Wilson v. Drake
1 CA-CV 16-0541
| Ariz. Ct. App. | Dec 7, 2017Background
- In 2003 Harry Wilson and Joseph Drake were managers/members of MRED, an LLC formed to develop three office condominiums (Three Falls Business Center). Wilson contributed most capital and was active in development and management.
- MRED conveyed property and executed a promissory note to Wilson; operating agreement required manager consent for material transactions and disclosure to other managers, and equal treatment on return of capital (except for loans to the company).
- Unit 2 was encumbered by a deed of trust in October 2004 that Drake recorded to secure a personal loan from JRS; Drake sold Unit 2 on July 29, 2005 and the JRS loan was paid from sale proceeds.
- Drake did not inform Wilson of the sale; he sent several post‑dated/insufficient funds checks and affirmatively told Wilson in 2006 that Unit 2 remained unsold. Wilson discovered the sale and payoff years later and sued in 2014 for breach of the operating agreement (among other claims).
- The superior court granted summary judgment for Wilson on breach and awarded damages; Drake appealed arguing the claim was time‑barred. The court of appeals reversed and remanded.
Issues
| Issue | Plaintiff's Argument (Wilson) | Defendant's Argument (Drake) | Held |
|---|---|---|---|
| Whether Wilson's breach‑of‑contract claim accrued before limitations cutoff | Drake fraudulently concealed the sale and payoff, so the statute was tolled until Wilson actually discovered the breach in 2014 | The discovery rule or statute began to run earlier; summary judgment inappropriate because questions of when Wilson knew or should have known are factual | Accrual/tolling is a fact question for a jury; summary judgment improper |
| Whether fraudulent concealment tolls the statute until actual discovery | Tolling applies; a fiduciary’s concealment delays accrual until plaintiff actually or reasonably discovers the breach | Contends reasonable diligence would have revealed facts earlier, so tolling does not save the claim | Fraudulent concealment can toll limitations, but whether concealment occurred or should have put plaintiff on inquiry notice is for the factfinder |
| Whether encumbering Unit 2 for a personal loan breached MRED operating agreement | Encumbrance without manager consent and failure to disclose violated multiple operating agreement duties | Drake disputed facts and intent; argued statute and discovery standards bar claim or create triable issues | Court assumed encumbrance could constitute breach but held whether claim is time‑barred remains a jury issue |
| Whether summary judgment was appropriate on statute‑of‑limitations/tolling grounds | Wilson argued no genuine issue because Drake actively concealed sale/payoff | Drake argued material factual disputes exist about what Wilson knew or should have known | Summary judgment reversed — factual disputes remain about notice, inquiry diligence, and concealment |
Key Cases Cited
- Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586 (1995) (applies discovery rule to breach of contract claims)
- Walk v. Ring, 202 Ariz. 310 (2002) (fraudulent concealment by fiduciary can toll limitations until discovery or when a reasonable person would investigate)
- Acton v. Morrison, 62 Ariz. 139 (1945) (statute is tolled where one in a position of trust conceals facts until discovery or reasonable notice)
- Ulibarri v. Gerstenberger, 178 Ariz. 151 (1994) (whether concealment tolled the statute is a factual question for the trier of fact)
- Anson v. American Motors Corp., 155 Ariz. 420 (1987) (fraudulent concealment is an issue of fact inappropriate for summary disposition)