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Wichansky v. Zowine

United States District Court, D. Arizona

December 11, 2015

Marc A. Wichansky, Plaintiff,
David T. Zowine, et al., Defendants

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          For Marc A Wichansky, Plaintiff: Alethia Michelle Scipione, LEAD ATTORNEY, Callagy Law, Phoenix, AZ; Matthew R Major, Michael J Smikun, Sean R Callagy, LEAD ATTORNEYS, Law Offices of Sean R Callagy Esquire LLC, Paramus, NJ; Christopher R Miller, Callagy Law LLC - Paramus, NJ, Paramuys, NJ.

         For David T Zowine, husband, Karina Zowine, wife, Defendants: Gayathiri Shanmuganatha, LEAD ATTORNEY, Kate Elizabeth Frenzinger, Quinlan Law Firm LLC - Phoenix, AZ, Phoenix, AZ; Jared Lynn Sutton, Michael Joseph Hammer, Robert F Roos, LEAD ATTORNEYS, Lewis Roca Rothgerber LLP - Phoenix Office, Phoenix, AZ; William John Quinlan, LEAD ATTORNEY, Quinlan Law Firm LLC, Chicago, IL.

         For Martha Leon, wife, Charles Johnson, husband, Patricia Gonzalez, wife, Pat Shanahan, husband, Sarah Shanahan, wife, Mike Ilardo, husband, Rio Mayo, husband, Michael Narducci, husband, Brett Costello, husband, Zoel Holding Company Incorporated, an Arizona corporation, Defendants: Jared Lynn Sutton, Michael Joseph Hammer, Robert F Roos, LEAD ATTORNEYS, Lewis Roca Rothgerber LLP - Phoenix Office, Phoenix, AZ; William John Quinlan, LEAD ATTORNEY, Quinlan Law Firm LLC, Chicago, IL; Gayathiri Shanmuganatha, Kate Elizabeth Frenzinger, Quinlan Law Firm LLC - Phoenix, AZ, Phoenix, AZ.

         For MGA Home Healthcare LLC, an Arizona limited liability company, Alisa Ilardo, Wife, Andrea Costello, Wife, Justin Grant, Husband, Kai Knowlton, Husband, Don Maniccia, Husband, Defendants: Jared Lynn Sutton, Michael Joseph Hammer, Robert F Roos, LEAD ATTORNEYS, Lewis Roca Rothgerber LLP - Phoenix Office, Phoenix, AZ; Gayathiri Shanmuganatha, Kate Elizabeth Frenzinger, Quinlan Law Firm LLC - Phoenix, AZ, Phoenix, AZ.

         For Manning & Kass Ellrod, Ramirez, Trester LLP, Movant: Robert Bryan Zelms, LEAD ATTORNEY, Manning & Kass Ellrod Ramirez Trester LLP, Scottsdale, AZ.

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         David G. Campbell, United States District Judge.

         The parties have filed cross-motions for summary judgment. Docs. 273, 275. The motions have been fully briefed (Docs. 284, 303, 291, 307), and the parties have produced a voluminous factual record (Docs. 274, 276, 285, 286, 301). The Court held oral argument on December 3, 2015. For the reasons that follow, Plaintiff's motion will be denied and Defendants' motion will be granted in part and denied in part.

         I. Background.[1]

         In 2006, Marc Wichansky and David Zowine began business together, founding Zoel Holding Co., Inc. (" Zoel" ), an Arizona corporation specializing in employee placement services, and MGA Home Healthcare, LLC (" MGA" ), a wholly-owned subsidiary of Zoel specializing in health care services. Doc. 286, ¶ 1, Doc. 285, ¶ 3.[2] Wichansky was President of Zoel, Zowine was Vice President, and both men owned a 50% share in the company. Doc. 286, ¶ 3. The parties dispute the allocation of authority within MGA. See Doc. 285, ¶ 7.

         The personal relationship between Wichansky and Zowine began to deteriorate around December 2010. After a particularly contentious conversation, Zowine told

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Wichansky that the two " would never be friends again." Doc. 286, ¶ ¶ 10-11. On January 19, 2011, the two men were involved in a physical altercation. Wichansky contends that Zowine assaulted him. Id., ¶ 14.

