Asset Refresh LLC v. Warren

• Court: District Court, D. Arizona
• Decided: January 19, 2022
• Docket: 2:19-cv-05215
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Asset Refresh LLC, et al., No. CV-19-05215-PHX-DLR

10 Plaintiffs, ORDER

11 v.

12 Anthony S Warren, et al.,

13 Defendants. 14 15 16 Before the Court are Defendants’ motions for summary judgment (Doc. 85, 88). 17 The motions are fully briefed (Docs. 90, 97, 101, 102), and the Court heard oral argument 18 on December 27, 2021. As explained below, Defendant Cal State Electronics Inc.’s (“Cal 19 State”) motion is granted, and Defendants Anthony Warren and Brendan Wittry’s motion 20 is granted in part and denied in part. 21 I. Background1 22 This case arises from the dissolution of Asset Refresh LLC, an electronics 23 refurbishment business created in 2015 and owned in equal shares by Warren, Wittry, and 24 Plaintiff Jeffrey Hartford. Asset Refresh focused primarily on buying, refurbishing, and 25 reselling used K-12 school electronic equipment. Wittry sourced the equipment, Hartford 26 furbished it, and Warren resold it. 27 Unhappy working for Asset Refresh, Warren and Wittry began exploring other

28 1 Based on its review of the parties’ briefs and their representations during oral argument, the Court finds the following facts to be undisputed. 1 employment options in 2018. In particular, they contacted Michael Taghavi, CEO of 2 Defendant Cal State—another used technology re-sale company that sometimes was an 3 Asset Refresh customer, other times a competitor—and began discussing potential 4 employment with his company. These discussions culminated in employment offers from 5 Cal State to Warren and Wittry in November and December 2018. 6 Thereafter, Warren and Wittry broached the issue of dissolving Asset Refresh with 7 Hartford. Rather than tell him the truth—that they no longer wanted to operate Asset 8 Refresh and, instead, wanted to work for Cal State—Warren and Wittry represented to 9 Hartford that they wanted to exist the industry immediately for personal reasons. In 10 January 2019, the trio executed a Termination Agreement to wind up Asset Refresh’s 11 operations. Per the Termination Agreement, Asset Refresh ceased accepting new business 12 as of January 28, 2019, its members immediately proceeded to wind up the company’s 13 affairs, and all agreed to empty and vacate the company’s warehouse by March 1, 2019. 14 The Termination Agreement contains no restrictions on use of information gained at Asset 15 Refresh, nor does it contain a non-compete provision. To the contrary, it expressly permits 16 members, without restriction, to engage in any other business with any customer. This 17 provision was included in the Termination Agreement because Hartford was aware that 18 Warren might remain in the technology re-sale industry after Asset Refresh dissolved 19 (albeit, not as an employee of Cal State), and he did not want to limit Hartford’s 20 opportunities by insisting that he sign a non-compete. 21 Consistent with the Termination Agreement, Warren and Wittry liquidated Asset 22 Refresh by selling its assets and inventory. These sales were made to 13 different 23 companies, generating nearly a quarter million dollars in revenue. Roughly $20,000 worth 24 of these sales were made to Cal State. The majority of what Asset Refresh sold to Cal State 25 in liquidation was packaging material. Hartford acknowledges that Cal State was the buyer 26 of last resort of these items, and there is no evidence of any other buyer willing to purchase 27 the items sold to Cal State for a better price. 28 Asset Refresh emptied and vacated its warehouse by February 28, 2019. Afterward, 1 Hartford did not remain in the technology refurbishment and resale business but instead 2 went to work for his parents’ beverage company. Warren and Wittry began working for 3 Cal State on March 11, 2019. Wittry’s role at Cal State was the same as it was for Asset 4 Refresh; he sourced used technology for Cal State to bid on for the purpose of acquiring, 5 refurbishing, and reselling. To that end, Wittry, on behalf of Cal state, emailed some of 6 the school districts and other institutions that were familiar with him from his time at Asset 7 Refresh. Most of these emails included introductions that Warren and Wittry, formerly of 8 Asset Refresh, had joined Cal State. But a small fraction of these emails insinuated 9 (inaccurately) that Asset Refresh itself had merged with Cal State. 