United States District Court, D. Arizona
G. Campbell, United States District Judge
have filed a renewed motion for judgment as a matter of law
and motion for a new trial. Doc. 568. The issues are fully
briefed (Docs. 581, 583), and no party has requested oral
argument. For the reasons that follow, the Court will reduce
some of the punitive damages awards, but otherwise deny
nine days of trial, the jury found that Defendant David
Zowine had breached his fiduciary duties to Plaintiff, and
that Defendants Charles Johnson, Martha Leon, Pat Shanahan,
and Mike Ilardo had aided and abetted Zowine's breach.
Doc. 500. The jury awarded $27, 625, 500 in compensatory and
punitive damages against these Defendants, with most of the
damages assessed against Defendant Zowine. See Id.
The Court entered judgment consistent with the jury's
verdict. See Doc. 535.
the close of Plaintiff's evidence at trial, Defendants
made an oral Rule 50(a) motion for judgment as a matter of
law, which the Court took under advisement. See Doc.
474. The Court later denied the motion in part (Doc. 465) and
granted it in part (Doc. 478). Defendants now seek post-trial
relief from the verdict.
Rule 50(b): Renewed Motion for Judgment as a Matter of
may renew its motion for judgment as a matter of law under
Rule 50(b) if the court denies the Rule 50(a) motion and the
jury returns a verdict against the movant. EEOC v. Go
Daddy Software, Inc., 581 F.3d 951, 961 (9th Cir. 2009).
“Because it is a renewed motion, a proper post-verdict
Rule 50(b) motion is limited to the grounds asserted in the
pre-deliberation Rule 50(a) motion.” Id. Thus,
a “party cannot raise arguments in its post-trial
motion for judgment as a matter of law under Rule 50(b) that
it did not raise in its pre-verdict Rule 50(a) motion.”
Freund v. Nycomed Amersham, 347 F.3d 752, 761 (9th
evaluating a motion for judgment as a matter of law, a court
does not make credibility determinations or weigh the
evidence. See Reeves v. Sanderson Plumbing Prods.,
Inc., 530 U.S. 133, 150-51 (2000). Instead, the court
“must draw all reasonable inferences in favor of the
nonmoving party.” Id. at 150 (citations
omitted). A court can grant a Rule 50 motion and overturn the
jury's verdict only if “‘there is no legally
sufficient basis for a reasonable jury to find for that party
on that issue.'” Costa v. Desert Palace,
Inc., 299 F.3d 838, 859 (9th Cir. 2002) (quoting
Reeves, 530 U.S. at 149), aff'd, 539
U.S. 90 (2003). In other words, the “jury's verdict
must be upheld if it is supported by substantial evidence,
which is evidence adequate to support the jury's
conclusion, even if it is also possible to draw a contrary
conclusion.” Pavao v. Pagay, 307 F.3d 915, 918
(9th Cir. 2002).
Rule 59(a): Motion for a New Trial.
Rule 59(a), a new trial may be granted on all or some of the
issues “for any reason for which a new trial has
heretofore been granted in an action at law in federal
court.” Fed.R.Civ.P. 59(a)(1)(A). Because “Rule
59 does not specify the grounds on which a motion for a new
trial may be granted, ” the court is bound by
historically recognized grounds. Zhang v. Am. Gem
Seafoods, Inc., 339 F.3d 1020, 1035 (9th Cir. 2003).
These include verdicts against the weight of the evidence,
damages that are excessive, and trials that were not fair to
the moving party. Molski v. M.J. Cable, Inc., 481
F.3d 724, 729 (9th Cir. 2007); see also Passantino v.
Johnson & Johnson Consumer Prods., 212 F.3d 493, 510
n.15 (9th Cir. 2000) (“The trial court may grant a new
trial only if the verdict is contrary to the clear weight of
the evidence, is based upon false or perjurious evidence, or
to prevent a miscarriage of justice.”) (citation
the Court may weigh the evidence and assess the credibility
of witnesses when ruling on a Rule 59(a) motion, it may not
grant a new trial “merely because it might have come to
a different result from that reached by the jury.”
Roy v. Volkswagen of Am., Inc., 896 F.2d 1174, 1176
(9th Cir. 1990) (quotation marks and citation omitted);
see also Union Oil Co. of Cal. v. Terrible Herbst,
Inc., 331 F.3d 735, 743 (9th Cir. 2003) (“It is
not the courts' place to substitute our evaluations for
those of the jurors.”). A court will not approve a
miscarriage of justice, but “a decent respect for the
collective wisdom of the jury, and for the function entrusted
to it in our system, certainly suggests that in most cases
the judge should accept the findings of the jury, regardless
of his own doubts in the matter.” Landes Constr.
Co., Inc. v. Royal Bank of Can., 833 F.2d 1365, 1371
(9th Cir. 1987) (citations omitted).