         This personal dispute spilled over into their business relationship. On January 26, 2011, Wichansky purported to terminate Zowine. Id., ¶ 24. Around this time, Zowine, who was no longer welcome at the main office on 44th Street in Phoenix, established a new office for the business on 24th Street. Doc. 285, ¶ 38. On January 31, 2011, several employees affiliated with Zowine (named as Defendants in this action) moved Zoel computers from the 44th Street office to the 24th street office. Id., ¶ 41. On February 2, after an unsuccessful attempt to image Zoel's servers, the same employees moved the servers from the 44th Street office to the 24th Street office. Id., ¶ ¶ 42-44.

         On February 4, 2011, Wichansky filed a complaint in Maricopa County Superior Court seeking an order confirming the validity of Zowine's termination and requiring Zowine to return all Zoel property to the 44th Street location. Doc. 286, ¶ 31. The parties ultimately entered into a stipulation which provided that they each would have access to the computers and servers to continue the operation of their business. Id., ¶ 32. This arrangement apparently worked for a period of time, but on March 31, 2011, Wichansky sought judicial dissolution of Zoel and appointment of a receiver to manage the company's assets. Id., ¶ 48. On April 12, 2011, the Superior Court appointed Ted Burr as a receiver and management consultant. Id., ¶ 62. Burr will be referred to in this order as " the receiver."

         On June 10, 2011, Zowine filed an election to purchase Wichansky's shares in Zoel in lieu of dissolution of the company. Id., ¶ 69. On August 4, 2011, Wichansky moved to withdraw his dissolution petition, asserting that his prior counsel had failed to advise him of the consequences of filing the petition and that he had discovered evidence that Zowine was involved or acquiesced in medical billing fraud at the company. Id., ¶ 70. The Court denied Wichansky's motion to withdraw. Id., ¶ 73.

         In March 2012, the Superior Court held a five-day valuation hearing to establish the terms of Zowine's purchase of Wichansky's interest in Zoel. Id., ¶ 78. On March 6, 2012, the Court issued a ruling which found that Wichansky's interest was worth $5,000,000 less various deductions, resulting in a net valuation of $4,058,000 as of March 31, 2011, the date Wichansky moved for dissolution. Id., ¶ 80. In arriving at this determination, the Court assigned half of the receiver's expenses to Wichansky and half to Zowine. Id. Shortly thereafter, Zowine made the initial payment and the Superior Court granted him full control of Zoel's property and assets. Id., ¶ 85.

         During the course of these events, efforts were made to investigate billing improprieties at MGA. In 2010, Zoel's Vice President of Finance, Richard Eden, discovered a pattern of irregular and improper billing practices at MGA. Doc. 285, ¶ 14. Eden communicated this finding to Wichansky, who alerted Zowine. Id., ¶ 16. At Wichansky's direction, Eden began to investigate the discrepancies. Id., ¶ 18. On March 21, 2011, Wichansky reported these improprieties to the Arizona Health Care Cost Containment System (" AHCCCS" ), but did not label them as fraud. Doc. 301, ¶ ¶ MM-NN. In March 2013, MGA and AHCCCS entered into a settlement agreement to refund $1,250,000 to AHCCCS for overpayments received between January 1, 2006 and December 31, 2011. Doc. 286, ¶ 95. The agreement stated that " AHCCCS found no evidence that Provider committed fraud, acted with intent to defraud AHCCCS or AHCCCS Contractors,

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or engaged in criminal wrongdoing." Doc. 276, Ex. 72, ¶ IV.

         On June 14, 2013, Wichansky filed this suit against Zoel, MGA, Zowine, and several individuals affiliated with Zowine. This is one of several pending lawsuits between the parties. The Court has issued several rulings in this case, and has disposed of several of Wichansky's claims, including claims for securities fraud, obstruction of justice, and violation of the False Claims Act, and some claims under the Computer Fraud and Abuse Act (" CFAA" ). See Docs. 49, 82, 149. The Court considers the remaining claims today.

         II. Legal Standard.

         A party seeking summary judgment " bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows " that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Summary judgment is also appropriate against a party who " fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322. Only disputes over facts that might affect the outcome of the suit will preclude the entry of summary judgment, and the disputed evidence must be " such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

         III. Analysis.

         Wichansky moves for summary judgment on his claims for breach of fiduciary duty, violation of the CFAA, conspiracy to violate the CFAA, and constructive fraud. Doc. 273. Defendants move for summary judgment on all of Wichansky's claims. Doc. 275. Wichansky has failed to defend his claims for unjust enrichment, intrusion upon seclusion, and prima facie tort, and the Court will grant summary judgment on these claims without further discussion. See Estate of Shapiro v. United States, 634 F.3d 1055, 1060 (9th Cir. 2011). The Court will address Wichansky's remaining claims.

