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Kool Radiators v. Stephen Evans - 5/31/2012

Arizona Court of Appeals Division One Holds That A.R.S. § 12-2101 Provides No Authority To Review an Order Awarding Attorneys’ Fees Made in Conjunction With a Dismissal of a Complaint Without Prejudice.


In 2007, Stephen Evans approached Ron Davis with an investment proposal.  Evans told Davis that Aegis Jet, LLC (“Aegis”) was raising capital to purchase another company, Aero Jet Services, LLC (“Aero Jet”) and offered him an opportunity to invest in Aegis.  Evans presented Davis with an acquisition plan describing the terms of the purchase agreement that Aegis had entered into with Aero Jet.  However, before Davis made the investment, Aero Jet terminated the purchase agreement.  Neither Evans nor Aegis notified Mr. Davis of the termination.  Relying upon his belief that the purchase agreement was still in place, Davis invested $250,000 through his company, Kool Radiators. 

After learning that the purchase agreement had been terminated, Kool Radiators filed a complaint against Evans and Aegis for fraud, securities fraud, negligent misrepresentation, and breach of fiduciary duty.  Aegis and Evans moved to dismiss the complaint, arguing that the lawsuit was premature because Aegis was still negotiating to acquire Aero Jet.  The trial court agreed and dismissed the complaint without prejudice.  It then awarded Evans and Aegis Jet their fees and costs.  Kool Radiators timely appealed, contending that the award should be set aside because the trial court erred when it dismissed the complaint.

On appeal, the Court of Appeals held that it did not have jurisdiction to review the underlying dismissal under A.R.S. § 12-2101 because the dismissal was without prejudice.  Arizona law grants the court of appeals jurisdiction to decide an appeal “[f]rom a final judgment entered in an action or special proceeding commenced in a superior court, or brought into a superior court from any other court, except in actions of forcible entry and detainer when the annual rental value of the property is less than three hundred dollars.”  A complaint dismissed without prejudice is not a final, appealable order for purposes of § 12-2101, and generally may not be appealed.  Notwithstanding this statutory restriction, the Arizona Court of Appeals has previously held that it can review an award of attorneys’ fees entered after a dismissal of a complaint without prejudice.  However, the Court in this case determined that is prior holdings were wrongly decided.  Callanan v. Sun Lakes Homeowners’ Ass’n No. 1, Inc., 134 Ariz. 332, 337, 656 P.2d 621, 626 (App. 1982).  Because, however, Kool Radiators had justifiably relied on the prior caselaw in filing its notice of appeal, the Court exercised its discretion to treat Kool Radiators’ appeal as a petition for special action.  The Court accepted special action jurisdiction because Kool Radiators did not have a remedy by appeal. 

Turning to the merits of the appeal, the Court concluded that the trial court had erred in dismissing Kool Radiator’s claims for lack of ripeness.  By alleging that Defendants engaged in fraud the moment they failed to disclose that the purchase agreement had been terminated before Kool Radiator’s invested in Aegis, Kool Radiators had alleged a viable cause of action.  Because the trial court erred in awarding fees and costs against Kool Radiators, the Court of Appeals set the award aside.

Judge Portley authored the opinion; Judges Timmer and Gould concurred.

Posted by: Brandon Hale

Posted On: 7/2/2012