Discussion of the Evidence in this Order.
discussing the evidence in this Order, the Court will draw
reasonable inferences in Plaintiff's favor. The Court
will describe the evidence as the jury reasonably could have
viewed it in reaching the verdict. Defendants will not agree
with the Court's description because it reflects the view
a reasonable jury could have adopted in ruling against them,
but the Court will not entertain any finding that is against
the clear weight of the evidence. The Court will provide
citations to some of the evidence in the record, but by no
means to all of the relevant evidence. Occasionally, the
Court will simply reference the testimony of particular
witnesses rather than provide specific page citations.
Statute of Limitations - Accrual and Fraudulent
parties agree that Plaintiff's claim for breach of
fiduciary duty against Defendant David Zowine is governed by
Arizona's two-year limitations period for torts. A.R.S.
§ 12-542. This action was filed on June 14, 2013. Thus,
Plaintiff's claim is timely if it accrued, or the
limitations period was tolled until a date, after June 14,
Accrual of Plaintiff's Claim.
argue that Plaintiff's fiduciary duty claim against David
Zowine accrued before June 14, 2011. Doc. 568 at
Defendants note that a number of witnesses testified that
Plaintiff was aware of medical billing issues in 2009 and
2010. In addition, Plaintiff testified that his interpersonal
conflict with Zowine began in late 2010, continued into 2011,
and ultimately culminated in Plaintiff seeking dissolution of
Zoel Holding Company, Inc. (“Zoel”), which he
co-owned with Zowine. Doc. 492 at 84-89.
contend, pursuant to Walk v. Ring, 44 P.3d 990
(Ariz. 2002), that the evidence shows that Plaintiff's
fiduciary duty claim accrued in 2009 or 2010, well outside of
the two-year statute of limitations period. Plaintiff's
knowledge of billing issues and Zowine's hostile conduct,
Defendants assert, triggered a duty to investigate in 2010
and early 2011.
holds that a claim accrues when an aggrieved party has
“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. at 996, ¶ 22. The
Arizona Supreme Court provided this additional explanation:
The “what” is the fact of injury. With respect to
those in a professional or fiduciary relationship with the
tortfeasor, an adverse or untoward result, or a failure to
achieve an expected result, is not, as a matter of law,
always sufficient notice. To trigger the statute of
limitations, something more is required than the mere
knowledge that one has suffered an adverse result while under
the care of a professional fiduciary.
Id. at 997, ¶ 26.
Defendants contend, Plaintiff did know that there were
medical billing issues at Zoel in 2009 and 2010, even if he
did not know they were caused by intentional fraud. He also
knew that his relationship with Zowine deteriorated in late
2010 and early 2011. Plaintiff thus may have known enough
about the “what” of his injury to trigger a duty
to investigate, but that is not sufficient under
Walk. Because Plaintiff and Zowine were in a
fiduciary relationship, Plaintiff must also have known the
“who” - that Zowine was behind the billing fraud
and was deliberately causing the difficulties with Plaintiff.
testified that he knew of billing issues in 2010, but had no
idea that intentional billing fraud was occurring or that
Zowine was involved in the fraud and trying to cover it up.
Plaintiff also knew that his relationship with Zowine became
strained in late 2010 and early 2011, but testified that he
thought this was due to Zowine's gambling issues.
Plaintiff had no idea that the difficulties were
intentionally caused by Zowine in order to drive Plaintiff
from the business and prevent discovery of the billing fraud.
Plaintiff's claim for breach of fiduciary duty was not
based merely on the existence of billing issues or
difficulties in his relationship with Zowine. Rather,
Plaintiff's claim was that Zowine breached his fiduciary
duties by knowingly engaging in billing fraud, attempting to
conceal it, and engaging in a campaign of intimidation and
harassment designed to drive Plaintiff from the business
before it could be discovered.
testified that he had no reason to connect Zowine to the
wrongdoing until he received a report on the medical billing
fraud from Ron Wise in August 2011 (“Wise
Report”), which discussed several forms of billing
fraud that were occurring at Zoel. Doc. 516 at 29-30. After
receiving the Wise Report, Plaintiff testified that
“[i]t became very clear there [were] a lot of different
fraudulent activities [and] that [Ron Wise] was showing me
exactly how they were being done, exactly how it was being
pulled off, and who was covering it up.” Id.
at 30. Plaintiff testified that, after reviewing the Wise
Report, he “realized . . . this is intentional, this
fraud was intentional, ” and he “started to
believe in hindsight at some point that all of these fights,
everything was coming together, was just a big act to -
because Richard [Eden] and I were sniffing into the medical
billing fraud.” Doc. 493 at 10.
to credit this version of events was a question reserved for
the jury. Reeves, 530 U.S. at 150-51. If the jury
chose to believe Plaintiff's testimony, as it evidently
did, it could reasonably conclude that Plaintiff had no
reason to connect Zowine to the wrongdoing prior to receiving
the Wise Report in August 2011.
try to discredit Plaintiff's testimony, arguing that (1)
the Wise Report did not specifically link Zowine to any
wrongful conduct, and (2) the Report was based on information
readily available to Plaintiff. See Doc. 583 at 3.
