State ex rel. Brnovich v. Groh

STATE OF ARIZONA, ex. rel. MARK BRNOVICH, Plaintiff/Appellant, v. MICHAEL GROH, Defendant/Appellee.

No. 1 CA-CV 18-0073

ARIZONA COURT OF APPEALS DIVISION ONE

August 13, 2019

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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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. CV2014-009284

The Honorable Teresa A. Sanders, Judge

AFFIRMED

COUNSEL

Fennemore Craig, P.C., Phoenix

By Patrick Irvine, Douglas C. Northup, Taylor N. Burgoon

Counsel for Plaintiff/Appellant

Ashley D. Adams PLC, Scottsdale

By Ashley D. Adams

Counsel for Defendant/Appellee

MEMORANDUM DECISION

Judge Michael J. Brown delivered the decision of the Court, in which Presiding Judge Diane M. Johnsen and Judge Jennifer M. Perkins joined.

BROWN, Judge:

¶1 The State appeals the superior court's order granting Michael Groh's motion to set aside the parties' stipulated judgment in this civil forfeiture action. Because the court acted within its extensive discretion in granting the motion, we affirm.

BACKGROUND

¶2 Groh filed a sworn declaration with his motion to set aside. The State did not controvert Groh's version of the facts; therefore, we accept them as true. See Davis v. Davis, 143 Ariz. 54, 57 (1984) (finding that "uncontroverted facts in the record" justified post-judgment relief); cf. GM Dev. Corp. v. Cmty. Am. Mortg. Corp., 165 Ariz. 1, 5 (App. 1990) ("If the opposing party fails to present, either by affidavit or other competent evidence, facts which controvert the moving party's affidavits, the facts alleged by the moving party may be considered as true.").

¶3 In 2006, Groh was Arizona Building Systems' ("ABS") vice-president of finance. The Arizona Attorney General's Office ("AGO") opened a criminal investigation in 2011 based on allegations by the owner of ABS, William Graven, that Groh and other employees committed crimes that caused the company to go out of business. In 2014, prosecutors presented the case to a grand jury, which handed down a 21-count indictment against Groh and five co-defendants. Groh was charged with one count of theft and one count of fraudulent schemes and artifices, each a class two felony.

¶4 The State also commenced a civil forfeiture action against Groh. See generally Ariz. Rev. Stat. ("A.R.S.") § 13-2314(A) (authorizing a forfeiture action to prevent or remedy racketeering or illegal control of an enterprise); A.R.S. §§ 13-4301 to -4315 (outlining the procedures governing forfeiture actions, including seizure of property). The State (1) seized his property, including cash, bank accounts, vehicles, and home furnishings (collectively, the "Property"); (2) filed a notice of pending forfeiture andseizure; and (3) filed a verified complaint seeking forfeiture of up to $45 million in real or personal property from Groh, his wife, and his co-defendants. Groh filed a notice of claim for the Property, and the court granted his motion to stay proceedings in the forfeiture action until the conclusion of his criminal proceedings.

¶5 In the meantime, Groh cooperated in the State's criminal investigation by participating in "free talks" with an assistant attorney general and Dan Woods, an AGO investigator. During these discussions, Groh maintained his innocence, asserting that Graven took money from ABS under suspicious circumstances and used it to pay for personal expenses. Groh claimed the emails on which the State's case was based were taken out of context. He asserted there were other emails that were exculpatory but said he could not produce them because he no longer had access to his work email. The State responded that the computer storing ABS emails had been destroyed. Investigator Woods told Groh he did not believe Groh's version of the facts and insisted that Groh's assertion about exculpatory evidence was a fabrication. Woods told Groh there was evidence one of his co-defendants had planned "from the beginning" to steal from ABS and that a jury would convict Groh due to "guilt by association." Woods also told Groh the co-defendants were prepared to testify against him.

¶6 Given the State's representations about the strength of its case, in April 2015, Groh pled guilty to compounding, in violation of A.R.S. § 13-2405, and securing the proceeds of an offense, in violation of A.R.S. § 13-2408, both class 6 felonies, in exchange for probation. The written plea agreement provided that Groh must

pay restitution in a dollar amount equal to the value of assets seized in the civil forfeiture action . . . CV2014-009284. The defendant waives any claim that [he] has or could have asserted in CV2014-009284. The State will deposit into the restitution account established or that will be established in this criminal matter an amount equal to the value of assets seized . . . in CV2014-009284.

