WO

NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Ajman Stud and Sheikh Ammar Bin Humaid No. CV-15-01045-PHX-DJH

Al Nuaimi, ORDER

Plaintiffs, v. David Cains, Scott Bailey, and Stonewall Farms Arabians LLC, Defendants.

La Bella Versace was an Arabian horse of high pedigree and value.1 Plaintiffs allege seven causes of action against Defendants arising from the sale and breeding of the then two-year-old La Bella Versace (“the Mare”). Plaintiffs claim that the Defendants never disclosed that the Mare was subject to a reserved embryo right. Plaintiffs claim they purchased the Mare from Defendants who, prior to delivering her, extracted and sold her embryos. Plaintiffs also allege that Defendants did not own the Mare at the time they accepted payment for her, and that Linda Koch2 (“Koch”) owned her. Plaintiffs claim that after receiving Plaintiffs’ payment, Defendants purchased the Mare from Koch for the sole purpose of taking her embryos. Plaintiffs alleged seven claims against Defendants: (1) breach of contract; (2) breach of covenant of good faith and fair dealing, (3) fraud; (4)

1 At time of trial, La Bella Versace was deceased, having lived only four-years. A probable result of being subjected to repeated artificial inseminations and embryo extractions in a quest for her prestigious offspring – an apparent routine practice in the Arabian horse industry.

2 Laura Koch is not a named party in this case.

conversion of property rights; (5) breach of fiduciary duty; (6) breach of duties of bailment; and (7) declaratory relief. Plaintiff seeks monetary damages.

The parties proceeded to a six-day bench trial and thereafter submitted supplemental findings of fact and conclusions of law. (Docs. 128 & 129). The Court rules as follows:

I. FINDINGS OF FACT3

1. Ajman Stud is a business organized and licensed under the laws of the United Arab Emirates engaged in owning, breeding and marketing horses. (Tr. Exh. 1).

2. Sheikh Ammar bin Humaid Al Nuaimi (“Sh .Ammar”) owns Ajman Stud. (Id.) 3. Elisa Grassi (“Grassi”) and Frank Spönle (“Sponle”) are Sh. Ammar’s Agents.

(SSOF). Together, they manage the bloodstock of Ajman Stud and develop its breeding programs. (TR 1/8 at 5).

4. Grassi and Sponle are authorized to locate and negotiate the purchase of horses for Ajman Stud’s breeding program. (Id. at 6) They also prepare contracts for the purchase of horses for Ajman Stud on behalf of Sh. Ammar. (Id.)

Cains claimed that in February 2012, he prepared and sent Grassi a written contract. (TR 1/10 at 61)(Tr. Exh. 17). The contract is also dated February 25, 2012 and signed only by Cains on February 28, 2012. Grassi testified that she never received that contract. (TR 1/8 at 61). Cains did not produce evidence that he emailed or otherwise delivered the contract to Grassi or Sh. Ammar. The numerous and obvious errors in Defendants’ contract render it void. For example, Defendants’ contract is titled “Installment and Security Contract.” Grassi testified that an installment term was unnecessary because payment was expected in full. (TR 1/8 at 62-63). It lists the Mare’s Seller as Ajman Stud and the Buyer as Stonewall Farms. The undisputed facts are Ajman Stud was the buyer, not the seller. The agreement is contingent upon a clear SCID test while simultaneously declaring the Mare SCID and CA clear. Yet, Defendants advertised the Mare as SCID clear but not CA clear. Cains also testified that an attorney drafted various contract terms for Stonewall Farms and “this is just a copy and paste” of terms that he was told to include. (TR 1/10 at 75). In addition, the contract had three signature pages signed by Cains and were respectively dated February 28, 2012, March 20, 2012, and March 25, 2012. (Tr. Exh. 17). Cains explained that he may have printed the contract, wrote an incorrect date and printed the signature page again, and still got the wrong date. (TR 1/10 at 100). Importantly, Cains was unable to produce any evidence of delivering his contract to Grassi which belie his claims.

ii. Analysis - Breach of the Plaintiffs’ Contract Terms Plaintiffs allege that Defendants breached the contract in two ways: “(a) Defendants agreed, promised and warranted that they were transferring or causing to be transferred to Plaintiff’s assignor all of the rights, title and interests in the Mare free of any encumbrance, claim or reservation, including any putative reserved embryo right, when in fact, Defendants intended to extract and did extract at least two embryos from the Mare before transferring possession of the Mare[;] and (b) Defendants failed to transfer to Plaintiff’s Assignor any bona fide rights of Laura Koch to an embryo from the Mare.” (Co. at 34).

