hone, PLLC, Scottsdale

By Mary T. Hone

Counsel for Plaintiff/Appellee

Christine King, Sun City West

Defendant/Appellant

Mahlon Zeller, Phoenix

Defendant/Appellant

MEMORANDUM DECISION

Judge Patricia K. Norris delivered the decision of the Court, in which Presiding Judge Jon W. Thompson and Judge Maurice Portley joined.

NORRIS, Judge:

¶1 This appeal arises out of a judgment for plaintiff/appellee, Arthur Scott King under Arizona Revised Statutes ("A.R.S.") section 44-1004(A) (2013), voiding fraudulent transfers of real property from his father's former wife, defendant/appellant, Christine King, to her son, defendant/appellant, Mahlon Zeller, and imposing liens on those properties to the extent necessary to collect, on behalf the estate of his father, Arthur King ("Husband"), an outstanding equalization payment of $98,752.76 Christine owed to Husband pursuant to an order entered by the family court. On appeal, Christine and Zeller (collectively, "Appellants") argue, first, res judicata barred this action, second, the judgment is not supported by clear and satisfactory evidence, and third, the fraudulent transfer claim against Zeller was barred by a statutory defense. They also raise several arguments challenging the superior court's exclusion and admission of certain evidence at trial, its handling of the case, its impartiality, and its award of attorneys' fees and costs to Arthur. The record and applicable law support the judgment with the exception of the superior court's decision to award attorneys' fees to Arthur. Thus, we affirm in part and reverse in part.

FACTS AND PROCEDURAL BACKGROUND

¶2 On January 29, 2008, Husband petitioned to dissolve his marriage to Christine ("dissolution case"). The next day, Christine transferred four parcels of real property to Zeller ("the 36th Place Property;" "the Circle Mtn. Rd. Property;" "the Grovers Property;" and "the Gaffney Property"). In its decree of dissolution, the family court awarded Husband an equalization payment of $131,185, secured by a lien on the Gaffney Property. The family court also found that because Husband hadagreed the real properties would be transferred to Christine, "it was not improper for her to transfer her interest" in them to Zeller.

¶3 Husband appealed the decree, and as relevant here, argued he was entitled to a larger equalization award. During the pendency of the appeal, Christine transferred another parcel of real property to Zeller ("the Sun City West Property"), and Husband foreclosed his lien on the Gaffney Property, satisfying the original equalization payment. In 2011, this court resolved Husband's appeal and remanded to the family court to recalculate the amount of Christine's equalization payment. On remand, the family court increased the equalization payment by $98,752.76—the amount Arthur seeks to collect in this case.

¶4 After Husband died in July 2011, Arthur, as the personal representative of his father's estate, filed this action, pursuant to the Uniform Fraudulent Transfer Act ("UFTA"), to void Christine's transfers of the 36th Place Property, the Circle Mtn. Rd. Property, and the Grovers Property (collectively, "the Properties")¹ to Zeller, and impose liens on the Properties to the extent necessary to collect the $98,752.76 equalization payment. After a bench trial, the superior court found, as relevant here, Christine "actually intended to defraud [Husband]" in violation of "A.R.S. § 44-1004(A)(1)."² Accordingly, the superior court declared the transfers "null and void" and imposed liens on the Properties to the extent "necessary to fully satisfy" the equalization payment.

DISCUSSION

I. Res Judicata

¶5 As an initial matter, Appellants argue res judicata barred Arthur's fraudulent transfer claim because the family court had already determined in the dissolution case that Christine's transfers to Zeller were "not improper" and this case presents nothing more than "the same issues,parties, real properties, and accusation of fraudulent conveyance."³ This argument is not properly before us because Christine failed to raise it in the superior court, and Zeller only raised it in a motion to vacate and set aside the judgment, filed after trial and entry of judgment. See In re MH 2007-001895, 221 Ariz. 346, 350, ¶ 15, 212 P.3d 38, 42 (App. 2009) ("Typically, legal issues and arguments have to be presented specifically to the trial court, and cannot be argued for the first time on appeal."); Hanrahan v. Sims, 20 Ariz. App. 313, 316, 512 P.2d 617, 620 (1973) ("res judicata is an affirmative defense and must be pleaded and proved . . . failure to raise such defense constitute[s] a waiver") (citation omitted).

