IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE. MARQUETTE VENTURE PARTNERS II, ) 1 CA-CV L.P., a Delaware limited )

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1 NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE MARQUETTE VENTURE PARTNERS II, ) 1 CA-CV L.P., a Delaware limited ) partnership; and MVP II ) DEPARTMENT T AFFILIATES FUND, L.P., a ) Delaware limited partnership, ) MEMORANDUM DECISION ) (Not for Publication - Plaintiffs/Appellants/ ) Rule 28, Arizona Rules of Cross-Appellees, ) Civil Appellate Procedure) ) v. ) ) FRANK M. LEONESIO and MELISSA ) LEONESIO, husband and wife; JOHN ) J. LEONESIO and ROBIN LEONESIO, ) husband and wife; STEPHEN J. ) CURRIER and SUSANNE CURRIER, ) husband and wife; RICHARD A. ) INTORCIO and MARILYN INTORCIO, ) husband and wife, ) ) Defendants/Appellees/ ) Cross-Appellants. ) ) Appeal from the Superior Court in Maricopa County Cause No. CV The Honorable Mark F. Aceto, Judge AFFIRMED

2 Osborn Maledon, P.A. by Colin F. Campbell Thomas L. Hudson Jean-Jacques Cabou Sharad H. Desai Attorneys for Plaintiffs/Appellants/Cross-Appellees Quarles & Brady, LLP by Lonnie J. Williams, Jr. Carrie M. Francis Attorneys for Defendants/Appellees/Cross-Appellants Phoenix Phoenix P O R T L E Y, Judge 1 The plaintiffs are Marquette Venture Partners II, Inc., and MVP II Affiliates Fund, L.P. (collectively Marquette ). The Defendants are Frank Leonesio, John Leonesio, Stephen Currier, and Richard Intorcio (collectively Defendants ). Marquette operates a venture capital fund that invested in a corporation that was managed by Defendants. Marquette sued Defendants for various tort and contract claims arising from a contract to fund litigation expenses related to the corporation. After a trial, the jury found for Marquette on its breach of fiduciary duty claim against Frank Leonesio. The jury found for Defendants on Marquette s remaining claims. 2 Marquette appealed and contends that (1) the trial court erred by giving a material breach of contract instruction to the jury, (2) it was entitled to receive attorneys fees, and (3) it is entitled to prejudgment interest. Frank Leonesio filed a cross-appeal and claimed that (1) Marquette s breach of 2

3 fiduciary duty claim was barred by the statute of limitations, (2) Frank Leonesio was entitled to attorneys fees, and (3) the jury s punitive damages claim was excessive. 1 3 Based on the following, we affirm the judgment. FACTUAL AND PROCEDURAL HISTORY 4 Defendants and Marquette were owners of Q Fitness Clubs, Inc. ( Q Clubs ). In 1999, Q Clubs agreed to merge with Fitness Holdings, Inc. ( FHI ), which operated 24 Hour Fitness. The owners of Q Clubs appointed Frank Leonesio and Kenneth DeAngelis 2 as their representatives for the merger. As required by the Merger Agreement, Defendants purchased approximately $9.8 3 million in FHI stock. Marquette did not receive any stock, only cash. In addition, the Merger Agreement required that $5 million be placed in escrow ( Escrow Account ) to indemnify FHI. 5 The Q Clubs owners signed a document titled Stockholder and Warrantholder Consent, which stated that Frank Leonesio and DeAngelis could: 1 In a separate opinion filed contemporaneously with this memorandum decision, we address Marquette s partial motion to dismiss Frank Leonesio s cross-appeal, and grant the partial motion to dismiss. 2 Kenneth DeAngelis was a party in the underlying lawsuit, but he is not a party to this appeal. 3 Frank Leonesio purchased $8.6 million of stock; Steven Currier $335,000; Richard Intorcio $335,000; and John Leonesio $536,000. An additional $1.4 million was purchased by other Q Clubs owners. 3

