                     NOTICE: NOT FOR OFFICIAL PUBLICATION.
 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                 AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.




                                    IN THE
             ARIZONA COURT OF APPEALS
                                DIVISION ONE


    DENNIS HANKERSON, individually and as Trustee of the D.P.
    Equipment Marketing Inc. Profit Sharing Plan, Plaintiff/Appellant,

                                        v.

WILLIAM (BILL) HANKERSON and RITA HANKERSON, husband and
wife; and HANKERSON MANAGEMENT COMPANY, LLC, an Arizona
            limited liability company, Defendants/Appellees.

                             No. 1 CA-CV 15-0109
                               FILED 5-10-2016


           Appeal from the Superior Court in Maricopa County
                          No. CV2013-001790
                  The Honorable Mark H. Brain, Judge

   AFFIRMED IN PART, REVERSED IN PART, AND REMANDED


                                   COUNSEL

Broening Oberg Woods & Wilson, PC, Phoenix
By Richard E. Chambliss, Kevin R. Myer
Counsel for Plaintiff/Appellant

Mitchell & Associates, Phoenix
By Robert D. Mitchell, Megan R. Jury, Sarah K. Deutsch
Counsel for Defendants/Appellees
                  HANKERSON v. HANKERSON, et al.
                       Decision of the Court



                     MEMORANDUM DECISION

Presiding Judge Kent E. Cattani delivered the decision of the Court, in
which Judge Samuel A. Thumma and Judge Randall M. Howe joined.


C A T T A N I, Judge:

¶1            Dennis Hankerson (“Dennis”), acting individually and as
trustee of the D.P. Equipment Marketing Inc. Profit Sharing Plan, appeals
from the superior court’s entry of summary judgment in favor of his brother
William Hankerson (“Bill”), Bill’s wife Rita Hankerson, and the Hankerson
Management Company, LLC (“HMC”), in a case involving the brothers’
respective roles and interests in two oil-and-gas investment ventures:
Jackpot Oil (“Jackpot”) and Two Deuces Oil & Gas (“Two Deuces”).1 For
reasons that follow, we affirm summary judgment regarding Bill’s use of a
promissory note as his capital contribution to Two Deuces, reverse
summary judgment regarding HMC’s allocation of alleged sales expenses,
vacate the award of expert accounting fees, and remand for further
proceedings.

             FACTS AND PROCEDURAL BACKGROUND

¶2             In mid-1989 Bill formed and became the managing general
partner of Jackpot, a limited partnership. Dennis, along with other
investors, joined Jackpot as a limited partner. Dennis made initial capital
contributions (part cash, part in the form of promissory notes) under the
terms of subscription agreements, through which he also agreed to the
terms of the limited partnership agreement. The terms of the agreement
required Bill to make a capital contribution as managing general partner,
although the form of the contribution was not specified.

¶3            In early 1991, Bill formed and became the managing general
partner of Two Deuces, similarly a limited partnership. As with Jackpot,
Dennis and other investors joined as limited partners. Dennis made initial
capital contributions (a portion in cash and the balance through promissory
notes), and he agreed to the terms of Two Deuces’ limited partnership


1      We refer to Dennis Hankerson and Bill Hankerson by their first
names to avoid confusion. References to Dennis are to him acting
individually and on behalf of his profit-sharing plan.

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                  HANKERSON v. HANKERSON, et al.
                       Decision of the Court

agreement. Bill executed an interest-bearing promissory note for $18,787.88
(the “Promissory Note”) as a capital contribution to establish his managing
general partner’s interest in the partnership.

¶4            In early 1995, Bill converted the Jackpot and Two Deuces
partnerships into limited liability companies. At the same time, HMC was
substituted for Bill as manager of Jackpot LLC and Two Deuces LLC, and
HMC acquired and assumed all of the rights and obligations Bill formerly
held as managing general partner of the limited partnerships. Dennis
agreed to the conversion and signed the companies’ operating agreements,
thus becoming a member of the two new LLCs.

¶5            In November 2007, HMC paid Two Deuces $72,763.42 on the
Promissory Note, an amount based on HMC’s calculation of principal plus
over $50,000 in accrued interest.

