J. Ball Trust v. Phx Orchard
1 CA-CV 16-0557
| Ariz. Ct. App. | Jan 4, 2018Background
- The Trust sued under the Arizona Securities Act alleging securities fraud related to citrus-orchard investments and expressly tendered the securities and demanded rescission while still owning the shares.
- POG accepted the Trust’s tender and counterclaimed for a declaratory judgment that acceptance created a binding rescission obligation; POG also sought an order that rescission payments be paid to PJI-2 under an existing charging order.
- The superior court ruled rescission is the exclusive statutory remedy for a purchaser who still owns the securities under A.R.S. § 44-2001(A), ordered POG to deposit the purchase consideration with the clerk, and POG deposited $776,725.68.
- The court concluded the deposited rescission funds could be released to judgment creditor PJI-2 under the Charging Order; the Trust’s motion to stay release pending appeal was denied.
- The court entered a Rule 54(b) final judgment as to the declaratory count; the Trust appealed the August Judgment and the release of funds.
- The Court of Appeals affirmed the August Judgment, accepted jurisdiction over but denied relief on the stay issue (treated as a special action), and deferred appellate attorney-fee requests to the superior court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether A.R.S. § 44-2001(A) allows a purchaser who still owns securities to pursue rescission and statutory damages simultaneously | Trust: § 44-2001 does not limit remedy to rescission; purchaser may seek rescission and damages and defer election until trial | POG: Plain text requires rescission where purchaser still owns the securities; damages available only if purchaser no longer owns them | Held: § 44-2001(A) is unambiguous — purchaser who still owns the securities must seek rescission; damages are for those who no longer own the securities |
| Whether accepting the Trust’s tender created a valid mutual rescission obligation | Trust: Tender plus demand does not preclude later seeking damages or punitive relief | POG: Acceptance effectuates rescission and concludes statutory remedy as to § 44-2001 claims | Held: Acceptance of unequivocal tender created a valid mutual rescission obligation |
| Whether punitive damages are available under A.R.S. § 44-2001(A) after rescission tender and acceptance | Trust: Entitled to punitive damages under Hall and related authority | POG: Remedy under § 44-2001 governs; punitive damages arise only from separate common-law fraud findings | Held: Statutory rescission remedy does not permit superimposing punitive damages on § 44-2001 claims; punitive damages depend on independent common-law fraud findings |
| Whether the court erred in releasing rescission funds to PJI-2 before appeal (denial of stay) | Trust: Release frustrated its appellate rights; requested stay of distribution | POG/PJI-2: Charging Order entitles judgment creditor to distribution; superior court acted within discretion | Held: Treated as special action; because the August Judgment was affirmed, the stay issue is moot and relief is denied |
Key Cases Cited
- Grand v. Nacchio, 214 Ariz. 9 (App. 2006) (permitted rescission when purchaser sold and replaced shares; recognizes rescission where purchaser no longer owns original securities)
- Bullard v. Garvin, 1 Ariz. App. 249 (1965) (interpreting § 44-2001 to require tender/rescission when purchaser still owns the securities)
- Wash. Nat’l Corp. v. Thomas, 117 Ariz. 95 (App. 1977) (addressed damages recovery for a seller under § 44-2002)
- Hall v. Sec. Planning Servs., Inc., 419 F. Supp. 405 (D. Ariz. 1976) (discussed punitive damages where common-law fraud was found separate from statutory remedy)
- Randall v. Loftsgaarden, 478 U.S. 647 (1986) (federal securities law recognizing rescission as the prescribed remedy when plaintiff still owns the security)