4 bind [all Holders] in all matters as to which the Merger Agreement specifies that [Frank Leonesio and Kevin DeAngelis] shall so act, including without limitation, (1) negotiating, settling, compromising and otherwise handling all claims and all matters relating to indemnification under the Merger Agreement and making all determinations as to the investment, application and release of funds held under the Escrow Agreement and (2) entering into any amendment to the Merger Agreement following the closing.... Each of the Stockholders hereby irrevocably appoints [Frank Leonesio and Kevin DeAngelis] as his or its true and lawful attorneys-in-fact and agents and authorizes [Frank Leonesio and Kevin DeAngelis] to exercise all of the powers and take all of the actions described above on his or its behalf. [Frank Leonesio and Kevin DeAngelis] shall act by unanimous vote, and any action taken by [Frank Leonesio and Kevin DeAngelis] (an Authorized Action ) shall be binding on all of the Holders. Each Holder agrees that [Frank Leonesio and Kevin DeAngelis] shall have no liability to him or it for any Authorized Action, except to the extent such Authorized Action is found by a final order of a court of competent jurisdiction to constitute fraud or willful misconduct. 6 The Escrow Agreement provided that after a specified date, FHI could no longer seek indemnification and all remaining money in the Escrow Account would be distributed to Q Clubs stockholders according to their ownership interest. 4 Prior to the indemnity deadline, FHI sent two demand letters which alleged that it was entitled to the entire $5 million Escrow 4 The following is the ownership interest of the relevant parties: Frank Leonesio 47.4%, Richard Introcio 3.181%, Stephen Currier 3.181%, John Leonesio 1.113%, and Marquette %. 4

5 Account balance and an additional $45.6 million in damages for fraud. In response, Frank Leonesio and Kevin DeAngelis decided to preemptively sue FHI and did so on May 16, 2001, to determine ownership of the Escrow Account. Defendants joined the lawsuit as plaintiffs and alleged damages relating to their FHI stock purchase. 7 Although Frank Leonesio and Kevin DeAngelis initiated the lawsuit, they did not have a method to fund the litigation. Frank Leonesio then sent the Q Clubs stockholders a request to fund the entire cost of litigation, including the costs for Defendants individual claims. In return, the Q Clubs stockholders were told [w]hile you may not have purchased stock in Fitness Holdings, you will participate in any upside awards relative to our lawsuit. 5 8 Attached to the letter was a document titled Funding and Participation Acknowledgment Agreement ( Acknowledgment Agreement ). The Acknowledgment Agreement provided: The undersigned agrees to participate in and to be responsible for a pro rata share of the costs and expenses of the Litigation equivalent to the undersigned s percentage ownership interest in the Q Clubs as of the time of the November 2, 1999 sale of the company. In return, the undersigned will 5 The definition of upside was disputed during the trial. Marquette claimed that upside was synonymous with the additional claims made by the investors. Defendants claimed that upside referred to any amounts recovered in excess of their original $9.8 million stock purchase. 5

6 also participate on a pro rata basis in any award, judgment or settlement obtained in the Litigation, including with respect to the additional claims made by the Investors. 6 9 When asked to clarify how the proceeds from the lawsuit against FHI would be distributed, Frank Leonesio stated: [W]e plan on doing the following: 1. Reimburse shareholders their legal expenses first. 2. Confine non-participants to their pro-rata share of the escrow. 3. Those who do participate will share in any upside in excess of the rolled over investment in FHW stock and a fair interest on that roll over. 10 At the time the Acknowledgment Agreement was distributed in 2001, attorneys fees were estimated to be between $517,500 and $690,000. By August 2003, the FHI litigation was still ongoing, and the Q Clubs owners had incurred more than $940,000 in legal fees. All, including Marquette and Frank Leonesio, owed money for fees. 11 Frank Leonesio then sent the Escrow Account holders, including Marquette, a letter informing them that failing to pay their legal fees would result in a 1% per month interest charge 7 and that they would not participate in any upside award unless their bills were paid in full within seven business days. After the letter was sent, Frank Leonesio began recording interest 6 Marquette claimed that it signed the Acknowledgment Agreement, but neither party presented a copy of the Acknowledgment Agreement that was signed by Marquette. 7 The final interest charge was 1.5%. 6

7 charges against all the Escrow Account holders who had not paid attorneys fees. 12 Marquette stopped paying attorneys fees in October 2003, and Frank Leonesio began recording interest against it at the rate of 1.5% per month for its unpaid share of the attorneys fees. On the eve of trial, the suit against FHI was settled. The June 2004 settlement provided that $3 million in the Escrow Account would go to the Q Clubs owners and FHI would receive the remaining $2 million. In addition, FHI agreed to rescind Defendants $9.8 million stock purchase and refund their money. 13 By the end of the litigation, legal fees totaled $2.9 million. 8 The total litigation costs (less any amounts already paid) were then charged to each Q Clubs owner according to their pro-rata interest in the Escrow Account. In addition, the interest charges for failing to pay attorneys fees were aggregated and distributed to all Q Clubs owners according to their pro-rata interest in the Escrow Account. 14 Marquette s unpaid legal fees were deducted from its share of the settlement. After receiving its share of the remaining Escrow Account funds, Marquette claimed that it was entitled to a portion of the stock rescission according to the 8 The total fees were more than $3 million but the parties reduced their fees to $2.9 million. 7