Neither party focused on the written contract terms, nor did they argue that the contract terms were ambiguous. The contract expressly states that the parties agree based on “consideration of the mutual covenants and promises contained” in the contract. (Tr. Exh. 4). The covenants and promises include the following: Recital (2) sets the purchase price at $75,000.00; Recital (3) states payment is due on signing of the contract; Recital (6) provides that Seller shall deliver registration papers to Buyer properly endorsed to effect the transfer of ownership as soon as full payment has been received and Recital (7) states the contract is pending a “Clear CA test result and pre purchase vet exam” and provides the contract is void if the CA result is positive. (Id.)

Both parties acted to fulfill Plaintiffs’ contract terms. Plaintiffs paid the agreed price, Defendants received that payment and on March 6, 2012 emailed Grassi the CA clear examination report which she received on March 7.12 Although Defendants did not transfer ownership upon receiving final payment, Recital (7) renders that provision superfluous. Contrary to Plaintiffs Complaint, no contract term specifies that Defendants shall transfer “all of the rights, title and interests in the Mare free of any encumbrances, claim or reservation[.]” (Id. at 34)(emphasis added). Plaintiffs’ contract is also silent on “putative reserved embryo rights.”13 (Id.). Thus, the Court infers that no meeting of the minds occurred regarding existing encumbrances. Thus, the parties fulfilled the contract terms and ownership of the Mare passed to Plaintiffs at the earliest on March 6 and at the latest on March 7, 2012. Plaintiffs’ Breach of Contract Claim fails.

C. Second Claim - Breach of the Covenant of Good Faith & Fair Dealing

1. Legal Standard

12 Grassi was conducting the transaction from her home in Germany which resulted in a time delay.

13 Grassi testified that prior to signing the contract, Cains verbally avowed that the Mare was unbred and without a reservation of embryo rights. (TR 1/8/ at 16 - 17). The Court has considered this testimony but cannot find the contract language “reasonably susceptible” or in conformance with Grassi’s testimony because it is silent on those two matters. See Taylor v. State Farm Mutual Automobile Insurance Co., 175 Ariz. 148, 841 P.2d 1134, 1140 (1993)(discussing when the parole evidence rule is appropriate to interpret contract terms).

The duty of good faith and fair dealing is implied in every contract. Rawlings v. Apodaca, 726 P.2d 565, 569 (Ariz. 1986). “The essence of that duty is that neither party will act to impair the right of the other to receive the benefits which flow from their agreement or contractual relationship.” Id. “A party may breach the implied covenant even in the absence of a breach of an express provision of the contract by denying the other party the reasonably expected benefits of the agreement.” Nolan v. Starlight Pines Homeowners Ass’n, 167 P.3d 1277, 1287 (Ariz. Ct. App. 2007) (citing Wells Fargo Bank, 38 P.3d at 29–30). Arizona courts follow the Restatement (Second) of Contracts § 205 (1981), which describes the duty of good faith and fair dealing in contract including: “[B]ad faith [which] may be overt or may consist of inaction, and fair dealing [which] may require more than honesty.” Judicial decisions have also recognized evasion of the spirit of the bargain, lack of diligence, and abuse of a power to specify terms may also constitute good faith and fair dealing. Airfreight Exp. Ltd. v. Evergreen Air Ctr., Inc., 158 P.3d 232, 241 (Ariz. Ct. App. 2007).

2. Analysis

Plaintiffs allege that Defendants offered the Mare for sale and executed the sales contract when they did not own her. They assert that Defendants bought the Mare from Koch after Sh. Ammar wired $75,000.00 to Stonewall Farms. Plaintiffs also assert that they induced the purchase by describing the Mare as being unbred and without a reservation of embryo rights. Plaintiffs argue that they would not have purchased the Mare if they had known she had encumbered embryo rights.

The contract refers to Stonewall Farms as the “Seller” and recital A specifies “Whereas seller owns the horse known as La Bella Versace[.]” Thus, Defendants held themselves out as the Mare’s owner when they entered into the contract. Defendant Cains states that before selling the Mare to Plaintiffs, in early February, he purchased her from Koch through Jamie Heathcott. Plaintiffs argue that Defendants used Sh. Ammar’s payment to purchase the Mare from Koch. There is no record evidence showing how or when payment was made. Cains testified that he paid Heathcott with a check which she lost. He then wired another check to her personal account. (TR 1/15 at 29). At trial, neither Heathcott nor Cains could produce evidence of a cancelled check or a wire receipt. (Id. at 54). Nor could either recall the date of the purported purchase or exchange of payment. However, Defendants avowed that they purchased the Mare on February 15, 2012. (Exh. 143).

