Arizona Court of Appeals Division One Vacates Opinion Regarding Director Liability on Theories of Principal-Agency Liability for Fraud, Aiding and Abetting, Conspiracy, and Constructive Fraud Should Not Have Been Presented.

Plaintiff Dawson loaned money to Futech, which went bankrupt before it repaid the loan. Plaintiff had relied on misrepresentations made to him by board members Goett and Rose-pink. Plaintiff filed suit against Defendant Turner, a member of Futech’s board, and Defendant Withycombe, another large investor in the company. Following rulings on various motions for summary judgment and for judgment as a matter of law, the claims that went to the jury were (1) fraud by misrepresentation, on theories of agency, aiding and abetting, and conspiracy, and (2) constructive fraud. The jury found that Defendants were liable for the improper actions or inactions of board members Goett and Rosepink on a principal-agency theory; Defendant Withycombe had conspired with board members Rosepink and Goett to harm Plaintiff, and Defendants were each 35 percent at fault for aiding and abetting fraudulent misrepresentation and 40 percent at fault for constructive fraud.

Judge Kessler, writing for a unanimous panel, first found that there was sufficient evidence in the record to support the finding of an underlying misrepresentation by board member Goett, which formed the basis of Plaintiff’s claims against Defendants. The court remanded for a new trial on the principal-agency liability for fraud, finding that Plaintiff must present evidence of a “personal agency relationship” between the primary tortfeasors on the one hand, and Defendants on the other hand, beyond the mere delegation of board functions to Goett in his role as CEO.

The court found that judgment as a matter of law should have been entered in favor of Defendants on the theories of aiding and abetting conspiracy, and constructive fraud. Specifically, the court found that the evidence of Defendants’ “actual awareness” of the underlying fraudulent scheme was insufficient to establish liability for aiding and abetting. The court further found there was no clear and convincing evidence of an actual “conspiratorial agreement” by Withycombe and Goett that fraud should be committed. Finally, with respect to constructive fraud, the court found that Defendants failed to preserve any objection to the jury instruction, but concluded that there was insufficient evidence that Plaintiff had reasonably relied on any duties allegedly owed to him by Defendants.

The court affirmed the trial court’s summary judgment decisions on negligence, finding that Defendants did not owe Plaintiff any personal duty as a potential creditor. The court also affirmed that prejudgment interest should accrue from the date the complaint was filed; the due date on the loan contract had no bearing on the calculation of prejudgment interest on the tort action.

Judge Kessler authored the opinion; Judges Portley and Irvine joined.