         A. Breach of Fiduciary Duty.

         Count Nine of Wichansky's second amended complaint asserts a claim for breach of fiduciary duty. Doc. 160, ¶ ¶ 469-473. Wichansky argues that he is entitled to summary judgment on this claim because any reasonable jury would find that Zowine breached his fiduciary duties by contributing to or failing to prevent a pattern of overbilling at MGA, by interfering with investigations into the billing problems by Wichansky and the receiver, and by antagonizing Wichansky in an attempt to force him out of the company. Doc. 273 at 5-8, Doc. 274, ¶ ¶ 68-71, Doc. 291 at 11-17. Defendants contend that they are entitled to summary judgment because any reasonable jury would find Wichansky's claims time-barred, and because Wichansky cannot establish damages, an essential element of his claim. Doc. 275 at 7-8.

         1. Defendants' Motion.

         a. Statute of Limitations.

         In Arizona, a claim for breach of fiduciary duty is subject to a two-year statute of limitations. See Mohave Elec. Co-op., Inc. v. Byers, 189 Ariz. 292, 942 P.2d 451, 469 (Ariz. Ct.App. 1997) (citing

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A.R.S. § 12-542(3)). The limitations period begins to run when the plaintiff discovers the cause of action -- that is, when the plaintiff knows, or reasonably should know, that he has been harmed, that the harm was caused by the defendant, and that the act or omission which caused the harm was wrongful. See Walk v. Ring, 202 Ariz. 310, 44 P.3d 990, 996 (Ariz. 2002) (discovery occurs when plaintiff possesses " a minimum requisite of knowledge sufficient to identify that a wrong occurred and caused injury" ); Doe v. Roe, 191 Ariz. 313, 955 P.2d 951, 961 (Ariz. 1998) (" cause of action accrues when plaintiff discovers injury is attributable to particular person's conduct; plaintiff must know both the what and who elements" ) (citation omitted). The date when a cause of action was discovered is a question of fact that, if subject to genuine dispute, must be decided at trial. Walk, 44 P.3d at 996.

         Defendants argue that Wichansky's fiduciary duty claim based on billing fraud is time-barred because Wichansky was aware of the alleged billing fraud before June 14, 2011, the earliest date within the statute of limitations. Doc. 275 at 7. Wichansky acknowledges that he was aware of " a pattern of irregular and improper billing practices" in 2010 (Doc. 292, ¶ ¶ 6, 11), and that he voluntarily disclosed these improprieties to AHCCCS on March 21, 2011 ( id., ¶ 56). He argues, however, that he did not discover that Zowine was responsible for the overbilling until August 2011, when Ron Wise, a forensic auditor hired by Wichansky, completed a preliminary review of the company's records. Doc. 291 at 13-14 (citing Doc. 289, Ex. BB, ¶ ¶ 14-19).

         The most relevant Arizona case is Walk v. Ring, in which the Arizona Supreme Court addressed when a cause of action accrues for negligence or other wrongdoing in a fiduciary relationship. Describing earlier Arizona cases, Walk stated that " it is not enough" for the plaintiff to comprehend that something has gone wrong -- referred to in Walk as the " what" of the plaintiff's potential claim. 44 P.3d at 996. Rather, " there must also be reason to connect the 'what' to a particular 'who' in such a way that a reasonable person would be on notice to investigate whether the injury might result from fault." Id.

          Walk further provides that, in determining whether the plaintiff was on notice to investigate, the question is whether plaintiff's " failure to go forward and investigate [his possible cause of action] is not reasonably justified." Id. For example, a plaintiff would be reasonably justified in declining to investigate a claim against a possible defendant if the plaintiff " subjectively believed" that the defendant had done nothing wrong. Id. (citation omitted). The question is whether a reasonable person in the plaintiff's position would investigate the claim. Id.

         Under this Arizona law, even if Wichansky knew, prior to the limitations period, that billing irregularities were occurring at MGA and that Zowine was in control of MGA, the claim for breach of fiduciary duty would not accrue until Wichansky knew or had reason to know that Zowine was involved or knowingly acquiesced in the irregularities. Defendants have not established beyond genuine dispute that Wichansky knew or should have known this before June 14, 2011. Wichansky notes that he and Zowine had been friends and business partners for many years, and that Zowine had been the best man at his wedding. Wichansky argues that he never suspected Zowine would be involved in fraudulent operation of the business they jointly owned. Whether this is true in light of all the facts -- including the serious falling-out that occurred between Wichansky and Zowine in late 2010 and Wichansky's report to AHCCCS in

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March 2011 -- can be debated, but it is a factual determination that must be made by the jury, not the Court. Id. (" This is the very sort of factual determination that must be left to the jury." ).