¶6            In mid-2008, HMC sold Jackpot’s and Two Deuces’ oil and
gas reserves, and Dennis and the other investors sold their membership
interests in the two LLCs, receiving a substantial return on their initial
investments. In the course of reconciling the sales of the ventures, HMC
prepared documents captioned “Reconciliation of Sale and Final
Distributions” for both Jackpot and Two Deuces. Both documents detailed
“Costs Incurred after effective date but allocable to cost of Sale,” with the
amounts totaling $34,622.17 for Jackpot and $68,881.93 for Two Deuces (the
“Disputed Costs”).

¶7            In 2013, Dennis filed the instant lawsuit, asserting claims for
breach of fiduciary duty, constructive fraud, breach of contract, breach of
the covenant of good faith and fair dealing, and negligence. The claims
stemmed from (1) allegedly improper distributions from Two Deuces to Bill
and HMC totaling almost $4 million, based on the contention that Bill’s
capital contribution in the form of the Promissory Note rather than cash
was impermissible, and (2) allegedly improper allocation of the Disputed
Costs to LLC members, based on the contention that the operating
agreements required that “[s]ales expenses of any kind” be allocated to the
manager alone. Dennis alleged that his share of the improper distributions
was almost $225,000, and that his share of the Disputed Costs was
approximately $6,700.2



2     This is the third lawsuit between the parties arising out of these two
oi-and-gas investment ventures. In the first two suits, Dennis sought access



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                   HANKERSON v. HANKERSON, et al.
                        Decision of the Court

¶8           The parties filed cross motions for partial summary judgment
on the Disputed Costs issue based on their competing interpretations of the
“sales expenses” provision, and Bill and HMC moved for partial summary
judgment on all other claims asserting (among other grounds) that the
Promissory Note was a permissible capital contribution. The superior court
granted summary judgment in favor of HMC and Bill on all claims.

¶9             In addition to awarding attorney’s fees, the superior court
awarded HMC and Bill costs, including both taxable costs and $30,805 in
expert accounting fees “pursuant to the operating agreement.” The court
entered final judgment to that effect, and Dennis timely appealed. We have
jurisdiction under Arizona Revised Statutes (“A.R.S.”) § 12-2101(A)(1).3

                               DISCUSSION

I.     Summary Judgment.

¶10           Summary judgment is proper if there are no genuine issues of
material fact and the moving party is entitled to judgment as a matter of
law. Ariz. R. Civ. P. 56(a); Orme Sch. v. Reeves, 166 Ariz. 301, 305 (1990). We
review the grant of summary judgment de novo, viewing the facts in the
light most favorable to the party against which judgment was entered.
Wells Fargo Bank, N.A. v. Allen, 231 Ariz. 209, 213, ¶ 14 (App. 2012). Both of
the superior court’s rulings that Dennis challenges on appeal involved
matters of contract interpretation, which we review de novo. See Miller v.
Hehlen, 209 Ariz. 462, 465, ¶ 5 (App. 2005).

¶11           The cornerstone of contract interpretation is determining and
enforcing the parties’ intent, considering the contract as a whole and
avoiding, if possible, a construction that renders part of the contract
superfluous. Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 153, 158
n.9 (1993); ELM Ret. Ctr., LP v. Callaway, 226 Ariz. 287, 291, ¶ 18 (App. 2010).
To ascertain the parties’ intent, the court begins with the plain language of
the contract. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9


to the companies’ books and records. See generally Hankerson v. Hankerson
Mgmt. Co., LLC, 1 CA-CV 12-0239, 2013 WL 1319885 (Ariz. App. Apr. 2,
2013) (mem. decision); Hankerson v. Hankerson Mgmt. Co., Inc., 1 CA-CV 08-
0753, 2009 WL 3835290 (Ariz. App. Nov. 17, 2009) (mem. decision). The
other members have not joined in any of Dennis’s claims against Bill.

3     Absent material revision after the relevant date, we cite a statute’s
current version.

                                       4
                   HANKERSON v. HANKERSON, et al.
                        Decision of the Court

(App. 2009). Because “[t]he meaning that appears plain and unambiguous
on the first reading of a document may not appear nearly so plain” in light
of surrounding circumstances, the court may consider extrinsic evidence to
determine the intended meaning if the contract’s language is “reasonably
susceptible” to the proposed interpretation. Taylor, 175 Ariz. at 154.
Whether the contract is reasonably susceptible to multiple interpretations
based on extrinsic evidence is a question of law for the court. In re Estate of
Lamparella, 210 Ariz. 246, 250, ¶ 21 (App. 2005) (as amended). The final
construction of an ambiguous contract term, however, is a question of fact
for the jury. Pasco Indus., Inc. v. Talco Recycling, Inc., 195 Ariz. 50, 62, ¶ 52
(App. 1998).