8 Acknowledgment Agreement. Frank Leonesio disputed Marquette s interpretation and claimed that Marquette was only entitled to any upside, and there was none because Defendants received only the purchase price of their FHI stock purchase and no additional damages. 15 Dissatisfied with the response, Marquette filed this lawsuit against Defendants on September 28, Marquette amended its complaint in 2007 and alleged: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) fraud in the inducement; (4) conversion; (5) fraudulent transfer; (6) constructive trust; (7) unjust enrichment; and (8) an equitable lien. Marquette specifically alleged the following claims against Frank Leonesio and Kevin DeAngelis: (1) declaratory judgment; (2) breach of agency agreement; and (3) breach of fiduciary duty. Marquette also sought punitive damages against Frank Leonesio. 16 The case proceeded to trial in May The jury found in favor of Marquette on its breach of fiduciary duty claim against Frank Leonesio and awarded Marquette $439, in compensatory damages and $1,121, in punitive damages. The jury found in favor of Defendants on the remaining claims. 9 Kevin DeAngelis was initially a plaintiff against Frank Leonesio. After rejecting Marquette s interpretation of the Acknowledgment Agreement, he was added as a defendant in the Amended Complaint. 8

9 DISCUSSION I. MARQUETTE S APPEAL A. Material Breach Instruction 17 Marquette contends that it is entitled to a new trial on the contract claims because there was no substantial evidence for the trial court s material breach instruction. We review jury instructions as a whole to determine whether the jury was properly guided in its deliberations. State Farm Fire & Cas. Ins. Co. v. Grabowski, 214 Ariz. 188, 192, 13, 150 P.3d 275, 279 (App. 2007). We also view the evidence in the light most favorable to the requesting party, and if there is any evidence tending to establish the theory posed in the instruction, it should be given even if there are contradictory facts presented. Willet v. Ciszek-Olson, 170 Ariz. 230, 231, 823 P.2d 97, 98 (App. 1991). Conversely, when there is no substantial evidence to support an instruction, it is reversible error to give the instruction. Herman v. Sedor, 168 Ariz. 156, 158, 812 P.2d 629, 631 (App. 1991); Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 539, 647 P.2d 1127, 1137 (1982). Substantial evidence is more than a mere scintilla and is such proof that reasonable persons could accept as adequate and sufficient to support a verdict. State v. Fulminante, 193 Ariz. 485, 493, 24, 975 P.2d 75, 83 (1999). 9

10 18 Marquette makes three arguments in support of its contention that the material breach instruction was inappropriate: (1) insufficient evidence supported finding a material breach; (2) Marquette cured any breach; and (3) Defendants accepted Marquette s cure. 19 The failure to abide by the terms of a contract results in a breach, but not all contract breaches are material. Zancanaro v. Cross, 85 Ariz. 394, 400, 339 P.2d 746, 750 (1959); see Found. Dev. Corp. v. Loehmann s, Inc., 163 Ariz. 438, , 788 P.2d 1189, (1990). While expressed in various ways, a material breach is a breach that defeats the essential purpose of the contract. 17 Am. Jur. 2d Contracts 706 (2004). Whether a breach is material is a question of fact. See Loehmann s, 163 Ariz. at 447, 788 P.2d at And, the analysis is necessarily imprecise and flexible. Restatement (Second) of Contracts 241 cmt. a. (1982). 20 In Loehmann s, 163 Ariz. at , 788 P.2d at , our supreme court approved of using the factors in 241 of the Second Restatement of Contracts to determine if a breach is material: In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; 10

11 (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. Restatement (Second) of Contracts 241. The five factors are circumstances, not rules, which are to be considered when determining if a failure is material. Id. 241 cmt. a. 21 If the breach is immaterial, the non-breaching party still has an obligation to perform under the contract and can collect damages caused by the breach. Zancanaro, 85 Ariz. at 400, 339 P.2d at 750 ( Ordinarily the victim of a minor or partial breach must continue his own performance, while collecting damages for whatever loss the minor breach has caused him.... ). If the breach is material, the non-breaching party may suspend performance. Restatement (Second) of Contracts 242 cmt. a ( [A] party s uncured material failure to perform or to offer to perform not only has the effect of 11