¶7 A few months later, the State, Groh, and his wife entered into a settlement agreement in the forfeiture action, and the State filed a combined "notice of settlement agreement" and "stipulation and consent to entry of judgment and order of forfeiture." In relevant part, the stipulated judgment found: (1) "Groh's charges in [the criminal matter] generally arise from the same set of operative facts giving rise to the instant civil assetforfeiture case" and (2) "[i]n his plea agreement . . . Groh agreed to waive his claim to the Property seized by the State as set forth in the attached [a]ppendix." The court granted the stipulated judgment as submitted and dismissed with prejudice any claims or interests that Groh had or could have asserted with respect to the Property.

¶8 Criminal proceedings against Groh's co-defendants continued, but in February 2016, the AGO moved to withdraw as counsel in the criminal matter, citing "an actual or potential conflict of interest." The Pinal County Attorneys' Office ("PCAO") replaced the AGO as counsel of record for the State.¹ After the PCAO informed Groh that Woods had been fired from the AGO in 2015, Groh moved to withdraw from his plea agreement, alleging (1) the PCAO had received additional information supporting the defenses Groh asserted during his interviews with Woods; (2) the PCAO had told Groh the State could not prove additional charges Woods had threatened to bring against Groh to "pressure [him] into pleading guilty"; and (3) Woods was "believed to have greatly overstated the strength of the evidence . . . in his efforts to obtain as many guilty pleas . . . as possible." The State filed no opposition to Groh's motion to withdraw his plea. The superior court granted the motion in December 2016 and reinstated Groh's not-guilty plea.

¶9 The State then moved to dismiss the criminal charges against Groh, explaining that the PCAO's independent investigation produced evidence tending to disprove "many of the accusations underlying the indictments" against him and his co-defendants. For example, Graven had alleged Groh and the others were depleting ABS's assets, interfering with customer relations, and giving themselves and/or other employees unauthorized raises or expense reimbursements. Emails discovered by the PCAO, however, "were exculpatory in terms [of] the financial state of ABS" in that they explained the company's "inability to complete various projects" and revealed that the allegedly unauthorized raises and expenses had, in fact, been authorized. In January 2017, the court granted the State's motion and dismissed the criminal charges.

¶10 In June 2017, Groh moved to set aside the stipulated judgment in the forfeiture action under Arizona Rule of Civil Procedure ("Rule")60(b)(6).² Groh's motion detailed the factual and procedural history of the criminal case as it related to the forfeiture judgment and argued the forfeiture judgment must be set aside because it was inextricably intertwined with his plea agreement, which the court had set aside with the implicit consent of the State. In response, the State argued in relevant part that (1) a civil settlement can be undone only pursuant to principles of contract law, and (2) Groh failed to timely advance a colorable argument under Rule 60(b)(6).

¶11 Finding that Groh demonstrated "extraordinary circumstances of hardship or injustice," the superior court granted his motion and vacated the stipulated judgment, explaining in relevant part:

[T]he criminal case was ultimately dismissed because of the discovery of exculpatory evidence, evidence that "was at odds with the original claims that the defendants committed any crimes against the victim." The Defendant's plea agreement, which was set aside prior to the State's dismissal of the criminal case, essentially required him to enter into the stipulated forfeiture judgment; it wasn't independently negotiated. Defendant's alleged criminal conduct was the basis for both the criminal and civil forfeiture proceedings, and the State, by its own admission, now has reasons to doubt whether he was involved in criminal activity at all.

. . .

Defendant was required to forfeit virtually everything . . . based upon criminal activity that the State now acknowledges he may not have engaged in.

¶12 The State timely appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(2) and (4).

DISCUSSION

¶13 The State asserts the superior court abused its discretion by granting Groh's motion. It argues subsequent events in Groh's criminalaction cannot provide a basis for relief in the forfeiture action under Rule 60(b)(6).

¶14 Rule 60(b) states:

Grounds for Relief from a Final Judgment, Order, or Proceeding. On motion and just terms, the court may relieve a party . . . from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence that, with reasonable diligence, could not have been discovered . . . ; (3) fraud (whether . . . intrinsic or extrinsic), misrepresentation, or other misconduct by the opposing party; (4) the judgment is void; (5

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