These are the very arguments Defendants made during trial,
and they support one possible interpretation of the evidence.
But it is by no means the only possible interpretation. The
jury could reasonably have believed Plaintiff's testimony
that he did not have reason to connect Zowine to the wrongful
conduct until he read the Wise Report. Given this credibility
determination, the Court cannot conclude that there was no
legally sufficient basis for a reasonable jury to find for
Plaintiff on this issue, Costa, 299 F.3d at 859, or
that it was against the clear weight of the evidence,
Molski, 481 F.3d at 729. The Court accordingly
cannot conclude that Defendants are entitled to judgment
based on the statute of limitations.
further provides that, in determining whether a plaintiff was
on notice sufficient to trigger the limitations period, the
question is whether the plaintiff's “failure to go
forward and investigate [his possible cause of action] is not
reasonably justified.” 44 P.3d at 996. For
example, a plaintiff would be reasonably justified in
declining to investigate a claim 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.
even if Plaintiff knew, prior to the limitations period, that
billing irregularities were occurring or difficulties had
arisen in his relationship with Zowine, the claim for breach
of fiduciary duty did not accrue until he knew that Zowine
was involved in the billing fraud and began mistreating
Plaintiff to drive him from the company and prevent its
discovery. The jury reasonably could have concluded that
Plaintiff did not have such knowledge before June 14, 2011.
Plaintiff testified that he and Zowine had been friends and
business partners for many years, and that Zowine was the
best man at his wedding. Doc. 492 at 39-40, 57-58. Defendant
Ilardo testified that Plaintiff and Zowine were “were
like brothers. They got along great. Their families were very
close. You know, the best of friends.” Doc. 495 at 6.
There clearly was sufficient evidence for the jury to believe
Plaintiff's claim that he never suspected Zowine would be
involved in fraudulent operation of the business they jointly
owned. As Walk explains, “[t]his is the very
sort of factual determination that must be left to the
jury.” 44 P.3d at 996, ¶ 24.
Plaintiff's claim otherwise would have accrued before
June 14, 2011, the claim is timely if the limitations period
was tolled by fraudulent concealment. In Walk, the
Arizona Supreme Court held that “[f]raud practiced to
conceal a cause of action will prevent the running of the
statute of limitations until its discovery.” 44 P.3d at
999, ¶ 34 (quotation marks and citation omitted).
Moreover, if fraudulent concealment is established, the
[plaintiff] is relieved of the duty of diligent investigation
required by the discovery rule and the statute of limitations
is tolled until such concealment is discovered, or reasonably
should have been discovered. In fraudulent concealment cases,
the duty to investigate arises only when the [plaintiff]
discovers or is put upon reasonable notice of the breach of
trust. Thus, our cases and those from other jurisdictions
that recognize a fiduciary relationship agree that an actual
knowledge standard applies to triggering the statute of
limitations for a plaintiff who establishes a breach of the
fiduciary duty of disclosure.
Id. at ¶ 35 (internal quotation marks and
Alleged Termination of Fiduciary Duties.
argue in their reply brief that the statute of limitations
was not tolled by withholding information in violation of
fiduciary duties because any such duties owed by Zowine to
Plaintiff ceased once their relationship became adversarial.
Doc. 583 at 2. The Court rejected this position in a written
order (Doc. 481 at 6), declining to instruct the jury that
fiduciary duties end when parties become adverse
(see Doc. 533 at 12-13). The Court is convinced that
this position is correct for reasons stated in its prior
order. See Doc. 481 at 6. Moreover, even if the law
did provide that fiduciary duties end when relationships
become adverse, such a rule surely would not apply when one
partner intentionally makes the relationship adverse in order
to drive the other partner from the business and prevent
discovery of fraud, as Plaintiff proved here.
Sufficiency of the Evidence.
fraudulent concealment cases, the duty to investigate arises
only when the [plaintiff] discovers or is put upon reasonable
notice of the breach of trust.” Walk, 44 P.3d
at 999, ¶ 35 (quotation marks and citations omitted). To
establish notice, Defendants point to several different
witnesses' testimony. Doc. 568 at 5. The question,
however, is not whether there was evidence to support
Defendants' position, but whether there was sufficient
evidence to support Plaintiff's. As already noted,
Plaintiff presented evidence that he and Zowine had been
friends and business partners for many years. Doc. 492 at
39-40, 57-58; Doc. 495 at 6. Plaintiff testified that he
never suspected Zowine would be involved in fraudulent
operation of the business they jointly owned, or that the
difficulties between them were part of a calculated effort by
Zowine to drive him from the business and conceal fraud.