         Defendants contend that Wichansky discovered his claim in July 2010 when Richard Eden completed a report on the pattern of overbilling at MGA. Doc. 307 at 5 (citing Doc. 285, Ex. 3). But nothing in the Eden report suggested that Zowine was responsible for these improprieties. Indeed, it appears that Wichansky contacted Zowine after receiving the report " to let him know about the problem." Doc. 285, Ex. 3, ¶ 20. A reasonable jury could infer from this fact that Wichansky had not yet discovered that Zowine was involved in the overbilling.[3]

          Walk also notes that the accrual of a claim must take into account any fiduciary duty that existed between the plaintiff and the defendant. Defendants do not argue that Zowine had no fiduciary duties to Wichansky.[4] Walk states that " 'if the fiduciary nature of the relationship charges the fiduciary with a duty to disclose his wrong to the plaintiff and he fails to disclose, the statute of limitations will be tolled.'" 44 P.3d at 1000 (quoting Bourassa v. La Fortune, 711 F.Supp. 43, 46 (D. Mass. 1989)). Whether Zowine breached his fiduciary duty to Wichansky in this manner is for the jury to decide.[5]

         Wichansky also argues that Zowine continued to breach his fiduciary duties after June 14, 2011, by interfering with investigations by Wichansky and the receiver into the billing improprieties at MGA. Doc. 291 at 14, Doc. 292, ¶ ¶ 65-67. Defendants do not explain how this claim could be time-barred. The Court will deny Defendants' request for summary judgment on this claim.

         Wichansky finally asserts that Zowine breached his fiduciary duties before Wichansky moved for dissolution -- and therefore before the opening of the limitations period -- by " creating an atmosphere of chaos and terror in order to harass, antagonize and intimidate Wichansky to cause him to abandon the company he built." Doc. 291 at 15. To the extent that the gravamen of this claim is the immediate injury Wichansky suffered from the harassment -- the physical injury from the alleged assault or the emotional injury from the alleged harassment -- the claim is time-barred. Wichansky clearly knew both

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the " whet" and the " who" of such wrongs when they occurred.

         To the extent that the gravamen of this claim is the injury Wichansky suffered in seeking dissolution of Zoel, however, the Court cannot conclude as a matter of undisputed fact that the claim is time-barred. The principal of a company may be liable for breach of fiduciary duty where he wrongfully causes the dissolution of the company. See Rhue v. Dawson, 173 Ariz. 220, 841 P.2d 215, 226 (Ariz. Ct.App. 1992) (a reasonable jury could find that the partner breached his fiduciary duty by executing a wrongful plan to oust his co-partner from the business). Wichansky asserts that he did not know before June 14, 2011, that Zowine's campaign of harassment was directed toward this end. He asserts that Zowine's plan only became apparent when Wichansky discovered Zowine's involvement in the billing fraud. For reasons discussed above, the timeliness of this claim presents a factual issue that must be resolved at trial.

         In sum, the Court holds that Wichansky's breach of fiduciary duty claim for immediate injuries from Zowine's alleged campaign of " chaos and terror," such as physical or emotional injuries from the assaults or harassment, is time-barred as to Zowine's actions before June 24, 2011, but that Wichansky's claim for breach of fiduciary related to the forced dissolution of the company through a campaign of terror cannot be found time-barred on the basis of undisputed fact.[6] This breach claim, as well as the breach claims based on Zowine's alleged involvement in the fraud and interference with the fraud investigation, must be resolved at trial.

         b. Damages.

         A claim for breach of fiduciary duty must establish that the plaintiff was damaged by the defendant's breach. John E. Shaffer Enters. v. City of Yuma, 183 Ariz. 428, 904 P.2d 1252, 1256 (Ariz. Ct.App. 1995). A plaintiff may satisfy this element by establishing either compensatory or restitutionary damages. AMERCO v. Shoen, 184 Ariz. 150, 907 P.2d 536, 540-42 (Ariz. Ct.App. 1995) (citing Am. ...

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