       A.     Promissory Note.

¶12           Dennis argues that disputed issues of fact should have
precluded summary judgment on his claims premised on his allegation that
the Two Deuces partnership (and operating) agreement did not permit a
managing general partner’s capital contribution in the form of a promissory
note. Dennis alleged that Bill had received “[i]mproper distribution[s] . . .
for his unpaid ‘subscription receivable[’] in Two Deuces.” The theory
Dennis presented disputed the propriety of using a promissory note as the
manager’s contribution at all, and he asserted that the unpaid Promissory
Note effectively left the contribution outstanding and unpaid, such that the
distributions Bill received should instead have been allocated to the paying
partners/members.

¶13            The Two Deuces partnership agreement required the
managing general partner to “make contributions to the capital of the
Partnership with respect to his Managing General Partner’s interest in the
Partnership such that his contribution equals 1 % of the total contributions
(including his contribution).” Unlike the provision governing investors’
initial capital contributions—which specified payment partially in cash
upon subscription and partially “by execution of an interest bearing
installment promissory note calling for monthly installments” until paid in
full—the agreement did not specify a particular form or a particular
deadline for the managing general partner’s contribution.4



4      The relevant provisions under the Two Deuces operating agreement
similarly required the manager to “make contributions to the capital of the
Company with respect to its Manager’s interest in the Company such that
its contribution equals 1% of the total contributions (including its



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                  HANKERSON v. HANKERSON, et al.
                       Decision of the Court

¶14           By not specifying a form of contribution, the agreement
essentially authorized the managing general partner to contribute in any
form authorized under Arizona law, which specifically allows partners’
contributions in the form of “a promissory note or other obligation to
contribute cash or property or to perform services.” A.R.S. § 29-327; see also
A.R.S. § 29-701(a) (authorizing issuance of an interest in an LLC “in
exchange for a capital contribution or an enforceable promise to make a
capital contribution in the future, or both”). And allowing the managing
general partner to make his contribution by means of a promissory note
was also consistent with the agreement’s terms contemplating that a
portion of the investors’ contributions would be through promissory notes.

¶15           Dennis asserts that, because the partnership agreement
defined “Partnership Capital” as the “aggregate cash contributed,” the
managing general partner’s contribution was required to be in cash as well.
But the definition of “Partnership Capital” does not necessarily dictate the
permissible form or method through which a partner may satisfy his
contribution, particularly where (as here) a specific provision detailed
requirements for the form of investors’ contributions. Moreover, even
assuming this definition did apply to the capital contribution provisions, it
would simply contemplate some (not necessarily all) cash contributions,
which is consistent with the requirement that the investor partners
contribute cash along with a promissory note, regardless of the form of the
managing general partner’s contribution.

¶16           Dennis further contends that, because the agreement defines
“Capital Contributions” as “money or property” contributed by the
partners, the managing general partner’s contribution cannot take the form
of a promissory note. But the agreement specifically authorized—and
required—the investors’ initial capital contributions to be (in part) in the
form of promissory notes. Reading these terms so as to harmonize them,
see ELM Ret. Ctr., 226 Ariz. at 291, ¶ 18, a promissory note is necessarily
within the ambit of “money or property” contemplated by the definition.
Accordingly, the partnership agreement did not prohibit capital
contributions in the form of a promissory note.

¶17           Dennis also asserts that the disparate terms as between the
investors’ promissory notes (required to be an “interest bearing installment


contribution).” The members’ initial capital contributions that had been
“paid or conveyed to the Company” were described as “cash and a
Promissory Note in the aggregate amount set forth in the Subscription
Agreement.”

                                      6
                   HANKERSON v. HANKERSON, et al.
                        Decision of the Court

promissory note calling for monthly installments” for six months until paid
in full) and Bill’s Promissory Note (payable on demand but without any
other specified due date or payment schedule) create an issue of fact as to
breach of fiduciary duty that itself should have precluded summary
judgment. But Dennis did not assert this theory before the superior court,
and we decline to address it for the first time on appeal. See Dillig v. Fisher,
142 Ariz. 47, 51 (App. 1984); see also Trantor v. Fredrikson, 179 Ariz. 299, 300
(1994).