12 suspending the other party s duties.... ). The breaching party is then afforded time to cure the material breach. Id. If the breach is cured, the non-breaching party must resume performance and can collect damages caused by the delay. Id. A non-breaching party is only discharged from the contract if (1) a material breach occurs and (2) a cure is no longer possible. See Restatement (Second) of Contracts Discharge of duties or forfeiture of the contract is generally disfavored, and we will make all reasonable presumptions against forfeiture. Yank v. Juhrend, 151 Ariz. 587, 590, 729 P.2d 941, 944 (App. 1986). 22 We start our analysis by first determining the terms of the contract. The trial court held that the Acknowledgment Agreement was not a final integrated contract and allowed the parties to present parol evidence. 10 At trial, Marquette argued that the Acknowledgment Agreement was the entire contract. Under its interpretation, Marquette was entitled to recover a portion of any award, judgment or settlement obtained, which included the amounts received from the stock rescission. Defendants, on the other hand, argued that the Acknowledgment Agreement was not the final contract. Rather, the Acknowledgment Agreement was just one part of a discussion which constituted a final agreement. Under Defendant s 10 Neither party has appealed the ruling. 12

13 interpretation, Marquette was only entitled to recover any upside, which Defendants defined as any amounts recovered in excess of their $9.8 million stock purchase in FHI. 23 Both parties also disputed when payments were due. According to Marquette, there was no stated time to pay attorneys fees and other litigation costs. 11 Moreover, Marquette contends that because Defendants individual claims were subsequently joined with the Escrow Account claim, the Acknowledgment Agreement was necessary if Frank Leonesio wanted the Q Clubs owners to pay the entire cost of litigation. Under Marquette s version of the contract, the material purpose of the Acknowledgment Agreement was to provide funding for both claims. 24 According to Defendants, Frank Leonesio and Kevin DeAngelis had contractually obligated the Escrow Account holders to pay for the entire cost of litigation. Frank Leonesio sent the Acknowledgment Agreement to encourage the Q Clubs owners to pay for litigation on an ongoing basis as the bills were received. Thus, according to Defendants, time was of the essence. By missing a single payment Marquette forfeited its rights under the contract. 25 Evidence establishing that time was of the essence and essential to the contract was vague. According to Frank 11 Marquette, however, concedes in its Reply that there was evidence suggesting that Marquette had a duty to pay attorneys fees as they were billed. 13

14 Leonesio, he needed a way to fund the litigation, so he told the Q Clubs owners that if you agree to pay your bills in a timely way and fund this with us, we ll allow you to participate in these upside claims that we have on a prorated basis. During litigation, Frank Leonesio would receive bills and forward them to Marquette for payment. 26 In the August 2003 letter to the Q Clubs owners, including Marquette, and more than two years after litigation started, Frank Leonesio stated: At the inception of this lawsuit, you were given an opportunity to participate in any upside gained from successfully prosecuting our fraud claims (over and above your participation in the escrow). However, by deciding not to pay your fair share, you WILL NOT receive any upside from a jury award (unless you pay your fair share in full within 7 days of this post marked correspondence and you remain current on future bills). 27 Moreover, Defendants testified that they were aware that failure to pay on a timely basis would result in forfeiture under the contract. Yet it was unclear from their testimony if forfeiture was part of the original contract. For example, John Leonesio stated, [e]ventually, yes, we determined we would not be able to participate in that upside if there was an award. 28 Marquette paid its bills from July 2001 through October 2003, when it stopped paying attorneys fees. Marquette also sent a letter to Frank Leonesio expressing concern over the 14

15 rising cost of litigation. In a December 2003 quarterly report, Marquette stated that legal fees had not been paid in an attempt to put pressure on the lawyers to control costs and find a settlement. Marquette, however, set aside $130,000 to take the case through trial. Marquette subsequently failed to pay the remaining bills from October 2003 through the end of litigation in June The bills Marquette received after October 2003 amounted to approximately 25% of its share of attorneys fees and litigation costs. 29 Frank Leonesio continued to make payments to the attorneys after October 2003 even though the other Defendants did not. The attorneys continued to represent the Q Clubs owners against FHI. They did not charge interest for the late payments, and the attorneys did not threaten to withdraw. Moreover, Defendants did not pay Marquette s share of the unpaid fees. After the case settled, Marquette s unpaid attorneys fees were paid from its share of the Escrow Account. 30 Marquette argues that Loehmann s is controlling and suggests that the breach is immaterial. In Loehmann s, a tenant of a shopping center was behind two days in paying its bill for common area expenses. 163 Ariz. at 447, 788 P.2d at The landlord claimed that the breach was material and attempted to evict the tenant. Id. at 441, 788 P.2d at The supreme court held that the two-day breach was immaterial. Id. at 450, 15