The only record evidence of transferred ownership is the AHA form completed by Cains. (TR. Exh 94). The AHA form shows that on March 9, three days after Plaintiffs owned the Mare, Defendants wrote a check to the AHA transferring ownership of the Mare from Koch to Stonewall Farms. Cains stated that Koch asked him to prepare an “after the fact contract” for the sale. (TR 1/15 at 22-23). The contract is dated February 15, 2012, but signed and dated in May 2012. (Tr. Exh. 256). Cains could not recall when he prepared or signed the contract. (Id. at 23). Additionally, Cains sought a signed but undated transfer of ownership document from Koch’s agents (Steve Heathcott and Jaime Bornstien). (Id. at 28)(Tr. Exh. 144).

It is plausible that Defendants owned the Mare at some point. However, their inability to produce purchase agreements or payment records make it difficult to determine when they did so. Defendants acts of registering her on March 9 with the AHA, drafting an after-the-fact contract signed in May, and seeking undated ownership documents support Plaintiffs’ claim that Defendants did not own the Mare when they sold her. Thus, the Court finds Defendants breached the covenant of good faith and fair dealing by falsely stating in the executed contract that they owned the Mare and by withholding information from Plaintiffs about Koch. Had Defendants done so, Plaintiffs could have investigated whether she was encumbered by a prior owner’s reserved rights.

Plaintiffs next assert that Defendants breached the covenant of good faith and fair dealing by describing the Mare as unbred and without encumbered embryos. Grassi and Sponle testified consistently that Defendants claimed the Mare was unbred and without reserved embryo rights. (TR 1/8 at 16). Nancy Gallun also testified that when Grassi told her about the Mare, she described her as not having been bred. (TR 1/9 at 7-8). The absence of encumbrances and breeding increased the Mare’s value to Plaintiffs breeding program with Vervaldee. Plaintiffs were interested in exclusively breeding Vervaldee with a Versace Mare for the heightened monetary and prestige value to be realized from their resulting foals. (TR 1/8 at 16-17). Indeed, Grassi’s reaction to hearing that the Mare had produced R.D. Versaria supports this. Upon seeing the birth announcement, she immediately contacted Nancy Gallun to investigate how the unbred Mare could have birthed a foal given that Plaintiffs owned her and controlled her breeding program.

The Court finds that Defendants breached the covenant of good faith and fair dealing by omitting material facts to induce Plaintiffs into purchasing the Mare. Defendants’ omissions effectively denied Plaintiffs the intended benefits that flow from their contractual agreement, that is, exclusivity in the Mare’s ownership, breeding and her planned offspring with Vervaldee. See Wells Fargo Bank, 38 P.3d at 29–30. Plaintiffs prevail on Count Two of their Complaint.

D. Third Claim - Fraud and Deceit

Plaintiffs allege that during their negotiations, Defendants made false representations about the Mare, and their ownership of her at the time they offered her for sale and through the completion of the contract. Defendants assert they made no claims about the Mare upon which the Plaintiffs relied. (Doc. 129 at 29).

1. Legal Standard

To prove fraud, Plaintiffs must establish: “(1) [a] representation; (2) its falsity; (3) its materiality; (4) Defendants knowledge of its falsity or ignorance of its truth; (5) [their] intent that it should be acted upon by [Plaintiff] and in the manner reasonably contemplated; (6) [Plaintiffs] ignorance of its falsity; (7) [Plaintiffs] reliance on its truth; (8) [Plaintiffs] right to rely thereon; and (9) [their ] consequent and proximate injury.” KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 236 Ariz. 326, 333, ¶ 31 (Ariz. Ct. App. 2014) (quoting Nielson v. Flashberg, 101 Ariz. 335, 338-39 (1966). Fraud must be established by clear and convincing evidence. Enyart v. Transamerica Ins. Co., 195 Ariz. 71, 77, ¶ 18 (Ariz. Ct. App. 1998). Thus, “[w]here a seller knows of facts materially affecting the value of property and knows that the facts are not known to the buyer, the seller has a legal duty to disclose such facts.” Lombardo v. Albu, 14 P.3d 288, 290 (Ariz. 2000), see also Wells Fargo Bank v. Ariz. Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d 12, 21 (2002) (“Unlike simple nondisclosure, a party may be liable for acts taken to conceal, mislead or otherwise deceive, even in the absence of a fiduciary, statutory, or other legal duty to disclose.”).

2. Analysis

Defendants represented through acts and omissions that they owned the Mare. (Tr. Exh. 4). As previously found, Defendants were unable to refute the credible testimony and evidence that they did not. Indeed, the pattern and practice of Defendants’ misrepresenting their ownership of horses when offered for sale supports this finding. (TR 1/15 at 33-44) (Tr. Exh. 137).