¶18            Dennis’s fiduciary duty claim—both as asserted in his
complaint and as later described in his disclosure statement—was not
based on the differences between the parties’ promissory notes, but rather
on “improper . . . distributions” due to Bill’s alleged failure to make a
permissible capital contribution. Dennis did not raise the disparate terms
until his response to HMC and Bill’s motion for partial summary judgment,
and even then he did so only in with regard to the applicability of the
economic loss rule, a different asserted basis for summary judgment. His
argument with regard to the basis for summary judgment relevant here
continued to be premised on the theory that the Promissory Note was an
impermissible form of contribution. Accordingly, we decline to consider
Dennis’s new theory relating to an alleged breach of fiduciary duty, and
Dennis has not shown that the superior court erred by entering summary
judgment based on the Promissory Note.

       B.     Sales Expenses.

¶19           Dennis asserts that the superior court erred by granting
summary judgment in favor of HMC on his claims related to an alleged
misallocation of sales expenses. Dennis’s complaint asserted that HMC had
incorrectly apportioned final expenses from the sale of the companies’
assets (the Disputed Costs categorized as “Costs Incurred after effective
date but allocable to cost of Sale” in an internal reconciliation document
prepared by each company) by charging the expenses to the members of
the LLCs rather than bearing the full cost itself.

¶20          Section 5.6.7 of Jackpot and Two Deuces’ identical operating
agreements provides that “Sales expenses of any kind shall be borne by the
Manager.” In granting summary judgment in favor of HMC and Bill, the
superior court reasoned that “sales expenses of any kind” could not
reasonably be read to include expenses relating to the sale of the companies’
assets. But the provision itself reflects no such limitation and instead is
written expansively to encompass “any kind” of sales expenses and,




                                       7
                   HANKERSON v. HANKERSON, et al.
                        Decision of the Court

perhaps, any kind of sale.        Thus, Dennis’s interpretation was not
unreasonable on its face.

¶21           HMC and Bill argue that both the structure and terms of the
operating agreements as well as extrinsic evidence show that this provision
allocating all “Sales Expenses” to the manager refers only to expenses
incurred in connection with the initial offering of interests in Jackpot and
Two Deuces in 1989 and 1991, respectively, not to any other “sales.” They
contend that the term “sales expenses” as used in Section 5.6.7 is defined
and limited by Section 5.1.7, a provision in the definitions portion of Section
5 of the operating agreement defining “Certain Selling Expenses” as
“Selling expenses paid for services in connection with and expenses of the
Distribution of the Offering all to be borne by Manager.”

¶22           As an initial matter, the two provisions use strikingly
different language of scope. Section 5.1.7 refers to “Certain Selling
Expenses,” suggesting that the agreement elsewhere contemplated other
selling expenses beyond those related to the initial offering. Section 5.6.7,
in contrast, uses expansive language to encompass sales expenses “of any
kind.” Although not dispositive on summary judgment, the language
indicates a different apparent scope, suggesting Section 5.6.7 may include
expenses beyond those contemplated by Section 5.1.7.

¶23            As HMC and Bill point out, however, the term “Certain
Selling Expenses” is not used elsewhere in Section 5, so if the term does not
apply to “Sales Expenses” under Section 5.6.7, it would arguably be
rendered superfluous. But Section 5.1.7 does more than simply define
“Certain Selling Expenses.” Although listed in a definitions section, it
includes a substantive clause mandating that these expenses relating to the
initial offering are “all to be borne by Manager.” Because Section 5.6.7 also
provides that the sales expenses “shall be borne by the Manager,” Section
5.6.7 would be unnecessary if it refers only to the same expenses as Section
5.1.7. Each alternative interpretation thus creates a form of surplusage,
while avoiding the form created by the other interpretation. See ELM Ret.
Ctr., 226 Ariz. at 291, ¶ 18.

