McElhanon v. Hing

728 P.2d 273, 151 Ariz. 403, 1986 Ariz. LEXIS 296
CourtArizona Supreme Court
DecidedNovember 3, 1986
DocketCV 86 0128-PR
StatusPublished
Cited by37 cases

This text of 728 P.2d 273 (McElhanon v. Hing) is published on Counsel Stack Legal Research, covering Arizona Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
McElhanon v. Hing, 728 P.2d 273, 151 Ariz. 403, 1986 Ariz. LEXIS 296 (Ark. 1986).

Opinion

FELDMAN, Justice.

This case arises from a series of actions alleging fraud, embezzlement, and conspiracy surrounding the formation of a corporation in 1970. In this particular case, plaintiff (petitioner McElhanon), a judgment creditor, alleged a conspiracy to defraud and named the judgment debtor’s attorneys as defendants. The sole issue before us is whether an ex parte conference between the trial judge, plaintiff, and plaintiff’s attorney requires reversal of a jury verdict in plaintiff’s favor. The court of appeals held that the trial judge erred in denying a mistrial motion based on the ex parte contact. McElhanon v. Hing, 151 *406 Ariz. 386, 400, 728 P.2d 256, 270 (1985). We accepted review pursuant to Rule 23, Ariz.R.Civ.App.P., 17A A.R.S. We have jurisdiction under Ariz. Const, art. 6, § 5 and A.R.S. § 12-120.24.

I. FACTS

A. The Underlying Transaction

In the summer of 1970, Harvey R. McElhanon, Jr. (McElhanon), John H. Greer, Jr. (Greer), and Charles Gilbert Harris (Harris) purchased stock in several corporations that acquired and operated four restaurants. The first restaurant purchased, Pinnacle Peak Patio, became the principal asset of Southwest Restaurants Systems, Inc. (Southwest), a new corporation formed by McElhanon, Greer, and Harris. All three principals contributed cash for the Pinnacle Peak Patio transaction. Although only McElhanon and Greer contributed cash for stock in the other colorations, each of the three men became owners of one-third of the stock in all the corporations. In return for McElhanon’s and Greer’s disproportionate capital contributions, Harris agreed to pay for his stock out of the corporations’ profits. A formula was devised to determine the amount of Harris’s obligation to McElhanon and Greer; the men agreed that the obligation would be forgiven if there were no profits.

B. McElhanon v. Harris and Greer

In the fall of 1970, disputes arose among the three shareholders. McElhanon filed suit against Harris, Greer, and the corporations, demanding payment of $250,000 based on the formula and Harris’s prior promise to pay his debt from profits. McElhanon also sought damages against Greer for maliciously interfering with Harris’s obligation to pay and for committing, with Harris, acts of malfeasance and misfeasance in operating the corporations.

Shortly after the suit was filed, John Grace (Grace), counsel for Greer and Harris, began consulting with attorney Robert Ong Hing (Hing), defendant in this case. In September 1973, McElhanon’s lawsuit against Greer and Harris went to trial with Hing representing Greer and Harris. On October 11, the jury returned a $200,000 verdict for McElhanon against Harris based on the repayment formula. The jury found Greer not liable. The following day, October 12, 1973, judgment on the verdict was entered in favor of McElhanon and against Harris.

The sequence of events following the verdict led to McElhanon’s present claim against Hing. McElhanon alleges that after being informed of the verdict, Greer and Harris went to Hing’s office to discuss the matter. Hing knew that Harris’s only asset was his interest in Southwest. McElhanon alleged that to prevent collection of the judgment, Greer and Harris decided to have Greer purchase Harris’s stock. Hing prepared a sale agreement to that effect. Harris’s stock certificate in Southwest was cancelled and a new stock certificate was issued in Greer’s name. The transaction was completed by October 13,1973, the day after entry of judgment. As security for his legal fees from Greer and Harris, Hing retained Greer’s Southwest stock certificates, the agreement between Greer and Harris, and the Greer-to-Harris note and assignment. McElhanon later claimed that the transfer of stock from Harris to Greer and Hing’s assertion of an attorney’s lien on the stock and the proceeds of the transfer were fraudulent transactions facilitated by Hing and Grace.

On October 20, McElhanon served a writ of garnishment naming the corporations as garnishee-defendants. When the writ was answered, McElhanon learned that Harris’s stock had been transferred to Greer, that Greer was indebted to Harris, and that Hing claimed an attorney’s lien on the proceeds. McElhanon sought to set aside the sale of stock from Harris to Greer. Hing opposed McElhanon, arguing that Harris was not insolvent. McElhanon claims that Hing knew this to be untrue. Eventually, the order to show cause was dismissed. On November 14, Harris appealed the judg *407 ment against him. 1 While the appeal was pending, Southwest filed a reorganization petition under Chapter XI of the Bankruptcy Act and Harris and Greer filed voluntary bankruptcy petitions.

In the bankruptcy proceedings, McElhanon sought a determination that he was entitled to a judgment lien on the stock that Harris had sold to Greer. The law firm of Stockton and Hing opposed McElhanon’s claim, arguing that it had a prior right to the stock by way of a retaining lien for its fees. It also claimed that Southwest was indebted to it for services rendered in defending McElhanon’s action against Harris and Greer. Eventually, the bankruptcy court ruled that the October 13 stock transfer was a fraudulent conveyance and that the stock in Southwest was an asset of Harris’s estate. The court also ruled that Hing had no claim against Southwest for legal services. These and other findings were upheld on appeal. In re Southwest Restaurant Systems, Inc., 607 F.2d 1241 (9th Cir.1979); In re Southwest Restaurant Systems, Inc., 607 F.2d 1243 (9th Cir. 1979), cert. denied, 444 U.S. 1081, 100 S.Ct. 1035, 62 L.Ed.2d 765 (1980).

C. The Present Action McElhanon v. Hing, Grace, and Greer

McElhanon filed the present case on September 23,1975. He alleged that Hing and Grace had conspired with Harris and Greer to defraud him and had taken affirmative steps to hinder and prevent execution on his 1973 judgment against Harris. The trial was long and bitter; emotions engaged the attorneys as well as the parties. Toward the end of trial, the judge informed defendants’ counsel that he wished to have a private meeting with plaintiff and his attorney. There was no objection, and the meeting took place in the judge’s chambers. The subjects discussed went beyond those originally proposed by the judge. Defendants eventually moved for a mistrial, but the judge denied the motion and the trial continued. The jury was instructed that they could find against Hing if they found that he knowingly assisted his clients, Harris and Greer, to commit a fraud on McElhanon. Fraud was defined as “action of an affirmative, evil nature, such as ... acting dishonestly, intentionally, maliciously and deliberately, with a wicked motive to deceive and cheat____” On August 14, 1980, the jury returned a verdict of $286,120.

Implicit in the jury verdict is a finding that the stock transfer and lien transactions between Harris, Greer, and Hing were intentionally fraudulent.

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Bluebook (online)
728 P.2d 273, 151 Ariz. 403, 1986 Ariz. LEXIS 296, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mcelhanon-v-hing-ariz-1986.