Defendants also told Grassi that she was without reserved embryo right. Contrary to that statement, Defendants rushed to complete a purchase from Koch so they could extract an embryo for themselves and Koch before delivering the Mare to Plaintiffs. Defendants, contention that they told Grassi that the Mare had reserved embryos is contrary to their behavior. Tellingly, the Defendants were extracting embryos from the Mare on the very day they told Grassi she would be delivered to Gallun Farms. Moreover, Defendants never told Plaintiffs that Koch’s embryo extraction was fulfilled, or that their embryo right had not been fulfilled, which would support their narrative.

Second, Defendants claimed that the Mare would not be bred prior to being delivered to Plaintiffs. (TR 1/8 at 16). The record shows that Plaintiffs purchased the young Versace Mare to breed her with Vervaldee. Plaintiffs believed that her unbred status would increase the value of offspring with Vervaldee. Both Grassi’s and Nancy Gallun’s reaction to the news of RD Versaria supports that Plaintiffs believed that Defendants representations were true. The material misrepresentations were used to sell the Mare. Indeed, Grassi’s inquiry to Cains about the Mare’s status prior to the purchase reinforced Plaintiffs belief that she was well suited for Vervaldee’s exclusive breeding program. The record shows overwhelming evidence, that Defendants’ representations were material to the purchase agreement. Accordingly, Plaintiffs succeed on their Count Three fraud claim.

E. Fourth Claim - Conversion of the Property Rights Plaintiffs

Plaintiffs claim that while the Mare was at Stonewall Farms, Defendants damaged her by subjecting her to multiple inseminations and embryo extractions resulting in property conversion. Defendants respond that Stonewall was obligated to flush an embryo from the Mare for Koch, and that these acts were not hidden from Plaintiff. (Doc. 129 at 31). Defendants also argue, for the first time, that Plaintiffs’ conversion claim falls outside of the two-year statute of limitations. (Id. at 30) 1. Legal Standard Conversion is “an act of wrongful dominion or control over personal property in denial of or inconsistent with the rights of another.” Case Corp. v. Gehrke, 208 Ariz. 140, 143, ¶ 11 (Ariz. Ct. App. 2004) (citation omitted), see also Focal Point, Inc. v. U-Haul Co., 746 P.2d 488, 489 (Ariz. Ct. App.1986) (conversion is “[a]n intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel.”) (quoting Restatement (Second) of Torts § 222(A)(1)(1965)). Arizona Revised Statute section 12-542 provides that a cause of action for conversion shall commence two years after the action accrues. Under Arizona law, a conversion claim accrues “at the time of the wrongful taking and not at the time of the discovery by plaintiff of the taking or of the identity of the taker.” Jackson v. Am. Credit Bureau, Inc., 531 P.2d 932, 934 (Ariz. Ct. App.1975).

i. Statute of limitations - Waiver Defendants did not raise the statute of limitations bar as an affirmative defense or in their dispositive motion. Defendants now argue that Plaintiffs’ conversion claim fails because they knew or should have known by “February or early March 2013” that an embryo was extracted from the Mare before she arrived at Gallun Farms. (Doc. 129 at 30). Thus, Defendants’ assert that the statute of limitations expired by the time Plaintiffs filed their claim on April 16, 2015. Not only do Defendants misstate the law, they waived this argument.

Rule 8 requires a defendant to “state in short and plain terms its defenses to each claim asserted against it.” Fed.R.Civ.P. 8. Rule 8 defines “statute of limitations” as an affirmative defense that must be raised when “responding to a pleading.” (Id.). A statutory time limitation defense is forfeited if not raised in a defendant’s answer or in an amendment to the answer. Wood v. Milyard, 132 S. Ct. 1826, 182 L. Ed. 2d 733 (2012). An affirmative defense, once forfeited, is “exclu[ded] from the case,” and cannot be asserted on appeal. See Day v. McDonough, 547 U.S. 198, 217 (2006). Moreover, a statute of limitations defense is not jurisdictional, and therefore federal courts are not obligated to raise the time bar sua sponte. Id. Defendants did not raise the statute of limitations in their Answer, nor in their summary judgment motion. (Docs. 6 & 49). They do so only in post-trial pleadings. Defendants have waived this argument.

2. Analysis

Conversion claims accrue at the time of the wrongful taking, not when Plaintiffs discovered the taking. Id. at 199 (emphasis added). The contract’s terms were fulfilled on March 6, 2012 when Cains provided Plaintiffs with the CA test results. Sh. Ammar owned the Mare on that day. Plaintiffs, however, did not take immediate possession of her. Rather, Stonewall Farms was to arrange for her transportation to Gallun Farms within 10 days of March 7 but failed to do so.

