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KCI Restaurant Management LLC v. Holm Wright Hyde & Hays PLC

Court of Appeals of Arizona, First Division

December 16, 2014

KCI RESTAURANT MANAGEMENT LLC, an Arizona limited liability company, derivatively on behalf of SVP RESTAURANT FINANCING, LLC, Plaintiffs/Appellants/Cross-Appellees,
v.
HOLM WRIGHT HYDE & HAYS PLC; BRAD HOLM and BARBARA HOLM, husband and wife; and CHRISTOPHER S. WELKER and TERESA WELKER, husband and wife, Defendants/Appellees/Cross-Appellants

Appeal from the Superior Court in Maricopa County. No. CV2012-018417. The Honorable J. Richard Gama, Judge.

For Plaintiffs/Appellants/Cross-Appellees: Sherrets Bruno & Vogt LLC, Omaha, NE, By James D. Sherrets, Jason M. Bruno.

For Defendants/Appellees/Cross-Appellants: Jones, Skelton & Hochuli, P.L.C., Phoenix, By Georgia A. Staton, Eileen Dennis GilBride.

Judge Maurice Portley delivered the Opinion of the Court, in which Presiding Judge Patricia A. Orozco and Judge Randall M. Howe joined.

[236 Ariz. 486] OPINION

Page 1157

PORTLEY, Judge:

[¶1] We are asked to resolve whether KCI Restaurant Management LLC (" KCI" ), an ousted member of SVP Restaurant Financing, LLC (" SVP" ), can bring a derivative action on behalf of SVP despite the plain language in Arizona Revised Statutes (" A.R.S." ) section 29-831 (2014) that only members of a limited liability company can bring derivative actions. We also address the cross-appeal of Holm Wright Hyde & Hays PLC, and individual members and their spouses (collectively " Holm" ), challenging the denial of their request for attorneys' fees. For the following reasons, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

[¶2] SVP operates approximately two hundred Pizza Hut restaurants in five states. SVP had three members-KCI, Jan Kasun, and David Dolgen. SVP, Kasun, and Dolgen sued KCI in 2009 for breach of contract, bad faith, breach of fiduciary duty, tortious interference with a contract, and conversion. See SVP v. KCI et al., Maricopa County Superior Court No. CV2009-022740 [236 Ariz. 487] (" underlying

Page 1158

case" ). The trial court granted SVP's motion for partial summary judgment and entered a final judgment against KCI for converting $425,000 of SVP's funds. Kasun and Dolgen then scheduled a special meeting to expel KCI from SVP. After KCI unsuccessfully sought a temporary restraining order to prevent the special meeting, KCI was expelled as a member from SVP.

[¶3] KCI then amended its third-party complaint against SVP, Kasun, and Dolgen in the underlying case to request a judgment declaring that it was still a member in SVP or, alternatively, damages for breach of fiduciary duty. Five months later, and alleging it was a member of SVP, KCI filed this separate derivative action against Holm, SVP's lawyers in the underlying litigation, for professional negligence.

[¶4] After filing an answer, Holm moved for judgment on the pleadings arguing that KCI was not a member of SVP and, as a result, did not have standing to bring the derivative action under A.R.S. § 29-831. Holm requested the trial court take judicial notice of the underlying case and preclude KCI from claiming it was a current member of SVP under the doctrine of judicial estoppel. Although KCI responded and submitted affidavits claiming it was still an SVP member, the court granted Holm's motion for judgment on the pleadings and dismissed the case, but denied Holm's request for attorneys' fees.

DISCUSSION


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