¶6 Even if not waived, and reviewing the argument de novo, we nevertheless find it inapplicable here. See Pettit v. Pettit, 218 Ariz. 529, 531, ¶ 4, 189 P.3d 1102, 1104 (App. 2008) (res judicata is a question of law appellate court reviews de novo). "Under the doctrine of res judicata, a judgment on the merits in a prior suit involving the same parties or their privies bars a second suit based on the same cause of action." Id. Res judicata "binds the same party standing in the same capacity in subsequent litigation on the same cause of action, not only upon facts actually litigated but also upon those points which might have been litigated." Id. "To determine whether a second cause of action is the same as the first, Arizona follows the 'same evidence' test from the Restatement of Judgments § 61." Id. at 532, ¶ 8, 189 P.3d at 1105. Plaintiffs are "precluded from subsequently maintaining a second action based upon the same transaction, if the evidence needed to sustain the second action would have sustained the first action." Id. (quoting Restatement of Judgments § 61 (1942)).

¶7 As discussed, the family court held the transfers from Christine to Zeller were not "improper" because Husband had agreed to transfer the Properties to Christine. The family court did not, however, decide whether Christine had fraudulently transferred the Properties to Zeller in violation of the UFTA. Indeed, in opposing one of Arthur's motions in limine in this case, Appellants recognized this point, asserting the family court had "never addressed" "whether [Christine] owed" Zellermoney for selling his home ("the Beverly Property") while he was in prison, and had "not [made] any findings that" Zeller "was adequately compensated for the Beverly property" or "whether [Christine had] received adequate compensation for her transfers of properties to" Zeller. Thus, as Appellants recognized, Arthur's UFTA claim in this case was not the same as the claims decided in the dissolution case—the evidence needed to sustain this fraudulent transfer claim would not have sustained the issues litigated in the dissolution case.

II. Sufficiency of the Evidence

¶8 Appellants next argue the superior court's finding of intentional fraud is not supported by clear and satisfactory evidence, citing Gerow v. Covill, 192 Ariz. 9, 17, ¶ 33, 960 P.2d 55, 63 (App. 1998) ("Fraudulent conveyance may be shown by clear and satisfactory evidence of an 'actual intent to hinder, delay or defraud any creditor of the debtor' or of a debtor receiving no reasonable consideration for a transfer or obligation under certain circumstances.") (quoting A.R.S. § 44-1004(A)(1)). Reviewing these findings for "reasonable evidence," Spaulding v. Pouliot, 218 Ariz. 196, 199, ¶ 8, 181 P.3d 243, 246 (App. 2008), and "in the light most favorable to upholding the trial court's decision," we disagree. Double AA Builders, Ltd. v. Grand State Const. L.L.C., 210 Ariz. 503, 506, ¶ 9, 114 P.3d 835, 838 (App. 2005) ("Because this case was tried to the court, we view the evidence in the light most favorable to upholding the trial court's decision"); Spaulding, 218 Ariz. at 199, ¶ 8, 181 P.3d at 246 ("we will not disturb the trial court's findings of fact unless they are clearly erroneous" and we "will affirm the trial court's judgment if there is any reasonable evidence supporting it").

¶9 As discussed, the superior court found Appellants "actually intended to defraud [Husband]" in "violation of A.R.S. § 44-1004(A)(1)." "Actual intent may be shown by direct proof or by circumstantial evidence from which actual intent may be reasonably inferred." Gerow, 192 Ariz. at 17, ¶ 33, 960 P.2d at 63. "The statute provides a non-exclusive list of factors to consider when determining if actual intent to hinder, delay or defraud exists." Id. (citing A.R.S. § 44-1004).

¶10 Here, the superior court found eight factors, or "badges of fraud." Id. at 17, ¶ 34, 960 P.2d at 63. Specifically, the superior court found, first, Christine "transferred four pieces of unencumbered real property to her son, Mahlon Zeller, an insider;" second, she made the transfers the day after Husband petitioned for divorce; third, she "retained possession and control of each of the properties" after the transfers; fourth, she "transferred all of her assets to her son;" fifth, she "was left insolvent as a result of the transfers;" sixth, the "transfers occurred shortly before a substantial debtwas incurred;" seventh, "[s]he concealed the transfers from . . . [H]usband;" and eighth, she made the transfers "with no consideration." These facts have "a tendency to show the existence of fraud" and often "a single one of them may establish and stamp a transaction as fraudulent." Id. (discussing the ...