While at Stonewall Farms, Defendants directed Dr. Longworth to artificially inseminate the Mare on February 26, 2012. (TR 1/15 at )(Exh. 18). She was again inseminated on February 27 and 28 with an embryo flush on March 6. The procedures occurred one day after Grassi emailed the signed purchase contract to Defendants and one day before Stonewall Farms received payment. Defendants again told Dr. Longworth to artificially inseminate her on March 16 and 17 with an embryo flush on March 25.

Cains argued that Stonewall Farms owned the Mare until all breeding obligations were fulfilled. (TR 1/15 at 55). In contradiction, he said that Plaintiffs owned the Mare on March 7. (TR 1/15 at 89). Cains also testified that Grassi told him he could extract embryos from the Mare until she left the Country. Yet, he never told Plaintiffs, Grassi or Nancy Gallun that his extractions were unsuccessful and thus, his rights unfulfilled. (TR at 81- 83). Defendants contract obligated them to “effect the transfer of ownership” upon receiving the CA clear test, but they failed to do so. These facts show that Defendants delay was deliberately designed to enrich themselves by taking an embryo.

Defendants also continued to interfere with Plaintiffs’ ownership rights when they acted to manipulate the AHA ownership registration process. First, on May 24, Defendants requested that the AHA transfer ownership of the Mare from Stonewall Farms to Ajman Stud with a transfer date of May 16, well beyond the March 6. (Tr. Exh. 97). On June 11, 2012, when applying for an embryo transfer permit Defendants wrote that Stonewall Farms owned the Mare when she was bred in March 2012. (TR 1/10 at 50-52 )(Tr. Exh. 95). Again, a factually incorrect statement. Defendants manipulation of the AHA registration process was intended to enable them to take credit for breeding RD Versaria.

The Court finds Defendants’ claims are obviously fabricated. Thus, Defendants engaged in wrongful conversion of Plaintiffs property on March 6, 16, 17 and 25 by subjecting the Mare to repeated inseminations and embryo extractions. They did so without Plaintiffs’ consent or knowledge. Plaintiffs had a right to receive her in the condition in which she was offered – unbred. Defendants’ repeated use of the Mare deprived Plaintiffs of receiving her in the conditioned offered and ultimately devalued the contracts intended purpose. Therefore, Plaintiffs prevail on Count Four of their Complaint.

F. Fifth Claim - Breach of Fiduciary Duty

Plaintiffs allege that Defendants “retained possession, custody and control of the Mare as the agent of Plaintiffs’ Assignor and were acting as the constructive trustee or bailee for her owner” and they intentionally delayed delivering the Mare to breed her. (Co. at 39-41). Defendants admit that the Mare was bred to their stallion Selket Marque and to Aria Impressario, (Ans. at 7-8), but state their agreement with Plaintiffs was a routine commercial transaction not resulting in a fiduciary relationship. (Doc. 129 at 31).

1. Legal Standard

To establish a fiduciary relationship there must be “something approximating business agency, professional relationship, or family tie impelling or inducing the trusting party to relax the care and vigilance he would ordinarily exercise.” Taeger v. Catholic Family and Cmty. Servs., 995 P.2d 721, 726 (Ariz. Ct. App. 1999) (citations omitted). Further, the relationship of the parties must bind one to act for the benefit of another. Id. at 290. Commercial transactions do not generally create a fiduciary relationship unless one party agrees to serve in a fiduciary capacity. Urias v. PCS Health Sys., Inc., 118 P.3d 29, 35 (Ariz. Ct. App. 2005).

2. Analysis.

Defendants Cain and Bailey testified that they had prior business dealings and personal relationships with Sh. Ammar, Grassi and Sponle for many years. (TR 1/19 at 79; 1/15 at 56, 66). Indeed, Cains confirms that Defendants’ relationship with Plaintiffs, and its agent, Grassi, were “all very good friends” and that their acts were based upon trust built over time. (TR 1/10 at 89)(Tr. Exh. 23). Cains described this relationship as “[w]e trusted each other, and we did things on a handshake and a smile[.]” (Id.) Cains also testified that “Sheikh Ammar was our very good friend, and we respected him, and we wanted to make him happy.” (Id. at 92). In an email dated February 22, 2014, Cains details his and Bailey’s business and personal interactions with Plaintiffs. He confirms that Bailey and Sh. Ammar have been acquainted for over 25 years, that they know and trust one another, and that their personal interactions include Bailey picking up a watch in New York for Sh. Ammar, Sh. Ammar gifting Bailey a Rolex for supporting Ajman Stud, and Plaintiffs employing Bailey’s web services. Defendants indeed describe an intimate relationship that would induce Plaintiffs to relax the care they would normally exercise in conducting routine commercial transactions. See Taeger, 196 Ariz. at 290. The Court has no trouble finding that Defendants were bound by a fiduciary relationship with Plaintiffs.