¶24            HMC and Bill posit that the structure of Section 5 is such that
the definitions are set forth in the same order as the substantive allocation
provisions; that is, the definition in Section 5.1.1 corresponds to the
substantive provision in Section 5.6.1 (Operating Costs), and the definition
of “Certain Selling Expenses” in Section 5.1.7 should thus correspond to the
substantive provision of “Sales Expenses” under Section 5.6.7. But not all
of the definitions and substantive allocation terms actually correspond in


                                      8
                   HANKERSON v. HANKERSON, et al.
                        Decision of the Court

that manner. While potentially persuasive, this structural argument is not
enough to establish that HMC and Bill’s interpretation is correct as a matter
of law.

¶25           HMC and Bill further reference the initial offering documents,
in which a summary chart lists “Selling Expenses” only within the
partnership’s organizational stage (relevant to the initial offering), not
during the operational stage (as would be relevant to sale of assets). But
the next summary chart in the same document lists “Organization and
Offering Costs” separately from “Sales Commission and Expenses,”
allocating both to the managing general partner alone. At most, the
organization documents lend credence to Bill’s proposed interpretation,
but do not form a basis for adopting HMC and Bill’s version as a matter of
law.

¶26           Although the superior court correctly concluded that the sales
expenses terms was reasonably susceptible to HMC and Bill’s alternative
interpretation, see Taylor, 175 Ariz. at 153, the court erred by concluding as
a matter of law that Dennis’s interpretation was unreasonable. Because the
parties both presented plausible interpretations of the sales expenses term,
the construction of the term is a question of fact for the fact-finder, see Pasco
Indus., 195 Ariz. at 62, ¶ 52, and the court erred by entering summary
judgment on this basis.5

II.    Expert Accounting Fees.

¶27            Finally, Dennis argues that the superior court erred by
assessing expert accounting fees as “costs” awarded to HMC and Bill. We
generally review the court’s determination and calculation of costs for an
abuse of discretion. Berry v. 352 E. Virginia, L.L.C., 228 Ariz. 9, 15, ¶ 31 (App.
2011). We review matters of contract interpretation de novo. Miller, 209
Ariz. at 465, ¶ 5.

¶28            At HMC and Bill’s request, the superior court awarded them
costs that included $30,805 in expert accounting fees, ostensibly “pursuant
to the operating agreement.” The identical operating agreements for


5      HMC and Bill further argue that only a small portion of the Disputed
Costs were in fact related to a “sale” of any kind, and that most were
actually subject to allocation as direct costs, continuing management fees,
and operating costs instead. Our ruling does not address classification of
the Disputed Costs, and we defer to the superior court to address any such
argument on remand.

                                        9
                   HANKERSON v. HANKERSON, et al.
                        Decision of the Court

Jackpot and Two Deuces included indemnification provisions providing
that:

       the Company shall indemnify the Manager or such other
       person [shareholder, director, officer, or employee of the
       Manager] against expenses, including, without limitation,
       attorneys’ and accountants’ fees . . . reasonably incurred by
       the Manager or such other person in connection with
       [litigation related to the company].

¶29           Dennis argues that the award was improper because expert
fees do not qualify as taxable costs under A.R.S. § 12-332, and Bill and HMC
agree that the expert fees were awarded under contract, not as taxable costs.
Dennis further asserts that the terms of the operating agreement(s) did not
authorize the award. We agree.

¶30           The indemnification provisions are not fee-shifting provisions
as between the parties to litigation regarding Jackpot and Two Deuces.
Rather, by their terms, the operating agreements bind only “the Company”
(Jackpot or Two Deuces)—not an adverse litigant—to indemnify the
company’s manager (HMC). Although Dennis agreed to the terms of the
operating agreements, those terms provide for the companies, not an
individual member, to indemnify the manager for litigation expenses.
Accordingly, we vacate the portion of the cost award representing expert
accounting fees in the amount of $30,805.

III.   Attorney’s Fees on Appeal.

¶31            Both Dennis and HMC/Bill request an award of attorney’s
fees on appeal under § 12-341.01, and both sides agree that all of the claims
at issue arise out of contract. In an exercise of our discretion, and in light of
each side’s partial success on the merits, we decline both requests for fees.




                                       10
                  HANKERSON v. HANKERSON, et al.
                       Decision of the Court

                             CONCLUSION

¶32          For the foregoing reasons, we affirm the judgment in part, but
reverse summary judgment regarding sales expenses, vacate the award of
expert accounting fees, and remand for further proceedings.




                                 :ama




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