10 After learning of Warren and Wittry’s employment with Cal State, Hartford brought 11 this lawsuit against Warren, Wittry, and Cal State on behalf of himself and derivatively on 12 behalf of Asset Refresh. Count 1 of the complaint alleges that Warren and Wittry breached 13 the Termination Agreement; Count 2 alleges they breached the covenant of good faith and 14 fair dealing implied in the Termination Agreement and Asset Refresh’s Operating 15 Agreement; Count 3 alleges that Warren and Wittry fraudulently induced Hartford into 16 signing the Termination Agreement; Count 4 alleges that Warren and Wittry breached their 17 fiduciary duties to Asset Refresh by conducting business under Asset Refresh’s name while 18 withholding the proceeds of that business from Asset Refresh, diverting Asset Refresh’s 19 business to Cal State, and otherwise engaging in a pattern of self-dealing and misconduct; 20 and Count 5 alleges that Cal State aided and abetted Warren and Wittry’s breaches of 21 fiduciary duty. 22 During discovery, Plaintiffs produced an expert report regarding damages. The 23 report concludes that Hartford’s damages are the difference in the value of his 1/3 minority 24 ownership interest in Asset Refresh but-for Defendants’ alleged wrongful acts, and 25 Hartford’s economic position in light of the alleged wrongful acts. To reach a number, the 26 report first assesses the fair market value of Hartford’s 1/3 equity interest in Asset Refresh 27 as of January 28, 2019 (the date of the Termination Agreement). It determines this figure 28 to be approximately $935,000. From there, it subtracts the distributions Hartford received 1 post-termination (approximately $203,000), resulting in damages of roughly $732,000. 2 II. Legal Standard 3 Summary judgment is appropriate when there is no genuine dispute as to any 4 material fact and, viewing those facts in a light most favorable to the nonmoving party, the 5 movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A fact is material 6 if it might affect the outcome of the case, and a dispute is genuine if a reasonable jury could 7 find for the nonmoving party based on the competing evidence. Anderson v. Liberty Lobby, 8 Inc., 477 U.S. 242, 248 (1986); Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 9 (9th Cir. 2002). Summary judgment may also be entered “against a party who fails to make 10 a showing sufficient to establish the existence of an element essential to that party’s case, 11 and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 12 477 U.S. 317, 322 (1986). 13 The party seeking summary judgment “bears the initial responsibility of informing 14 the district court of the basis for its motion, and identifying those portions of [the record] 15 which it believes demonstrate the absence of a genuine issue of material fact.” Id. at 323. 16 The burden then shifts to the non-movant to establish the existence of a genuine and 17 material factual dispute. Id. at 324. The non-movant “must do more than simply show that 18 there is some metaphysical doubt as to the material facts,” and instead “come forward with 19 specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. 20 v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (internal quotation and citation 21 omitted). 22 III. Discussion 23 A. Breach of Contract 24 In his complaint, Hartford accuses Warren and Wittry of breaching the Termination 25 Agreement by “continuing to conduct business under Asset Refresh’s name, while 26 withholding proceeds of that business from Asset Refresh and thus, Hartford,” and 27 “diverting Asset Refresh’s business to Cal State.” (Doc. 1-3 at 11.) In their motion for 28 summary judgment, Warren and Wittry note that the Termination Agreement expressly 1 terminated Asset Refresh’s business, prohibited it from accepting new business during the 2 wind-up period, and permitted the parties to continue working in the same industry with 3 any customer without restriction. (Doc. 88 at 8.) They argue that they complied with the 4 express terms of the Termination Agreement because the undisputed evidence shows they 5 waited until after Asset Refresh had been terminated and wound up before starting work 6 with Cal State, and therefore conducted business only for Cal State. (Id.) In response, 7 Hartford concedes that summary judgment is appropriate on his breach of contract claim. 8 (Doc. 97 at 2 n.1.) The Court therefore grants summary judgment for Warren and Wittry 9 on Count 1 of the complaint. 