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Owner-Operator Independent Drivers Association v. Pacific Financial Association, Inc.

Court of Appeals of Arizona, First Division

January 3, 2017

OWNER-OPERATOR INDEPENDENT DRIVERS ASSOCIATION, a Missouri corporation; THOMAS and KAREN MOORE, a California partnership, dba TOM MOORE TRANSPORTATION; JASMINE, LLC, a Missouri limited liability company; and K&S TRUCKING LLC, a Wyoming limited liability company, on behalf of themselves and others similarly situated, Plaintiffs/Appellants,
PACIFIC FINANCIAL ASSOCIATION, INC., a California corporation; and FEDERAL SERVICE CORPORATION, an Arizona corporation, Defendants/Appellees.

         Appeal from the Superior Court in Maricopa County No. CV2013-000615 The Honorable J. Richard Gama, Judge Retired


          Campbell Law Group Chartered, Phoenix By Brian J. Campbell Counsel for Plaintiffs/Appellants.

          The Cullen Law Firm, PLLC, Washington, D.C. By Daniel E. Cohen Counsel Pro Hac Vice for Plaintiffs/Appellants.

          Stinson Leonard Street LLP, Phoenix By Lonnie J. Williams, Jr. Counsel for Defendants/Appellees.

          Presiding Judge Donn Kessler delivered the opinion of the Court, in which Judge Patricia K. Norris and Judge Andrew W. Gould joined.


          KESSLER, Judge.

         ¶1 Appellants Owner-Operator Independent Drivers Association ("Association") and several of its members (collectively, "Owner-Operator") appeal the superior court's dismissal of their complaint pursuant to Arizona Rules of Civil Procedure ("Rule") 12(b)(6), refusal to allow them to amend their complaint, and award of attorneys' fees. For the following reasons, we affirm the dismissal of Owner-Operator's statutory claims; reverse and remand to allow Owner-Operator to assert common law claims of breach of fiduciary duty and negligence; and vacate the award of attorneys' fees.


         ¶2 Appellants, with the exception of the Association, are motor carriers that hauled freight pursuant to contractual agreements with a freight broker, Alliance Transportation, Inc. ("Alliance").[1] As a condition of federal registration under 49 U.S.C. § 13904, freight brokers must file with the United States Secretary of Transportation a "bond, insurance policy, or other type of security approved by the Secretary." 49 U.S.C. §§ 13904, 13906(b) (2005).[2] Federal Motor Carrier Safety Administration ("FMCSA") regulations specify that a broker may choose either to file a surety bond or establish a trust fund of $10, 000 to satisfy this security requirement. 49 C.F.R. § 387.307 (2008). In addition to providing the surety bond or trust fund as security, brokers must file evidence of the security's existence with the Secretary using the FMCSA's prescribed Form BMC 85 ("BMC 85 Form"). 49 C.F.R. § 387.307(b).

         ¶3 Alliance chose to provide the required $10, 000 security by way of a trust fund. Alliance and Appellee Pacific Financial Association, Inc. ("Pacific") executed a BMC 85 Form in April 2008 (the "Agreement"), creating a trust fund ("Trust"). Pursuant to the express terms of the Agreement, Alliance was Trustor and Pacific was Trustee. Motor carriers who had contracted with Alliance and to whom Alliance was liable for damages pursuant to the Agreement were the beneficiaries.

         ¶4 Alliance stopped paying motor carriers who had transported freight pursuant to their contracts with Alliance in the fall of 2011. As of October 19, 2011, the aggregate of unpaid claims against the Trust, premised upon deliveries before that date, exceeded the $10, 000 balance of the Trust. Pacific did not notify any Trust beneficiaries that the security had been exhausted, take steps to trigger Alliance's duty to replenish the Trust, or serve notice to terminate the Trust. In December 2011 and January 2012, Appellants, with the exception of the Association, delivered loads entitling them to payment from Alliance. These invoices were not paid, however, and the carriers filed claims with Pacific against the Trust during January and February 2012. Meanwhile, Alliance filed for bankruptcy protection on January 11, 2012.

         ¶5 Pacific filed a notice of cancellation of the Trust with the FMCSA on January 23, 2012, at least ninety-six days after Pacific knew that the aggregate claims exceeded the $10, 000 balance. The Trust was cancelled on February 22, 2012. As of March 2012, Pacific had made no payments from the Trust on pending claims.

         ¶6 Owner-Operator filed this action seeking declaratory relief, injunctive relief, and damages. The complaint alleged that Pacific owed the motor carriers, as beneficiaries, certain duties set forth in the Agreement; in Arizona Revised Statutes ("A.R.S.") sections 14-10801, 14-10802, 14-10803, 14-10811, 14-10813, and 14-10817; and by virtue of its "special relationship" with the Appellants. It also alleged that Federal Service Corporation aided and abetted Pacific's tortious conduct and acted negligently by failing to properly pay claims against the Trust.[3] The complaint asserted claims for breach of fiduciary duty, breach of the duty of good faith and fair dealing, negligence, and aiding and abetting tortious conduct.

         ¶7 Appellees moved to dismiss the complaint under Rule 12(b)(6). Appellees argued that the Agreement was not a "trust" under Arizona law and that, accordingly, Appellants were not "beneficiaries" and were not owed any of the duties alleged in the complaint.[4]

         ¶8 The superior court dismissed the complaint on the grounds that the Agreement did not create a "trust" under the Arizona Trust Code, A.R.S. § 14-10101, et seq. (2015) ("Trust Code").[5] It found that the Agreement was a "trust[] for the primary purpose of paying debts, " a category of trust excluded from the Trust Code pursuant to A.R.S. § 14-1201(58), and that "even if [the Agreement was] an 'express trust, ' it [was] not a 'trust' under A.R.S. § 14-1201(58)." Section 14-1201(58) provides that while the definition of a trust includes an express trust, it excludes "security arrangements, liquidation trusts and trusts for the primary purpose of paying debts, dividends, interest, salaries, wages, profits, pensions or employee benefits of any kind." (emphasis added).

         ¶9 Owner-Operator filed a Motion for a New Trial and a Motion to Amend Complaint to specifically assert claims based on Arizona common law and the Trust Code. In their Joint Response, Appellees argued that amendment would be futile because (1) the definition in A.R.S. § 14-1201(58) expressly or by necessary implication supersedes any contrary definition of what a trust is in Arizona, and (2) that the BMC 85 Form is not a trust at all, but rather a contract for the payment of debt. The superior court denied both motions "for the reasons stated in [Appellees'] Joint Response" to the motions.

         ¶10 Appellees then filed an Application for an Award of Attorneys' Fees and Costs. The superior court awarded Appellees' attorneys' fees pursuant to A.R.S. § 12-341.01, stating "the claims asserted by [Appellants] were based on agreements entered into by these parties and thus 'arose out of contract.'"

         ¶11 Owner-Operator timely appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(1) and (A)(9) (2016).


         ¶12 Owner-Operator argues the superior court erred in dismissing their claims alleging breach of fiduciary duty and negligence, refusing to allow their claims to proceed under common law, and awarding attorneys' fees to Appellees.

         I. Motion to Dismiss

         ¶13 We review dismissal of a complaint under Rule 12(b)(6) de novo. Coleman v. City of Mesa,230 Ariz. 352, 355, ¶ 7 (2012). We assume the truth of all well-pled factual allegations in the complaint and all reasonable inferences therefrom. Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 419, ΒΆ 7 (2008) (citations omitted). We will affirm the dismissal only if "as a matter of law . . . plaintiffs would not be entitled to relief under any interpretation of the facts ...

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