16 788 P.2d at The court noted that the tenant had never missed a rental payment for nearly ten years. Id. at 447, 788 P.2d at Moreover, the breach was not willful or ongoing, and the payment was only two days late. Id. Finally, the court found that the missed payment was approximately 7% of the total amount due annually. Id. at , 788 P.2d at The landlord claimed that the time is of the essence clause in the lease transformed the otherwise immaterial breach into a material breach. Id. at 441, 788 P.2d at The supreme court disagreed and held that the same factors we delineated in determining general materiality apply to evaluating the effect of a particular time of the essence provision. Id. at 450, 788 P.2d at Defendants, however, contend that our decision in Mining Inv. Grp., LLC v. Roberts, 217 Ariz. 635, 177 P.3d 1207 (App. 2008) is controlling. In Roberts, the plaintiff and defendant entered into a contract to purchase vacant land. Id. at 637, 2, 177 P.3d at The plaintiff failed to deposit a down payment into escrow by the specified date. Id. at 3. The defendant argued that plaintiff s failure to deposit the down payment resulted in a material breach. Id. at 5. We found that the breach was material and held that Loehmann s was not controlling when the parties contract specified that 16

17 failure to perform would result in a material breach. Id. at 639, 14, 177 P.3d at Here, the jury could have determined that forfeiture was not part of the original contract and that Frank Leonesio s August 2003 letter was an invalid attempt to unilaterally modify the underlying contract. Angus Med. Co. v. Digital Equip. Corp., 173 Ariz. 159, 164, 840 P.2d 1024, 1029 (App. 1992) ( One party to a written contract cannot unilaterally modify it without the assent of the other party. ). The jury could have also concluded, based on Frank Leonesio s testimony, the requests to pay bills as they were received, and the August 2003 letter regarding timely payments were part of the original agreement and that failure to pay would result in forfeiture. The jury, therefore, could have accepted Defendants interpretation of the contract and concluded that Defendants did not receive the benefit of their bargain because Marquette did not pay on time, which would constitute a material breach. See Restatement (Second) of Contracts 241(a). 33 Moreover, there was evidence that Marquette s breach was willful and ongoing. See Loehmann s, 163 Ariz. at 447, 788 P.2d at 1198 (noting the lack of willful or persistent behavior while finding a breach immaterial). The jury could have also concluded that Marquette s breach did not comport with standards of good faith and fair dealing. See Restatement 17

18 (Second) of Contracts 241 cmt. f ( The extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing is, however, a significant circumstance in determining whether the failure is material ); but see id. 241 cmt. d ( [F]ailure is less likely to be regarded as material if it occurs late, after substantial preparation or performance.... ). We, therefore, find that there was some evidence from which the jury could have found that Marquette s breach was material. 34 Marquette argues that even if there is some evidence of a material breach, it cured the breach by paying attorneys fees with settlement proceeds, which Defendants accepted. In addition, Marquette argues that Defendants accepted the cure. 35 While the Restatement provides an analysis to determine the time for cure, see id. 242, generally, a breach remains material if it has not been cured during the time in which performance can occur. Id. 237 cmt. a. 36 Frank Leonesio testified that it was trial strategy to join the Escrow Account claims with Defendants individual claims, and it was in the Q Clubs owners best interest to join both claims. He further testified that as the Q Clubs owners agent, he had bound them to pay for attorneys fees for the entire cost of litigation. According to Defendants, the purpose of the contract was to encourage the Q Clubs owners, including 18

19 Marquette, to pay litigation expenses as they were incurred. If the Q Clubs owners waited to pay until litigation had ended, they were not entitled to any upside. The jury, therefore, could have decided that Marquette could no longer cure by paying its outstanding fees with the settlement monies. Similarly, based on Defendants version of the contract, Marquette s payment did not amount to a cure because it was already bound to pay the costs of litigation. 37 Because there was substantial evidence for the material breach instruction, the trial court did not err. B. Request for Attorneys Fees 38 The trial court denied Marquette s request for attorneys fees, holding that its claim did not arise out of contract. According to Marquette, but for the Stockholder and Warrantholder Consent there would be no breach of fiduciary duty. Therefore, Marquette argues that its fiduciary duty claim arose out of contract. 39 We review interpretation and application of the attorney fee statute de novo. Chaurasia v. Gen. Motors Corp., 212 Ariz. 18, 26, 24, 126 P.3d 165, 173 (App. 2006). Section (A) (2003) provides that [i]n any contested action arising out of contract, express or implied, the court may award the successful party reasonable attorney fees. Because breach 19