Plaintiff asserted that he did not begin to suspect
Zowine's breaches until he received the Wise Report in
August 2011. Doc. 516 at 29-30. A reasonable jury could
believe this evidence.
also presented evidence that Zowine was aware of and failed
to disclose billing fraud, orchestrated a campaign to drive
Plaintiff from the company, and interfered with efforts to
uncover billing fraud. For example, Plaintiff presented a
number of witnesses who testified that that Zowine was
responsible for billing at Zoel, that Johnson and Leon (who
were alleged to be most directly involved in the fraud)
reported to Zowine, and that Johnson and Leon repeatedly
refused to cooperate with Plaintiff's and Richard
Eden's efforts to learn more about the billing
irregularities. See, e.g., Doc. 476 at
94-95, 106, 111; 479 at 23-24, 29-30, 33-40, 49-50. Plaintiff
also presented evidence that, in response to revelations of
billing irregularities, Zowine retained a lawyer, Julie
Nelson, purportedly to investigate billing fraud (Doc. 491 at
126-29), but actually to advocate on Zowine's behalf
(Doc. 516 at 133). In purportedly investigating the billing
problems, Ms. Nelson never spoke with key individuals,
including Defendant Leon, and never reviewed Leon's
spreadsheets, which were a primary source of the billing
fraud. Doc. 491 at 126-29. Zowine even tried to turn the
tables by claiming in a letter from counsel that Plaintiff
was in charge of medical billing - when, in fact, Zowine was
in charge - and that Plaintiff had refused Zowine access to
key documents and individuals, including Leon - when, in
fact, Zowine supervised Leon and acquiesced in her refusal to
provide billing information to Plaintiff. Id. at
152-55. In addition, Zowine and the other Defendants and
employees associated with him systematically embarrassed,
humiliated, and threatened not only Plaintiff (Docs. 479 at
61, 97-98, 105-07; 486 at 109-10; 492 at 90-91; 493 at
38-39), but also a number of other people associated with
Plaintiff, including Zoel employees and Plaintiff's
family members (Docs. 476 at 35, 38-39, 49-50, 55-56; 477 at
84-87, 141; 479 at 54, 58-59, 76, 100-01; 482 at 115; 483 at
82, 87, 94-97, 108, 124-25, 133; 485 at 32-33, 53; 487 at
129, 134-35; 491 at 18, 42; 516 at 23-24).
this and other evidence, a reasonable jury could find that
Zowine consciously attempted to hide the fraud and blame
Plaintiff for billing irregularities, and that the
difficulties between Plaintiff and Zowine were in fact a
calculated effort by Zowine - unknown to Plaintiff at the
time - to drive Plaintiff from the business and prevent
discovery of the billing fraud. The evidence supports
Plaintiff's claim of fraudulent concealment and the
tolling of the statute of limitations.
more, Walk explains that “if fraudulent
concealment is established, the [plaintiff] is relieved of
the duty of diligent investigation required by the discovery
rule and the statute of limitations is tolled ‘until
such concealment is discovered, or reasonably should have
been discovered.'” 44 P.3d at 999, ¶ 35. Thus,
the jury's reasonable finding of Zowine's fraudulent
concealment would have relieved Plaintiff of the duty of
diligent investigation until Plaintiff discovered the fraud
after reviewing the Wise report in August 2011.
“an actual knowledge standard applies to triggering the
statute of limitations for a plaintiff who establishes a
breach of the fiduciary duty of disclosure.”
Id. The Court instructed the jury that shareholders
in a closely-held corporation must “fully disclose to
one another all material facts relating to the
corporation's affairs within their knowledge.” Doc.
533 at 13. The evidence at trial supported a jury
determination that Zowine never disclosed to Plaintiff the
existence of billing fraud or that he was seeking to drive
Plaintiff from the company. In light of this nondisclosure
under Walk, the limitations period was not triggered
until Plaintiff had “actual knowledge” of
Zowine's breach. 44 P.3d at 999, ¶ 35.
Statute of Limitations Conclusion.
entitled to judgment as a matter of law or a new trial,
Defendants must show not only that Plaintiff's fiduciary
duty claim against Zowine accrued before June 14, 2011, but
also that the running of the statute of limitations was not
tolled. Defendants fail on both counts. Examining the
evidence in the light most favorable to the jury verdict, the
Court finds ample evidence for a reasonable jury to find for
Plaintiff on the statute of limitations issues.
Costa, 299 F.3d at 859. The Court cannot conclude
that the jury's findings were against the clear weight of
the evidence. Molski, 481 F.3d at 729. This case
ultimately was a credibility determination by the jury, one
the Court will not disturb.
Causal Nexus between Defendants' Conduct and