10 B. Breach of the Implied Covenant of Good Faith and Fair Dealing 11 Hartford accuses Warren and Wittry of breaching the covenant of good faith and 12 fair dealing implied in Asset Refresh’s Operating and Termination Agreements. (Doc. 1- 13 3 at 12.) A covenant of good faith and fair dealing is implied in every contract, which 14 precludes the parties from acting in a manner that impairs the ability of the other to receive 15 the benefits that flow from the contract. See Rawlings v. Apodaca, 726 P.2d 565, 569 (Ariz. 16 1986).2 A party can violate the implied covenant without breaching an express term, 17 particularly when the party acts in a manner that, while not expressly forbidden by the 18 contract’s terms, nevertheless undermines the other party’s reasonable expectations under 19 the contract. See Bike Fashion Corp. v. Kramer, 46 P.3d 431, 435 (Ariz. Ct. App. 2002). 20 But a claim generally cannot be predicated on conduct that is authorized by an express term 21 of the contract. Id. at 434. 22 In his complaint, Hartford alleges that Warren and Wittry breached the implied 23 covenant by “conducting business under Asset Refresh’s name while withholding the 24 proceeds of that business from Asset Refresh and thus, Hartford,” and “diverting Asset

25 2 Hartford argues that Delaware law governs the claim as it relates to the Operating Agreement, while Arizona law governs the claim as it relates to the Termination 26 Agreement. But Hartford identifies no material differences between the laws of the two states, and instead acknowledges that “Delaware law concerning the implied covenant is 27 similar to Arizona’s,” and application of either leads to the same result. (Doc. 97 at 9-10.) For ease, then, the Court cites only to Arizona authorities (which can be found in all parties’ 28 briefs), with the understanding that materially similar principles apply in Delaware. 1 Refresh’s business to Cal State.” (Doc. 1-3 at 12.) These are the same allegations 2 underlying Harford’s breach of contract claim, and they are not borne out by the evidence. 3 First, there is no evidence in the record that Warren and Wittry conducted any 4 business under Asset Refresh’s name while withholding that business from Asset Refresh 5 and Hartford. Per the Termination Agreement, Asset Refresh ceased accepting new 6 business as of January 28, 2019, and the undisputed evidence shows that Warren and Wittry 7 waited until after Asset Refresh wound up before starting work with Cal State. After 8 beginning work with Cal State, Wittry emailed some of the school districts and other 9 institutions that were familiar with him from his time at Asset Refresh, and some of these 10 emails insinuated that Asset Refresh had merged with Cal State. But at no point did Warren 11 and Wittry conduct business under Asset Refresh’s, rather than Cal State’s, name. And, 12 more importantly, by this time Asset Refresh was incapable of doing business. Warren 13 and Wittry could not have withheld business that Asset Refresh was incapable of accepting. 14 Second, Hartford has not produced evidence from which a jury could find that 15 Warren and Wittry diverted opportunities to Cal State that otherwise would have belonged 16 to Asset Refresh. To support this allegation, Hartford cites to a single exhibit—Exhibit E, 17 which is a series of text messages exchanged between Taghavi and Wittry. (Doc. 97 at 18 10.) Hartford does not elaborate on or explain these texts, other than to itemize 5 19 purportedly diverted business opportunities: (1) Engraver for LAUSD contract, (2) Dell 20 servers, (3) STM Ducks, (4) Apple Enterprise, and (5) Asset Refresh employee. (Doc. 90- 21 1 at 2.) But an examination of these text messages, along with other undisputed evidence 22 in the record, reveals no diverted business opportunities. The texts show that Wittry 23 referred Taghavi to an engraver who could remove engravings on iPads that Cal State had 24 already acquired as part of the LAUSD contract. There is no evidence that Cal State did 25 not obtain the LAUSD contract independently through a competitive bidding process, that 26 Asset Refresh had bid on or would have bid on the LAUSD contract, that Wittry referred 27 or diverted the LAUSD contract to Cal State, or that referring Cal State to an engraver in 28 any way diverted business from Asset Refresh (Asset Refresh is not an engraver). The 1 texts further reveal that Wittry referred a lead to purchase Dell servers to Cal State, but the 2 record also shows that Asset Refresh did not buy servers. (Doc. 101 at 15.) Wittry 3 therefore could not have diverted this opportunity from Asset Refresh. Regarding STM 4 Ducks and Apple Enterprise, the evidence shows that Wittry told Taghavi what he was 5 doing for Asset Refresh to secure STM Ducks and contacts at Apple Enterprise. (Doc. 109- 6 1 at 1-4.) Hartford cites no evidence that, during the time Asset Refresh was accepting 7 business, Wittry diverted these opportunities to Cal State. Likewise, Wittry inquired about 8 whether Cal State might be interested in bringing on one of Asset