JUDSON C. BALL REVOCABLE TRUST, Plaintiff/Counter-Defendant/Appellant,
v.
PHOENIX ORCHARD GROUP I, L.P., et al., Defendants/Counter-Claimants/ Intervenors/Appellees.
Appeal
from the Superior Court in Maricopa County Nos. CV2015-011768
CV2016-000284 The Honorable Dawn M. Bergin, Judge.
Barrett & Matura P.C., Scottsdale By Jeffrey Matura,
Amanda J. Taylor Counsel for
Plaintiff/Counter-Defendant/Appellant
Freeman Law P.L.L.C., Scottsdale By Shelton L. Freeman, Jason
M. Venditti, Elizabeth C. Heims Counsel for
Defendants/Counter-Claimants/Intervenors/Appellees
Presiding Judge Kenton D. Jones delivered the Opinion of the
Court, in which Judge Diane M. Johnsen and Judge Paul J.
McMurdie joined.
OPINION
JONES,
JUDGE.
¶1
The Judson C. Ball Revocable Trust (the Trust) challenges the
trial court's determination that it lacked standing to
pursue derivative claims on behalf of Phoenix Orchard Group
I, L.P. and Phoenix Orchard Group II, L.P. (collectively,
POG) after its partnership interests in the entities were
rescinded. In this Opinion, we adopt the continuous ownership
rule, which requires a plaintiff in a derivative action to
continue to possess an interest in the entity on whose behalf
it sues throughout the litigation. Because the Trust no
longer has any interest in POG, it lacks standing to pursue
its derivative claims. Accordingly, we affirm the court's
order dismissing the Trust's claims.
FACTS
AND PROCEDURAL HISTORY
¶2
In 2006, the Trust bought limited partnership interests in
POG. Nine years later, the Trust sued POG and related
parties, [1] alleging violations of the Arizona
Securities Act. See Ariz. Rev. Stat. (A.R.S.)
§§ 44-1801[2] to -2126. Within its complaint, the Trust
demanded either rescission of its investments or damages, and
tendered the securities to POG. See A.R.S. §
44-2001(A) (stating a fraudulent sale of securities "is
voidable at the election of the purchaser"). In its
answer, POG accepted the tender and counterclaimed for a
declaration that the rescission was valid and complete.
¶3
In January 2016, the Trust filed a separate limited
partnership derivative action on behalf of POG, alleging
other partners and participants had breached the partnership
agreements and the offering documents by making various
payments "that appeared to be not allowed within the
offering documents or partnership
agreements."[3] See A.R.S. § 29-356. A few
months later, the trial court approved the rescission of the
Trust's investment in POG and entered final judgment on
the Trust's fraud claims in the first case, which was
later affirmed by this Court. See Judson C. Ball
Revocable Tr. v. Phx. Orchard Grp. I, L.P., 1 CA-CV
16-0557, 2018 WL 283049 (Ariz. App. Jan. 4, 2018) (mem.
decision). POG then intervened in the derivative action and
moved to dismiss on the ground that the Trust was no longer a
partner and therefore lacked standing to pursue the
derivative claims. After conducting a detailed analysis of
relevant authorities, the court agreed and dismissed the
complaint.
¶4
The Trust timely appealed a final judgment entered pursuant
to Arizona Rule of Civil Procedure 54(b). We have
jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1)
and -2101(A)(1).
DISCUSSION
¶5
The Trust had standing to file the derivative claims because
it was a limited partner in POG at the time it filed its
complaint. The only issue on appeal is whether the Trust lost
its standing after its partnership interests were rescinded.
Whether a party has standing presents a question of law
subject to de novo review. Home Builders
Ass'n of Cent. Ariz. v. Kard, 219 Ariz. 374, 377,
¶ 8 (App. 2008) (citing Robert Schalkenbach Found.
v. Lincoln Found., Inc., 208 Ariz. 176, 180, ¶ 15
(App. 2004)).
¶6
A limited partner may file a derivative action on behalf of
the limited partnership "if general partners with
authority to do so have refused to bring the action or if an
effort to cause those general partners to bring the action is
...