20 of fiduciary duty is a tort, we must address whether the breach of fiduciary duty is a claim arising out of contract. 40 In Barmat v. John & Jane Doe Partners A-D, 155 Ariz. 519, 747 P.2d 1218 (1987), our supreme court provided the analysis for determining when a claim arises out of contract. There, the plaintiffs argued that they were entitled to attorneys fees after successfully suing their attorney for malpractice. Id. at 521, 747 P.2d at The court rejected the plaintiffs arguments, holding that where the implied contract does no more than place the parties in a relationship in which the law then imposes certain duties recognized by public policy, the gravamen of the subsequent action for breach is tort, not contract. Id. at 523, 747 P.2d at In reaching its holding, the court rejected the reasoning in Trebilcox v. Brown & Bain, P.A., 133 Ariz. 588, 591, 653 P.2d 45, 48 (App. 1982), where we allowed the plaintiffs to recover attorneys fees in a breach of fiduciary duty claim against their attorney. Barmat, 155 Ariz. at 524, 747 P.2d at The Barmat court noted that where... the duty breached is not imposed by law, but is a duty created by the contractual relationship and would not exist but for the contract, the breach of either express covenants or those necessarily implied from them sounds in contract. Barmat, 198 Ariz. at 523, 747 P.2d at

21 41 Barmat expressly approved of the holdings in Sparks, 132 Ariz. at 529, 647 P.2d at 1127 and Lewin v. Miller Wagner & Co., Ltd., 151 Ariz. 29, 725 P.2d 736 (App. 1986). In Sparks, the supreme court held that attorneys fees could be awarded for the tort of insurer s bad faith because the tort of bad faith cannot be committed absent the existence of an insurance contract and a breach thereof. Sparks, 132 Ariz. at 542, 647 P.2d at Applying the same reasoning, in Lewin we held that the plaintiffs were not entitled to recover attorneys fees for a malpractice action against an accountant because an accountant can commit malpractice without breaching the underlying contract. Lewin, 151 Ariz. at 36, 725 P.2d at 743 (stating that this legally imposed duty exists separate and apart from the contract giving rise to the duty ). 42 We reviewed the holdings in Barmat and subsequent cases in Ramsey Air Meds, L.L.C. v. Cutter Aviation, Inc., 198 Ariz. 10, 6 P.3d 315 (App. 2000). After analyzing the cases that applied the arising out of contract analysis, we held: [A] tort claim will arise out of a contract only when the tort could not exist but for the breach or avoidance of contract. When the duty breached is one implied by law based on the relationship of the parties, that claim sounds fundamentally in tort, not contract. In such cases, it cannot be said that the plaintiff's claim would not exist but for the contract. The test is whether the defendant would have a 21

22 duty of care under the circumstances even in the absence of a contract. Id. at 15-16, 27, 6 P.3d at Here, Marquette s claim for breach of fiduciary duty does not arise out of contract. The Stockholder and Warrantholder Consent names Frank Leonesio and Kevin DeAngelis as the agents and attorneys-in-fact for the Q Clubs owners in all matters relating to indemnification under the Merger Agreement. At trial, Marquette did not claim that Frank Leonesio failed to perform his duties in the Stockholder and Warrantholder Consent. See Collins v. Miller & Miller, Ltd., 189 Ariz. 387, 395, 943 P.2d 747, 755 (App. 1996) (holding that breach of a professional contract cannot be maintained if the contract merely requires generally that the professional render services. Only if there is a specific promise contained in the contract can the action sound in contract, and then only to the extent the claim is premised on the nonperformance of that promise. ). 44 Moreover, the agency relationship creates the agent s fiduciary obligation as a matter of law. Restatement (Third) of Agency 1.01 cmt. e (2006). And, a breach of fiduciary duty is not dependent on a contract. Id cmt. d ( Additionally, the consensual aspect of agency does not mean that an enforceable contract underlies or accompanies each 22

23 relation of agency. ); see also id & Thus, while the Stockholder and Warrantholder Consent gives rise to the requirement to exercise fiduciary duties, th[e] legally imposed duty exists separate and apart from the contract giving rise to the duty. See Lewin, 151 Ariz. at 36, 725 P.2d at 743; see also In re Naarden Trust, 195 Ariz. 526, 529, 10-12, 990 P.2d 1085, 1088 (App. 1999) (holding that a trustee could not recover attorneys fees after successfully dismissing a suit for accounting because a trustee s duties are enforceable even though the trustee received no consideration ). 45 We find further support for our holding because the Stockholder and Warrantholder Consent was not an enforceable contract. Although the Stockholder and Warrantholder Consent recites in consideration of the mutual promises and covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the record contains no evidence of consideration. In fact, both Frank Leonesio and Kevin DeAngelis testified that they were not paid for their service as agents. 46 Marquette is not entitled to attorneys fees because its claim for breach of fiduciary duty did not arise out of contact and, instead, was a duty implied by law that existed without an enforceable contract. Therefore, the trial court did not err by denying the request for attorneys fees. 23