Refresh’s other 9 employees after the company dissolved, but nothing in the record indicates that Cal State 10 poached this employee during the time that Asset Refresh was still in business, or that 11 Wittry asked or encouraged it to do so. 12 Though not pled in his complaint, Hartford argues in his response brief that Warren 13 and Wittry breached the implied covenant of good faith and fair dealing by arranging for 14 the sale of Asset Refresh’s inventory to Cal State. (Doc. 97 at 10.) But the sale of Asset 15 Refresh’s inventory to Cal State cannot support a claim for breach of the covenant of good 16 faith and fair dealing because the Termination Agreement expressly required the parties to 17 wind up Asset Refresh’s affairs, including by emptying and vacating its warehouse. To 18 that end, Warren and Wittry liquidated Asset Refresh’s assets and inventory. Had they not 19 done so, they would have violated the Termination Agreement’s commands. Moreover, a 20 small fraction of Asset Refresh’s liquidation sales were made to Cal State, the majority of 21 which was packaging material, and there is no evidence that any other buyer was willing 22 to purchase the items sold to Cal State for a better price. The undisputed evidence therefore 23 shows that, in selling some of Asset Refresh’s assets and inventory to Cal State as part of 24 Asset Refresh’s winding up, Warren and Wittry obtained the best possible price for the 25 items (to the benefit of Asset Refresh) and acted in furtherance of the express terms and 26 purposes of the Termination Agreement. The Court therefore grants summary judgement 27 for Warren and Wittry on Count 2 of the complaint.3

28 3 Hartford also contends he had a reasonable expectation that Warren and Wittry (1) “as controlling managing members of the company, would maintain loyalty to Hartford 1 C. Breach of Fiduciary Duty 2 “[I]n an action asserting a claim for breach of fiduciary duty, like all tort actions, a 3 plaintiff must allege and prove the existence of a duty owed, a breach of that duty, and 4 damages causally related to such breach.” Surowiec v. Capital Title Agency, Inc., 790 F. 5 Supp. 2d 997, 1004 (D. Ariz. 2011) (internal quotation and citation omitted).4 In the 6 complaint, Asset Refresh alleges that Warren and Wittry breached their fiduciary duties by 7 “conduct[ing] business under Asset Refresh’s name while withholding the proceeds of that 8 business from Asset Refresh,” and “divert[ing] Asset Refresh’s business to Cal State.” 9 (Doc. 1-3 at 12.) As previously explained, these allegations are not supported by the 10 record. And even if they were, Asset Refresh would be unable to establish damages 11 casually related to those breaches at trial; Plaintiffs’ damages expert does assess the value 12 of any business allegedly withheld or diverted from Asset Refresh. 13 In its response brief, Asset Refresh also argues that Warren and Wittry breached 14 their duty of loyalty by “dealing with the company in the . . . winding up of the company’s 15 activities and affairs as or on behalf of a person having an interest adverse to the company.” 16 A.R.S. § 29-3409(B)(2). (Doc. 90 at 10-11.) Asset Refresh claims Warren and Wittry did 17 so by arranging for the sale of Asset Refresh’s inventory to Cal State after they had 18 surreptitiously accepted future employment with Cal State, and by diverting business 19 opportunities to Cal State that otherwise would have belonged to Asset Refresh. (Doc. 90 20 at 11.) But, as previously discussed, there is no evidence that Warren and Wittry diverted 21 and Asset Refresh,” which they undermined by negotiating job offers with Cal State while 22 Asset Refresh was still operating, (2) “would disclose to Hartford all material facts relating to their decision to terminate Asset Refresh,” and (3) “would act to maximize, not destroy, 23 the value of Asset Refresh.” (Doc. 97 at 10-11.) Warren and Wittry argue that these theories (which also are not pled in the complaint’s breach of the implied covenant of good 24 faith and fair dealing claim) are merely a repackaging of Hartford’s and Asset Refresh’s other claims, namely Asset Refresh’s breach of fiduciary duty claim and Hartford’s 25 fraudulent inducement claim. (Doc. 102 at 7.) The Court agrees and will address these allegations in the context of those claims. 26 4 Asset Refresh argues that Delaware law governs its breach of fiduciary duty claim, but it identifies no material differences between Delaware law and Arizona law and 27 acknowledges that “the result is the same” regardless of which state’s law is applied. (Doc. 90 at 8-12.) For ease, then, the Court cites only Arizona authorities (which can be found 28 in all parties’ briefs), with the understand that materially similar principles apply in Delaware. 