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Clarke Law Firm, PLC v. Mohnach Payne Inc.

Court of Appeals of Arizona, First Division

November 26, 2013

CLARKE LAW FIRM, PLC, Plaintiff/Counterdefendant/Appellee,
v.
MOHNACH PAYNE INC.; THOMAS PAYNE and BARBARA PAYNE, Defendants/Counterclaimants/Appellants.

Not for Publication -Rule 28, Arizona Rules of Civil Appellate Procedure

Appeal from the Superior Court in Maricopa County No. CV2009-030194 The Honorable Katherine M. Cooper, Judge

Clarke Law Firm, PLC, Scottsdale By Marilee Miller Clarke Co-Counsel for Plaintiff/Appellee/Counterdefendant

Broening Oberg Woods & Wilson, PC, Phoenix By Kerry L. Beringhaus and Brian W. Purcell Co-Counsel for Plaintiff/Appellee/Counterdefendant

Thomas N. Payne Attorney at Law, Paradise Valley By Thomas N. Payne Counsel for Defendan ts/Appellan ts/Counterclaimants

Judge Michael J. Brown delivered the decision of the Court, in which Presiding Judge Andrew W. Gould and Judge Donn Kessler joined.

MEMORANDUM DECISION

BROWN, JUDGE

¶1 Mohnach Payne Inc., Thomas Payne, and Barbara Payne (collectively "MPI, " except as otherwise noted) appeal the trial court's judgment in favor of the Clarke Law Firm, PLC (Clarke) on Clarke's claims for breach of contract, fraudulent transfer, and quantum meruit. MPI argues the court erred in granting directed verdicts in favor of Clarke on Clarke's breach of contract claim and MPI's counterclaim for legal malpractice. Regarding the fraudulent transfer and quantum meruit claims, MPI argues the court (1) failed to properly instruct the jury on liability of the marital community, (2) abused its discretion in restricting the time for closing arguments, and (3) improperly prohibited MPI from rebutting a misleading comment made by Clarke's attorney. For the following reasons, we affirm.

BACKGROUND

¶2 In February 2007, MPI sold certain business assets to Smith West, LLC (Smith West). The terms of the sale were set forth in an Asset Purchase Agreement (APA) in which MPI represented, among other things, that it would conduct the business in the "ordinary course of business, " as defined in the APA, at all times prior to closing.

¶3 In October 2007, Smith West demanded that MPI (and its shareholders, John Mohnach and Thomas Payne) indemnify Smith West in the approximate amount of $1, 500, 000 for funds Smith West borrowed to make payments to its vendors after closing for aged, unpaid invoices. Smith West asserted that MPI had breached its representation and warranty to conduct the business in the "ordinary course" by failing to timely pay vendors before closing of the transaction. MPI countered that it had operated its accounts payable consistent with its ordinary business practices. Per the APA, the dispute was referred to arbitration.

¶4 Clarke represented MPI in the arbitration in California. Following a two-day hearing, the arbitrator issued a detailed award finding that MPI had breached its representation and warranty to act in the ordinary course of business. The arbitrator awarded Smith West damages for the funds it paid to vendors on invoices that were more than 45 days old at the time of closing, plus attorneys' fees, in the amount of $1, 730, 651.

¶5 Because MPI failed to pay Clarke the attorneys' fees incurred in the arbitration proceeding, in 2009 Clarke filed a complaint against MPI for breach of the parties' retainer agreement. The complaint also included a fraudulent transfer claim against MPI as well as Thomas and Barbara Payne and John and Sharon Mohnach, individually, alleging that after entry of the arbitration award in favor of Smith West, Thomas Payne and John Mohnach "improperly" transferred their "most valuable operating assets" to their wives as a means of "insulat[ing] them from execution" of the Smith West judgment.

¶6 In its answer, MPI asserted that Clarke's legal fees were "excessive and unreasonable" and denied that it had made an illicit transfer of assets.[1] MPI also filed a counterclaim for legal malpractice, alleging that (1) Clarke violated the Arizona Rules of Professional Conduct by disclosing privileged information, derived from its legal representation of MPI, in its complaint, (2) to the extent any of MPI's transfers were not "legal and proper, " such transfers were conducted based on Clarke's representations that the transfers were "legal and proper, " and (3) Clarke violated Arizona Rule of Professional Conduct ER 1.1 by failing to competently represent MPI during the arbitration proceedings.

¶7 Early in the litigation, MPI filed a "certification" that expert testimony was "not necessary to prove the licensed professional's standard of care or liability for the counterclaims in this case." Clarke countered that, pursuant to Arizona Revised Statutes (A.R.S.) section 12-2602, a party making a claim against a licensed professional must submit a preliminary expert opinion affidavit setting forth the standard of care applicable to the licensed professional's conduct and explaining how the licensed professional's failure to adhere to that standard caused or contributed to the claimant's injury. The trial court determined ...


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