Finding that Defendants were acting as fiduciaries, the Court also finds that they breached their fiduciary duty when they failed to deliver the Mare as promised and when they had her repeatedly artificially inseminated and embryos extracted. Nancy Gallun testified that embryo extractions on a young foal of the Mare’s age, could result in injury. (TR at 1/10 at 23-25). Defendants then submitted documents to the AHA purporting to be the owner of the Mare, including documents necessary by the AHA rules, to transfer the RD Versaria embryo to Koch. Whether by purposeful deceit or delay, willful ignorance or recklessness, Defendants conduct in submitting back dated and incorrect forms to the AHA, and seeking delayed registration of ownership, deprived Plaintiffs of their recognized ownership of the Mare’s highly valued offspring with Aria Impressario. The Court finds that Defendants purposefully delayed the request to transfer ownership to Plaintiffs to serve their own interests. Plaintiffs prevail on Count Five of the Complaint.

G. Sixth Claim - Breach of Duties of Bailment Relationship

1. Legal Standard

To prevail on a breach of duties of bailment, Plaintiff must prove a delivery by the bailor and acceptance by the bailee of the subject matter of the bailment. The property must be placed in the bailee’s actual or constructive possession. Webb v. Aero Int’l. Inc., 633 P.2d 1044, 1045 (Ariz. Ct. App. 1981). The bailee’s duty is one of reasonable care to protect the bailed property from loss, damage, or destruction. See Alitalia v. Arrow Trucking Co., 977 F.Supp. 973, 980 (D. Ariz. 1997).

2. Analysis

Plaintiffs allege that they entrusted Defendants to act as a bailee for the Mare and that Defendants did assume that role. (Co. at 42). Defendants argue that because Plaintiffs did not act to possess the Mare or to secure her title, they are not liable.14

The Court finds that Defendants were acting as bailees when they agreed to board and transport the Mare. Defendants told Grassi that she would be shipped in ten days, yet they failed to do so. Rather, Defendants intentionally delayed delivering the Mare to Gallun

14 In addition, Defendants citing Buchanan v. Green, 73 Ariz. 159, 238 P.2d 1107, 1108 (1951) argue that even if Defendants are found to be bailees, it does not give rise to a separate cause of action. (Doc. 129 at 32). The cited case does not so hold. Farms to have her artificially inseminated for themselves and Koch. The inseminations were on March 16 and 17, the very time she was to be shipped, indicating Defendants never intended to deliver her as stated. Moreover, Cains told Grassi that their monthly costs for boarding the Mare was $690.00 evincing that they assumed a caretaker role. (Tr. Exh. 212). It makes no difference whether they collected that fee. Defendants, as bailees, did not exercise the necessary degree of care to protect Plaintiffs’ property. Rather, they engaged in acts that were potentially injurious to the young Mare. (TR 1/10 at 23-25, 30). Therefore, Plaintiffs prevail on Count Six of their Complaint.

H. Eighth15 Claim - Declaratory Relief

Plaintiffs seek a declaration of “rights and obligations concerning the Mare, including all breeding and reproductive rights in such Mare and products thereof.” (Co at 45). Specifically, Plaintiffs seek a declaration that Ajman Stud was the owner of the Mare when she was bred to produce RD Versaria.

A.R.S. § 12-183116 provides that courts “shall have power to declare rights, status and other legal relations whether or not further relief is or could be claimed . . . [and] the declaration may be either affirmative or negative in form and effect; and such declarations shall have the force and effect of a final judgment or decree.” However, because declaratory judgments are procedural, when brought in federal cases of diversity such relief “must be converted to a claim brought under the Federal Declaratory Judgment Act [28 U.S.C. §§ 2201-2202].” Mardian Equip. Co. v. St. Paul Fire & Marine Ins. Co., No. CV- 05-2729-PHX-DGC, 2006 WL 2456214, at *4 (D. Ariz. Aug. 22, 2006). In determining whether to issue a declaratory judgment, district courts are cautioned that such relief should be denied “when it will neither serve a useful purpose in clarifying and settling the legal relations in issue nor terminate the proceedings and afford relief from the uncertainty and controversy faced by the parties.” See United States v. Washington, 759 F.2d 1353, 1357

15 Plaintiffs plead no Seventh Claim, thus the Court will use the numeric title noted in their Complaint. (Doc. 1-1 at 45).