24 C. Prejudgment Interest 47 After the final judgment was entered, Marquette filed an unsuccessful Arizona Rule of Civil Procedure ( Rule ) 59(l) motion to alter or amend the judgment to provide for prejudgment interest. Marquette argues that the trial court erred by refusing to grant its motion. 48 According to Wright, Miller, & Kane, a post judgment motion under Federal Rule of Civil Procedure ( Federal Rule ) 59(e) 12 is appropriate to seek prejudgment interest. 11 Charles Alan Wright, Arthur R. Miller, and Mary K. Kane, Federal Practice and Procedure (2d ed. 2010). Wright, Miller, and Kane further state: [R]econsideration of a judgment after its entry is an extraordinary remedy which should be used sparingly. There are four basic grounds upon which a Rule 59(e) motion may be granted. First, the movant may demonstrate that the motion is necessary to correct manifest errors of law or fact upon which the judgment is based. Second, the motion may be granted so that the moving party may present newly discovered or previously unavailable evidence. Third, the motion will be granted if necessary to prevent manifest injustice. Serious misconduct of counsel may justify relief under this theory. Fourth, a Rule 59(e) 12 Federal Rule of Procedure 59(e) is similar to Rule 59(l). Federal Rule 59(e) provides: A motion to alter or amend a judgment must be filed no later than 28 days after the entry of the judgment. Rule 59(l) provides: A motion to alter or amend the judgment shall be filed no later than 15 days after entry of judgment. 24

25 motion may be justified by an intervening change in controlling law. Id. (footnotes omitted). 49 Here, Marquette did not seek prejudgment interest before final judgment. After the verdict, Marquette submitted a Notice of Filing Form of Money Judgment, which included only a request for post-judgment interest. The proposal was rejected by the court. Marquette then submitted a second proposed judgment, which again only included a request for post-judgment interest. The court again rejected this proposal. The court then ordered that the parties attempt to prepare a stipulated proposed form of judgment. The parties reached an agreement, and the court signed it in September The stipulated judgment did not include, nor mention, prejudgment interest. 50 Marquette claims that it requested prejudgment interest in its Amended Complaint, so it has not waived its request. While the Amended Complaint states a general request for all statutory interest, Marquette failed to request prejudgment interest at any time before the final judgment was entered. Marquette waived its request, and the trial court did not err when it denied the request. 25

26 II. FRANK LEONESIO S CROSS-APPEAL 13 A. Statute of Limitations 51 Frank Leonesio argues that Marquette s breach of fiduciary duty claim is untimely because it does not relate back under Rule 15(c). Marquette filed its complaint on September 28, 2005, but did not allege a breach of fiduciary duty until it filed its First Amended Complaint in November Frank Leonesio contends that Marquette s claim is well outside the applicable statute of limitations. A.R.S (2003). 52 Rule 15(c) provides that [w]henever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading. We inquire whether the adverse party, viewed as a reasonably prudent man, ought to have been able to anticipate... that the character of the originally pleaded claim might be altered or that other aspects of the conduct, transaction, or occurrence set forth in the original pleading might be called into question. Marshall v. Superior Court, 131 Ariz. 379, , 641 P.2d 867, (1982) (quoting 6 Alan Wright & Arthur R. Miller, Federal Practice & Procedure 1497 at (1971)). A party may 13 We partially dismissed Frank Leonesio s cross-appeal in a separate opinion. The remaining claims are discussed below. 26

27 allege new facts in an amended complaint so long as they relate to the same transaction. Services Holding Co., Inc. v. Transamerica Occidental Life Ins. Co., 180 Ariz. 198, 208, 883 P.2d 435, 445 (App. 1994). 53 Frank Leonesio first argues that the breach of fiduciary duty claim does not relate back because Marquette originally asserted the claim in a cross-claim. At the beginning of the litigation, both Kevin DeAngelis and Marquette were plaintiffs against Frank Leonesio. After Frank Leonesio filed a counterclaim, Marquette asserted a cross-claim against DeAngelis and joined Frank Leonesio as a responsible party. Kevin DeAngelis subsequently dismissed his remaining claims against Frank Leonesio, which left Marquette as the sole plaintiff. The trial court then granted Marquette s motion for leave to amend its complaint to add Kevin DeAngelis as a defendant and to allege breach of fiduciary duty, and Frank Leonesio did not object based on the statute of limitations. Because leave to amend was granted, and the breach of fiduciary duty was subsequently asserted in the Amended Complaint, we do not need to determine if Rule 15(c) applies to Marquette s cross-claim. 54 Frank Leonesio next argues that the breach of fiduciary duty cannot relate back under Rule 15(c) because it 27