1 any business opportunities from Asset Refresh to Cal State either before or during the 2 wind-up process. And although Warren and Wittry did arrange for the sale of some of 3 Asset Refresh’s inventory to Cal State during the wind-up process, there is no evidence 4 that they conducted these sales “as or on behalf of a person having an interest adverse to” 5 Asset Refresh. A.R.S. § 29-3409(B)(2). To the contrary, Cal State was the buyer of last 6 resort for the small amount of inventory Warren and Wittry sold to it, and there is no 7 evidence of any other buyer willing to pay a better price for the materials. A jury hearing 8 this evidence could only conclude that, in selling this inventory to Cal State, Warren and 9 Wittry obtained the best possible price for items they were required to liquidate per the 10 Termination Agreement. Indeed, for this same reason, even if Warren and Wittry could be 11 deemed to have violated their duty of loyalty by selling inventory to their future employer, 12 Asset Refresh will be unable to prove damages caused by this breach at trial. 13 This brings the Court to what is the core of this lawsuit. In its response brief, Asset 14 Refresh argues that Warren and Wittry breached their duty of loyalty and care by failing to 15 disclose what Asset Refresh perceives to be a material conflict of interest on the part of 16 Warren and Wittry related to the decision to terminate Asset Refresh. (Doc. 90 at 9-11); 17 see A.R.S. § 29-3409(B)(4) (duty of loyalty includes a duty “[t]o disclose to each of the 18 other members that are considering or voting on a decision . . . any material conflict of 19 interest on the part of the disclosing member”). As Asset Refresh sees it, Warren and 20 Wittry had a personal interest in dissolving the company that was adverse to the interests 21 of Asset Refresh. Namely, they had surreptitiously accepted future employment with Cal 22 State, and therefore had an interest in dissolving an occasional competitor to their future 23 employer. Asset Refresh also contends that Warren and Wittry wanted to dissolve Asset 24 Refresh, rather than sell their interests to Hartford or sell the entire company for fair market 25 value, because they wanted Cal State to benefit from a perceived merger with Asset Refresh 26 without paying fair market value for such a merger. 27 There is evidence in the record that supports Asset Refresh’s conflict-of-interest 28 theory. For example, it is undisputed that Warren and Wittry surreptitiously negotiated 1 their future employment, withheld this information from Hartford, and lied about their 2 motives for wanting to dissolve Asset Refresh. There also is evidence that Hartford 3 expressed interest in buying out Warren and Wittry’s interests in Asset Refresh, but that 4 Warren and Wittry were not interested in negotiating a purchase price. (Doc. 85-1 at 17- 5 18.) After joining Cal State, Wittry emailed his contacts in the industry and insinuated that 6 Asset Refresh had merged with Cal State. (Doc. 95 at 49-176.) What’s more, there is 7 evidence that one school district granted a contract to Cal State, at least in part, because 8 “the company [the school district] used last time, Asset Refresh, is now part of [Cal State.]” 9 (Doc. 107-1 at 239.) A jury hearing this evidence could reasonably conclude that Warren 10 and Wittry wanted to dissolve, rather than sell, Asset Refresh in order to eliminate a 11 potential competitor to their future employer and so they could confer on their future 12 employer the benefit of a perceived merger with Asset Refresh without requiring their 13 future employer to pay fair market value to buy out or otherwise acquire the company. And 14 a jury could conclude that these facts amount to a conflict of interest. 15 Defendants’ response is two-fold. 16 First, they argue that this alleged conflict of interest was immaterial because 17 Hartford knew that Warren might continue working as a broker in the technology resale 18 business, yet Hartford nonetheless agreed to dissolve Asset Refresh and knowingly agreed 19 to the omission of a non-compete. (Doc. 101 at 4.) Defendants argue that Hartford fails 20 to explain why he would have acted differently had he known, instead, that Warren and 21 Wittry both intended to continue working in the technology resale business as employees 22 of Cal State instead of independent brokers. (Id. at 5.) 23 Matter is material if a reasonable person would attach importance to it when making 24 a decision. See Caruthers v. Underhill, 287 P.3d 807, 815 (Ariz. Ct. App. 2012). 