16 In seeking such relief, Plaintiffs, erroneously cite “A.R.S. § 12-1801 et. al.,” the preliminary injunction statute.

(9th Cir. 1985)(en banc). If the declaratory judgment would be a redundant of a claim or claims, a district court should exercise its discretion to dismiss.

Plaintiffs declaratory judgment request, although imperfectly pled, is not redundant of their claims. Indeed, the declaration is sought because Defendants’ false claims, material misstatements, and back-dated documents relating to the Mare’s ownership and breeding resulted in additional harm to Plaintiffs. Currently, the AHA does not credit Plaintiffs as owning the Mare when she was bred to produce RD Versaria. The AHA instead erroneously credit Stonewall Farms for that breeding due to Defendants’ false filings. Thus, Plaintiffs prevail on Count Eight of their Complaint. The Court issues the following declarations:

1) Plaintiffs Sh. Ammar and Ajman Stud owned La Bella Versace on March 6, 2012, and when she was bred to Aria Impressario on March 16 and 17, 2012, and 2) Plaintiffs Sh. Ammar and Ajman Stud owned La Bella Versace at the time of her embryo flush that produced R.D. Versaria.

I. Damages

Plaintiffs claim that they are entitled to $1,690,000.00 in compensatory damages. Plaintiffs also claim an unspecified award of punitive damages because Defendants acted to defraud them and then concealed their conduct. Defendants state that Plaintiffs specified damages amount is speculative and thus cannot be awarded.

1. Legal Standards

In Arizona, the burden is on the Plaintiff to show the amount of their damages with reasonable certainty. Harris Cattle Co. v. Paradise Motors, Inc. 104 Ariz. 66 (1968) (citing Jacob v. Miner, 191 P.2d 734 (Ariz. Ct. App. 1948). However, “certainty in amount of damages is not essential to recovery when the Fact of damage is proven.” Id., (citing Story Parchment Co. v. Paterson Parchment Paper Co. 282 U.S. 555, 51 (1931)). In other words, where a party has suffered damage, “a more liberal rule should be applied in allowing the court or jury to determine the amount of damage than should be applied in weighing evidence on the question of whether or not the acts complained of will result in any damage[.]” Story Parchment, Co., 282 U.S. at 51. Plaintiffs succeeded in proving that Defendants breached the covenant of good faith and fair dealing, engaged in fraud and deceit, breached their fiduciary duties, engaged in conversion, and breached the duty of bailment. Therefore, Plaintiffs are entitled to an award of damages.

To determine the amount of damages, the Court is guided by the above principles, and the law governing damages for the specific claims. For example, once a fraud claim is established, damages are measured under the “benefit of the bargain” rule. See Lutfy v. R. D. Roper & Sons Motor Co., 57 Ariz. 495, 504 (1941). This is calculated by taking the value of the item in question had the representation been true and subtracting the actual value at the date of the sale. Smith v. Don Sanderson Ford, Inc, 439 P. 2d 837 at 392 (Ariz. Ct. App. 1968). However, a claimant may also recover on “any consequential damages that may have proximately resulted from the fraudulent conduct of the seller.” Bechtel v. Liberty Nat’l Bank, 534 F.2d 1335, 1341 (9th Cir. 1976) (citing Ashley v. Kramer, 8 Ariz. App. 27 (Ariz. Ct. App. 1968); Cole v. Gerhart, 5 Ariz. App. 24 (Ariz. Ct. App. 1967). Damages under claims of conversion and bailment are typically related to the reasonable value of the property that was not returned or damaged. See Inter “K” N.V. v. UPS Supply Chain Sols., Inc., 2011 WL 5826046, at *2 (Ariz. Ct. App. Nov. 18, 2011).

2. Analysis

Plaintiffs successfully claimed that Defendants’ fraud and deception devalued the contract’s purpose by claiming the Mare had never been bred and was without a reservation of embryo rights. Although Defendants ultimately delivered the Mare, she was not as advertised. Thus, Plaintiffs are entitled to damages for Defendants’ fraudulent inducement. Plaintiffs are thus entitled to reimbursement of the $75,000.00 contract price. This award considers that Plaintiffs did not receive the full benefit of their agreement.

Plaintiffs argue that Defendants damaged them in the amount of $1,690,000.00. Plaintiffs’ rely on expert testimony to establish this amount. The amount is derived from the estimated value of six foals produced by the Mare once she was delivered in late May. The expert testimony also established that embryos have a 90% survival rate past the gestation period. Nancy Gallun testified that two embryos per month could have been extracted from the Mare. Plaintiffs’ claim that from early March through the end of May she could have produced five foals. Plaintiffs estimate the value of each foal is $258,000.00 based upon the estimated value of foals produced by the Mare after she was delivered. See (Doc. 128 at 18). The estimated value of the foals ranges from $100,000.00 to $300,000.00. The value of the two foals produced by the Mare and Vervaldee are $300,000.00 - $500,000.00 for AJ Barari, and $150,000.00 for AJ Bella Vervaldee. Therefore, a more reasonable estimate for foals produced between the Mare and Vervaldee is $ 200,000.00.