28 did not arise out of the same conduct, transaction, or occurrence. We disagree. 55 Marquette s complaint generally alleged that Defendants violated the Acknowledgment Agreement by refusing to provide Marquette with a pro-rata share of all monies recovered from the settlement with FHI. Both a letter from Frank Leonesio and the Acknowledgment Agreement were attached to the complaint and stated that Frank Leonesio was the representative for the Q Clubs owners in the FHI litigation. The Amended Complaint added an allegation that Frank Leonesio and Kevin DeAngelis were Marquette s agents in the FHI litigation and claimed that Frank Leonesio breached his fiduciary duty by structuring the FHI settlement for his benefit. The breach of fiduciary duty claim and the contract claims both concern Frank Leonesio s conduct as the representative for the Q Clubs owners in the FHI litigation. Moreover, both claims concern the distribution of the settlement proceeds under the Acknowledgment Agreement. Frank Leonesio, therefore, could anticipate the breach of fiduciary duty claim. 56 Frank Leonesio argues that Barnes v. Vozack, 113 Ariz. 269, 550 P.2d 1070 (1976) requires a different result. In Barnes, the defendants decided to issue additional stock in their corporation and filed an exemption with the Arizona Corporation Commission. Id. at , 550 P.2d at An employee then sold the stock to plaintiff and made false 28

29 statements about the company. Id. at 271, 550 P.2d at In the original complaint, the plaintiff alleged common law fraud relating to the stock sale. Id. After the statute of limitations expired, the plaintiff alleged statutory fraud and fraud relating to the exemption request with the Arizona Corporation Commission. Id. The court held that the statutory fraud claim related to the same transaction, and the amendment related back. Id. at 272, 550 P.2d at As to the exemption claim, the court held [a]lthough a fraudulent practice, it is not a part of the same conduct, transaction or occurrence which was the basis of the original complaint for fraud in the sale of the stock. Id. 57 Unlike Barnes, Marquette s breach of fiduciary duty claim only alleges facts relating to transactions between it and Frank Leonesio. The breach of fiduciary claim does not concern transactions that occurred separate and apart from the FHI litigation. Thus, we conclude that the trial court did not err in declining to grant Frank Leonesio s motion for judgment as a matter of law. B. Attorneys Fees 58 The trial court denied Frank Leonesio s request for attorneys fees based on the totality of the circumstances. It also stated that [e]ven if the Court had found Frank Leonesio to be the successful party, given all of the circumstances, the 29

30 Court would exercise its discretion and decline to award fees. Frank Leonesio contends that the trial court abused its discretion because he successfully defended all the contract claims and is entitled to an award of attorneys fees. 59 We review the superior court s award of attorney s fees and costs for an abuse of discretion. Maleki v. Desert Palms Prof l Prop., L.L.C., 222 Ariz. 327, , 32, 214 P.3d 415, (App. 2009). The superior court has sole discretion to determine the successful party for purposes of litigation, and we will not disturb the court s decision if any reasonable basis exists. Sanborn v. Brooker & Wake Prop. Mgmt., Inc., 178 Ariz. 425, 430, 874 P.2d 982, 987 (App. 1994). 60 Under A.R.S , only a successful party may recover attorneys fees. When the case involves multiple claims, the trial court can use the totality of litigation approach or the percentage of success approach to determine which party was successful. Schwartz v. Farmers Ins. Co., 166 Ariz. 33, 38, 800 P.2d 20, 25 (App. 1990). 61 Here, although Marquette failed on its contract claims, it was awarded tort damages of $439, and $1,121, in punitive damages. Frank Leonesio cites Ahwatukee Custom Estates Mgmt. Ass n v. Turner, 196 Ariz. 631, 2 P.3d 1276 (App. 2000), for the proposition that he is entitled to attorneys fees because Marquette was unsuccessful on its 30

31 contract claims. Ahwatukee does not support his position. There, we held that both parties should bear their own attorneys fees when the plaintiff obtained some relief but failed to accomplish its principal objective in the litigation. Id. at 637, 2 P.3d at Thus, the trial court did not abuse its discretion in deciding, based on the totality of the litigation, that Frank Leonesio was not entitled to attorneys fees. ATTORNEYS FEES ON APPEAL 62 Both parties request attorneys fees on appeal. Because neither party was successful, we decline to award attorneys fees. CONCLUSION 63 Based on the foregoing, the judgment of the trial court is affirmed. CONCURRING: /s/ MAURICE PORTLEY, Presiding Judge /s/ PATRICIA A. OROZCO, Judge /s/ PATRICK IRVINE, Judge 31