25 Defendants raise compelling arguments, and a jury is free to accept them. But “[u]nless 26 reasonable minds could not differ, materiality is a factual matter which must be determined 27 by the trier of fact.” Hill v. Jones, 725 P.2d 1115, 1120 (Ariz. Ct. App. 1986). And here 28 reasonable minds could differ. As noted, there is evidence that Hartford expressed interest 1 in buying out Warren’s and Wittry’s interests in Asset Refresh. A jury hearing this 2 evidence could find that, had Warren and Wittry disclosed their conflict of interest, 3 Hartford would have approached the termination discussions differently, either by insisting 4 that he be allowed to purchase Warren’s and Wittry’s interests, or by insisting that they 5 collectively sell the company at a fair market value. 6 Second, Defendants argue that Asset Refresh cannot show that it was damaged by 7 this breach. (Doc. 101 at 4.) Defendants note that Plaintiffs’ damages expert presumes 8 that Asset Refresh would have continued operating but for Warren’s and Wittry’s 9 concealment and assesses damages based on this assumption. They argue this assumption 10 is unfounded because, had Warren and Wittry been truthful about their intentions and 11 Hartford consequently objected to dissolving Asset Refresh, Warren and Wittry would 12 have used their combined majority ownership to vote to dissolve the company anyway. 13 (Doc. 88 at 9.) 14 Again, Defendants raise compelling arguments that a jury is free to accept. But a 15 close reading of Hartford’s deposition indicates that he did not aggressively push to buy 16 out Warren and Wittry because the two did not seem interested in negotiating, and instead 17 did not want to be tied to Asset Refresh going forward. (Doc. 85-1 at 17-18.) A jury 18 hearing this evidence could reasonably infer that, had Warren and Wittry been candid about 19 their intentions, Hartford would have been more aggressive in that pursuit or would have 20 insisted that the trio sell the company for a fair market value rather than dissolve it. Indeed, 21 the fact that Plaintiffs’ damages expert calculates a difference in Asset Refresh’s fair 22 market value at the time of its termination and the money its members received after its 23 dissolution shows that there was value in Asset Refresh, apart from its tangible assets and 24 inventory, that went unrealized when the parties agreed to terminate, rather than sell, the 25 business.5

26 5 Plaintiffs also respond that, had Warren and Wittry voted to terminate Asset Refresh over Hartford’s objection in order to eliminate a competitor to their future 27 employer, such an action would, itself, constitute a breach of fiduciary duty and of the covenant of good faith and fair dealing implied in the Operating Agreement. (Doc. 97 at 28 6-7.) If Plaintiffs’ point is that, had Warren and Wittry been truthful and nonetheless voted to terminate Asset Refresh over Hartford’s objection, then Asset Refresh would have been 1 For these reasons, summary judgment is granted on all but one of Asset Refresh’s 2 breach of fiduciary duty theories. The Court will permit Asset Refresh to try to a jury its 3 breach of fiduciary duty claim based on Warren and Wittry’s alleged failure to disclose a 4 material conflict of interest related to the decision to dissolve Asset Refresh. 5 D. Aiding and Abetting Breach of Fiduciary Duty 6 The sole claim against Cal State is for aiding and abetting breach of fiduciary duty. 7 “Such a claim requires proof of the following elements: (1) the primary tortfeasor must 8 commit a tort causing injury to the plaintiff; (2) the defendant must know the primary 9 tortfeasor’s conduct constitutes a breach of duty; and (3) the defendant must substantially 10 assist or encourage the primary tortfeasor in achieving the breach.” Cal X-Tra v. W.V.S.V. 11 Holdings, LLC, 276 P.3d 11, 40 (Ariz. Ct. App. 2012). Asset Refresh has a triable claim 12 that Warren and Wittry breached their fiduciary duties of loyalty and care by failing to 13 disclose a material conflict of interest in the decision to terminate Asset Refresh. Cal State, 14 however, is entitled to summary judgment on the aiding and abetting claim because there 15 is no evidence that Cal State knew that Warren and Wittry concealed or intended to conceal 16 this conflict from Hartford.6 17 E. Fraudulent Inducement 18 In Arizona, fraud requires “(1) a representation; (2) its falsity; (3) its materiality; (4) 19 the speaker’s knowledge of its falsity or ignorance of its truth; (5) the speaker’s intent that 20 it be acted upon by the recipient in the manner reasonably contemplated; (6) the hearer’s 21 ignorance of its falsity; (7) the hearer’s reliance on its truth; (8) the right to rely on it; (9) 22 his consequent and proximate injury.” Echols v. Beauty Built Homes, Inc., 647 P.2d 629,

