Timeless v. Olson
1 CA-CV 15-0005
| Ariz. Ct. App. | Jul 5, 2016Background
- In 2011 Stewart solicited investment and in June 2011 received $145,000 from Jill Olson under a promissory note, securities purchase agreement, and warrant; Stewart used funds to develop Timeless Global.
- Stewart alleged Shawn Olson (Jill’s husband) had orally committed to raise capital and that Shawn’s failure to perform justified rescission and fraud claims; Stewart alleged Jill was Shawn’s nominee.
- Jill filed a counterclaim alleging breach of the note and sought damages, 11% of Capsoul shares (or equivalent), and other relief; default was entered against Stewart on the counterclaim after Stewart missed the Rule 55 response deadline.
- The superior court granted motions to dismiss Stewart’s amended complaint for failure to state a claim and for failure to plead fraud with particularity; it struck Stewart’s late answer to the counterclaim and entered final judgments for defendants, awarding Jill damages and contractual relief.
- Stewart’s postjudgment Rule 59 and Rule 60 motions were denied; the court granted Jill Rule 60(c)(6) relief from a commissioner’s contrary ruling on default procedure, concluding personal re-service was not required.
- On appeal the Arizona Court of Appeals affirmed dismissal of the complaint, denial of Stewart’s relief motions, and the awards of fees to the Olsons; MSSB’s fee request under § 12-349 was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stewart pleaded a viable rescission remedy based on Shawn’s oral commitments | Stewart: rescission is warranted because Shawn’s breach of condition prevented the written loan agreements from taking effect | Olsons: rescission requires restoration of benefits; Stewart received and spent loan proceeds and made no offer to restore funds | Held: Dismissed — rescission unavailable because Stewart did not offer to restore the $145,000 |
| Whether fraud was pleaded with particularity under Rule 9(b) | Stewart: Shawn made actionable misrepresentations inducing reliance | Olsons: Complaint lacks particularized allegations of the nine elements of actual fraud (knowledge, intent, reliance, etc.) | Held: Dismissed — fraud allegations insufficiently particular and concerned future promises |
| Whether MSSB (Morgan Stanley Smith Barney) can be liable for Shawn’s alleged actions | Stewart: Shawn was an MSSB executive and acted for MSSB; MSSB liable vicariously | MSSB: No allegations Shawn acted within scope of employment; claims are derivative of dismissed claims against Shawn/Olsons | Held: Dismissed — employer liability fails where employee claims are not viable |
| Whether superior court erred in granting Jill Rule 60(c)(6) relief and denying Stewart Rule 60 relief from default | Stewart: He did not default; commissioner erred; superior court improperly revisited commissioner’s ruling (horizontal appeal) | Jill: Commissioner’s ruling was manifestly erroneous; law-of-the-case doesn’t bar revisiting manifest error; personal re-service was unnecessary | Held: Affirmed — court did not abuse discretion granting Jill relief and denying Stewart’s Rule 60 relief |
Key Cases Cited
- Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417 (court reviews Rule 12(b)(6) de novo and requires more than conclusory allegations)
- Taeger v. Catholic Family & Cmty. Servs., 196 Ariz. 285 (elements required for actual fraud)
- Jennings v. Lee, 105 Ariz. 167 (rescission as remedy based on fraud)
- Hall v. Read Dev., Inc., 229 Ariz. 277 (rescission annuls contract and restores status quo)
- Hilgeman v. Am. Mortg. Sec., Inc., 196 Ariz. 215 (Rule 60(c)(6) requires extraordinary circumstances; court examines totality of facts)
- Ruesga v. Kindred Nursing Ctrs., L.L.C., 215 Ariz. 589 (standard of review for setting aside default judgment; broad discretion of trial court)