Vortex v. denkewicz/engelhard
235 Ariz. 551
| Ariz. Ct. App. | 2014Background
- Vortex Corporation, founded by Rolf Engelhard, developed water‑purification technology; Lamb and Ramsey became majority shareholders and later formed Zuvo, LLC (originally Vortex Pure Water) to continue the business after Vortex struggled.
- Ray Denkewicz (CEO) and Engelhard (CTO) were promised annual stock grants (3% per year for 5 years) as part of employment; both were terminated in September 2007.
- Vortex sued the former officers in 2008; the defendants counterclaimed seeking stock and other relief. Some counterclaims (fraud, RICO, de facto entity/partnership) were dismissed; remaining claims went to jury.
- The jury awarded each of Denkewicz and Engelhard a 3% stock interest in Vortex and awarded modest damages to both sides; Vortex transferred assets to Zuvo, triggering dissenter’s rights by the new shareholders.
- A valuation hearing under A.R.S. § 10‑1330 determined fair value of Vortex immediately before the transfer; Vortex’s expert (Raben) valued the company at $61,682; appellants’ expert (White) opined ~$20 million based largely on Zuvo projections. The trial court adopted Raben’s valuation and awarded about $2,055 to each appellant for their 3% shares.
- Appellants appealed on multiple grounds: personal jurisdiction over Carol Ann Denkewicz, denial of advance litigation costs/indemnification, dismissal of partnership claim, valuation methodology/conclusions, and entitlement to attorneys’ fees.
Issues
| Issue | Plaintiff's Argument (Vortex / Appellees) | Defendant's Argument (Denkewicz/Engelhard / Appellants) | Held |
|---|---|---|---|
| Personal jurisdiction over Carol Ann | Carol Ann waived jurisdictional defense by not timely objecting | Carol Ann lacked minimum contacts (Rhode Island law; spouse’s unilateral acts) so Arizona courts lacked jurisdiction | Court: defense waived by delay; denial of Rule 60 motion affirmed |
| Advance of litigation expenses / indemnification | Statutes permit but do not mandate indemnity or advances; discretionary language means Vortex not required to advance expenses | Appellants claim they met statutory prerequisites and Vortex should have advanced expenses under A.R.S. §10‑856(A) | Court: statutes are permissive; denial of advance was not error |
| Dismissal of partnership (Rule 12(b)(6)) | Vortex: VIP Agreement did not create a partnership; parties already had statutory entities | Appellants: VIP Agreement and conduct established de facto partnership under A.R.S. §29‑1012(A) | Court: dismissal affirmed — existing corporate/LLC associations control; VIP sought to modify, not create, a partnership |
| Fair value under dissenter’s statutes | Vortex: value must reflect Vortex immediately before transfer; Vortex–Zuvo transaction was not arm’s‑length; Raben DCF and asset analyses proper | Appellants: transfer to Zuvo and projections show Vortex worth ~$15–20M; trial court should adopt White’s valuation | Court: affirmed adoption of Raben valuation ($61,682); fair‑value must consider all relevant factors and the operative reality immediately before transfer; Zuvo transaction not arm’s‑length |
| Attorneys’ fees under A.R.S. §12‑341.01 | Vortex: net judgment in favor of Appellees justifies fee award | Appellants: contest who is prevailing party | Court: net‑judgment rule applied; Appellees prevailed by $872.54 overall; fee award sustained; no appellate fee awarded to Appellees (taxable costs allowed) |
Key Cases Cited
- Sigmund v. Rea, 226 Ariz. 373 (discusses when spouse’s unilateral business dealings can be attributed for personal jurisdiction)
- Nat’l Homes Corp. v. Totem Mobile Home Sales, Inc., 140 Ariz. 434 (defense based on lack of jurisdiction must be timely raised)
- Coleman v. City of Mesa, 230 Ariz. 352 (standards for Rule 12(b)(6) review and what exhibits a court may consider)
- Pro Finish USA, Ltd. v. Johnson, 204 Ariz. 257 (discusses valuation considerations in appraisal/dissent cases and reliance on arm’s‑length transactions)
- AMERCO v. Shoen, 184 Ariz. 150 (use of secondary sources and valuation principles in corporate contexts)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del.) (appraisal/fair value may use valuation techniques accepted in finance community)
- M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513 (Del.) (value corporation as a going concern based on operative reality at appraisal time)
- Ocean West Contractors, Inc. v. Halec Const. Co. Inc., 123 Ariz. 470 (net‑judgment approach for determining prevailing party for attorneys’ fees)