23 embroiled in a different lawsuit instead of this one, the point is not well-taken. In such a situation, Plaintiffs’ damages would have been attributable to a different alleged breach, 24 not to the breach at issue here. This argument therefore is non-responsive to Defendants’ contention that Asset Refresh would have dissolved (albeit by a 2-1 rather than a 25 unanimous vote) even if Warren and Wittry had been truthful about their intentions. 6 There is evidence that Cal State knew Warren and Wittry had negotiated their 26 future employment behind Hartford’s back. There also is evidence that Cal State knew Warren and Wittry planned to discuss terminating Asset Refresh with Hartford after they 27 had employment offers from Cal State. But this evidence does not show that Cal State knew Warren and Wittry concealed or intended to conceal their future plans from Hartford 28 when the trio finally discussed whether to terminate Asset Refresh. A jury hearing this evidence would be unable to find such knowledge without speculating. 1 631 (Ariz. 1982). Hartford claims that Warren and Wittry fraudulently induced him into 2 signing the Termination Agreement by concealing their plans to work for Cal State.7 (Doc. 3 97 at 2-7.) His argument largely tracks Asset Refresh’s breach of fiduciary duty claim. 4 Hartford contends that Warren and Wittry knowingly misrepresented their reasons for 5 wanting to terminate Asset Refresh, that in reliance on those misrepresentations, Hartford 6 agreed to terminate Asset Refresh, and that had he been told the truth, he would not have 7 entered into the Termination Agreement. 8 Likewise, Warren and Wittry’s arguments for summary judgment largely track their 9 arguments on the breach of fiduciary duty claim. They argue that their misrepresentations 10 were immaterial, and that Hartford could not have relied upon them because Hartford knew 11 that Warren might continue working as a broker in the technology resale business, yet 12 nonetheless agreed to dissolve Asset Refresh and knowingly agreed to the omission of a 13 non-compete. They also argue that Hartford cannot show consequent and proximate injury 14 because his damages expert’s calculations are premised on the assumption that Asset 15 Refresh would have continued operating (or have been sold at a fair market value) had 16 Warren and Wittry been honest, but Warren and Wittry contend that they would have used 17 their superior voting strength to vote to terminate Asset Refresh over Hartford’s objection 18 even had they been forthright about their intentions. 19 Although breach of fiduciary duty and fraudulent inducement claims have different 20 elements, the Court’s analysis of materiality and damages applies to both claims. For 21 reasons already discussed in its analysis of Asset Refresh’s breach of fiduciary duty claim, 22 the Court finds that triable issues of fact preclude summary judgment on Hartford’s 23 fraudulent inducement claim. 24 7 Hartford also reiterates his arguments about the sale of inventory to Cal State. 25 (Doc. 97 at 7-8.) For the reasons exhaustively explained above, there was nothing nefarious about the arms-length sale of a small fraction of Asset Refresh’s inventory to Cal 26 State during the wind-up process. Cal State was the buyer of last resort. There was no other buyer willing to pay more for the inventory at issue. Hartford cannot show he was 27 damaged by this sale. Hartford’s true complaint is not that Warren and Wittry wound up Asset Refresh irresponsibly (the evidence belies this), but instead that Asset Refresh never 28 should have wound up in the first place because the Termination Agreement was secured under false pretenses. It is with this claim that the Court will engage. 1 IT IS ORDERED as follows: 2 1. Cal State’s motion for summary judgment is (Docs. 85) is GRANTED. 3 2. Warren’s and Wittry’s motion for summary judgment (Doc. 88) is GRANTED 4 as to Counts | and 2 of the complaint but DENIED as to Counts 3 and 4 as 5 explained herein.® 6 3. The remaining parties shall participate in a telephonic trial scheduling 7 conference on February 3, 2022, at 10:30 a.m. Call-in instructions will be 8 provided via separate e-mail. 9 Dated this 18th day of January, 2022. 10 11 12 , {Z, 13 _- Ae 14 Used States Dictrid Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 8 Warren and Wittry raise the issue of attorneys’ fees in their briefs. Local Rule of Civil Procedure 54.2 details the procedure a prevailing party must follow in order to recover fees after entry of judgment. -14-