The Court is mindful that Plaintiffs knew that the Mare was in Defendants possession through the end of March, and they did not take affirmative steps to mitigate their potential losses by having her delivered to Gallun Farms. Thus, the Court will only consider the potential lost breeding opportunities for April and May. Defendants are liable for the value of four foals for a total of $800,000.00.

Finally, the record supports an award for wrongful conversion and/or bailment. While the Mare was in Defendants care and control, they permitted her to be bred to Aria Impresario. The breeding produced RD Versaria, who was sold for $100,000.00 and a reserved embryo right, just eleven-days after birth. Defendants wrongful conduct thus resulted in a quantifiable loss to Plaintiffs of $100,000.00.

J. Punitive Damages

Plaintiffs also seek an award of punitive damages. Under Arizona law, punitive damages may be awarded for breach of fiduciary duty if the defendant's conduct reaches requisite level of culpability. Rhue v. Dawson, 173 Ariz. 220 (Ariz. Ct. App. 1992). Because Arizona follows the “benefit of the bargain” rule, punitive damages are only appropriate when “the conduct of the wrongdoer is wanton, reckless or shows spite or ill will.” Ulan v. Richtars, 8 Ariz. App. 351, 358–59 (Ariz. Ct. App. 1968) (quoting Lutfy, 57 Ariz. at 504) (internal quotation marks omitted). To recover punitive damages under Arizona law, however, “something more is required over and above the ‘mere commission of a tort.’” Agilysys, Inc. v. Vipond, 2006 WL 2620103, at *3 (D. Ariz. Sept. 13, 2006). In other words, a plaintiff must prove by clear and convincing evidence that the defendant engaged in “aggravated and outrageous conduct with an evil mind.” Id.

The Court finds by clear and convincing evidence that Defendants acted with the intent to deprive Plaintiffs of the benefit of their bargain, to enrich themselves at the expense of devaluing Plaintiffs’ benefits, and then acted to cover-up their conduct. The Court finds the conduct “reprehensible” and that Defendants acted “with an evil mind.” Security Title Agency Inc. v. Pope, 200 P.3d 977 at 995 (Ariz. App. Div. 1 2008) (citations omitted).

First, the record evidence shows that Defendants purposely created an after-the-fact false contract purporting to reserve themselves embryo rights to the Mare. (Tr. Exh. 17). Second, once they entered into the contract, Defendants purposely interfered with Plaintiffs’ rights by rushing to aggressively extract embryos from the Mare in a way that could injure her. Then, they falsely claimed Stonewall Farms owned the Mare when she was bred to Aria Impressario. Next, they filed false documents with the AHA to ensure Stonewall Farms, not Plaintiffs, were credited for the breeding that produced RD Versaria.

The Court has considered the Defendants’ prior conduct, which involves the buying and selling of Mirajj and resulting deprivation of embryo rights to Demarteau; recklessly entering into a joint contract with Huggins which resulted in the deprivation of rights to Linderman and selling Pierce a horse that they did not own. Plaintiffs fell prey to Defendants’ pattern and practice of: concealing breeding rights during horse sales, concealing embryo transfers from interested parties, and manipulation of the AHA records process. Defendants failure to disclose material facts and attempt to cover-up their conduct was no innocent mistake. Rather it was a deliberate and knowing act intended to perpetuate a fraud and deceit. Accordingly, Defendants shall pay Plaintiffs $100,000.00 in punitive damages.

Accordingly, IT IS HEREBY ORDERED denying Defendants’ Motion to Dismiss (Doc. 97) || and granting Defendants’ Motion for Leave to File DVD (Doc. 98); 2 IT IS FURTHER ORDERED granting judgment for Plaintiffs and against || Defendants on counts two, three, four, five, six and eight of Plaintiffs’ complaint (Doc. 1- 4|| 1) and granting judgment in favor of Defendants on count one of the Plaintiffs’ complaint. ^[5] IT IS FURTHER ORDERED that Defendants shall pay damages to Plaintiffs in || the amount of $975,000.00 in compensatory damages; 7 IT IS FURTHER ORDERED that Defendants shall pay Plaintiffs $100,000.00 in 8 || punitive damages.

9 IT IS FINALLY ORDERED that the Clerk of Court shall kindly enter judgment || accordingly.

Dated this 30th day of August, 2019. fe □□ norable'Diang/4. Hunfetewa United States District Fudge