Melinda S. Workman v. Verde Wellness Center, Inc.
240 Ariz. 597
| Ariz. Ct. App. | 2016Background
- Verde Wellness Center, an Arizona nonprofit medical-marijuana dispensary, incorporated 2012; Melinda Workman joined its board in May 2013 and filed for judicial dissolution and a receiver on June 17, 2015 alleging illegal, oppressive, or fraudulent director conduct and waste of corporate assets.
- Within hours/days after Workman filed, the board held special meetings and adopted resolutions and bylaw amendments that removed Workman as a director; another removal vote occurred in August 2015.
- Verde moved to dismiss under Rule 12(b)(6) arguing Workman lacked standing because she had been removed; Verde attached meeting minutes, resolutions and amended bylaws to its motion.
- The trial court granted Verde’s motion, denied Workman’s motion to amend as moot, and later awarded attorney fees as a Rule 11 sanction. Workman appealed.
- The Court of Appeals concluded the trial court relied on materials outside the pleadings (converting the 12(b)(6) motion into summary judgment), reviewed the standing issue de novo, and found removal likely intended to moot the suit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trial court improperly considered materials outside the pleadings and thus converted a Rule 12(b)(6) motion into one for summary judgment | Workman: court should accept her complaint allegations (including her director status) as true; exhibits were immaterial | Verde: exhibits and Workman’s later admission about removal made the exhibits immaterial; no conversion error | Court: conversion was required because the court considered post‑complaint minutes/resolutions; treat motion as summary judgment |
| Whether Workman retained standing after the board removed her as a director shortly after filing suit | Workman: statute (A.R.S. § 10‑11430) grants directors standing and the board cannot moot her claim by removing her in response to her suit | Verde: removal eliminated her director status and thus her standing to seek judicial dissolution | Court: removal plausibly undertaken to defeat the suit; equitable/mootness principles prevent a defendant from using voluntary action to moot a case; Workman retained standing and dismissal on that basis was error |
| Whether the court erred in denying Workman’s motion to amend the complaint | Workman: amendment necessary to add related claims; denial was predicated on the erroneous dismissal | Verde: the motion was moot because Workman lacked standing | Court: denial was vacated as it was intertwined with the erroneous dismissal |
| Whether the Rule 11 fee award was proper | Workman: sanction improper because claims had statutory basis and dismissal was erroneous | Verde: claims lacked legal or factual basis warranting Rule 11 fees | Court: vacated fee award because it was tied to the erroneous dismissal and denial of leave to amend |
Key Cases Cited
- Coleman v. City of Mesa, 230 Ariz. 352 (Arizona 2012) (explains when complaint exhibits/public records are not "matters outside the pleading")
- Belen Loan Inv’rs, LLC v. Bradley, 231 Ariz. 448 (App. 2013) (materials outside the pleading must convert 12(b) motion to summary judgment unless not considered or necessary)
- Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., 528 U.S. 167 (2000) (defendant claiming voluntary compliance moots a case bears a heavy burden)
- Tom Mulcaire Contracting, LLC v. City of Cottonwood, 227 Ariz. 533 (App. 2011) (party cannot moot a case by its own voluntary conduct)
- Pi’Ikea, LLC v. Williamson, 234 Ariz. 284 (App. 2014) (standard of review for summary judgment is de novo)
- Dube v. Likins, 216 Ariz. 406 (App. 2007) (pleading standard on motion to dismiss — accept complaint allegations as true)