                                 IN THE
             ARIZONA COURT OF APPEALS
                             DIVISION ONE


       JTF AVIATION HOLDINGS INC, et al., Plaintiffs/Appellants,

                                    v.

           CLIFTONLARSONALLEN LLP, Defendant/Appellee.

                          No. 1 CA-CV 18-0530
                            FILED 7-2-2019


          Appeal from the Superior Court in Maricopa County
                         No. CV2017-003641
               The Honorable Daniel G. Martin, Judge

                               AFFIRMED


                                COUNSEL

Aiken, Schenk, Hawkins & Ricciardi, PC, Phoenix, AZ
By Joseph A. Schenk, Heather A. Macre
Co-Counsel for Plaintiffs/Appellants

Debus, Kazan & Westerhausen, LTD, Phoenix, AZ
By Larry Debus
Co-Counsel for Plaintiffs/Appellants

Moss & Barnett, PA, Minneapolis, MN
By Thomas J. Shroyer, Charles E. Jones, Taylor D. Sztainer, Joshua P. Oie
Co-Counsel for Defendant/Appellee

Renaud Cook Drury Mesaros PA, Phoenix, AZ
By John A. Klecan
Co-Counsel for Defendant/Appellee
                  JTF, et al. v. CLIFTONLARSONALLEN
                             Opinion of the Court



                                OPINION

Judge Jennifer M. Perkins delivered the opinion of the Court, in which
Presiding Judge Diane M. Johnsen and Judge Michael J. Brown joined.


P E R K I N S, Judge:

¶1            Jeremy T. Freer and JTF Aviation Holdings, Inc. (“JTF”),
appeal the superior court’s order that a contractual limitation period barred
their claims for professional negligence, negligent misrepresentation, and
breach of fiduciary duty. Because only our resolution of the applicability of
the contract limitation provision to Freer merits publication, we have
addressed Freer and JTF’s other arguments in a memorandum decision
filed concurrently with this opinion. See Ariz. R. Sup. Ct. 111(h). For the
following reasons, and for those reasons addressed in our memorandum
decision, we affirm.

           FACTUAL AND PROCEDURAL BACKGROUND

¶2           Freer is the founder, president, and sole shareholder of JTF. In
August 2013, CliftonLarsonAllen (“CLA”), a national accounting firm,
agreed to provide JTF with a billing, collection, and revenue-cycle analysis.
The scope of work was memorialized in an engagement letter dated August
15, 2013. On December 30, 2013, JTF and CLA entered into a second
engagement letter (the “December Engagement Letter”), which provided
that CLA would audit JTF’s consolidated financial statements and perform
other non-audit services. In the letter, JTF’s management agreed it would
be “responsible for the preparation and fair presentation of the financial
statements in accordance with [the United States generally accepted
accounting principles (“GAAP”)].”

¶3             The December Engagement Letter stated that “any Dispute
will be governed by the laws of the State of Minnesota, without giving effect
to choice of law principles” and included the following provision:

      The parties agree that, notwithstanding any statute or law of
      limitations that might otherwise apply to a Dispute, any
      action or legal proceeding by you against us must be
      commenced within twenty-four (24) months (‘Limitation
      Period’) after the date when we deliver our final audit report

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                  JTF, et al. v. CLIFTONLARSONALLEN
                             Opinion of the Court

       under this agreement to you, regardless of whether we do
       other services for you relating to the audit report, or you shall
       be forever barred from commencing a lawsuit or obtaining
       any legal or equitable relief or recovery. The Limitation
       Period applies and begins to run even if you have not suffered
       any damage or loss, or have not become aware of the
       existence or possible existence of a Dispute.

The letter defined “Dispute” as “[a]ny disagreement, controversy, or claim
. . . that may arise out of any aspect of [CLA’s] services or relationship with
[JTF].”

¶4            On February 3, 2014, CLA delivered its audit report for 2013
pursuant to the December Engagement Letter. The report was addressed to
“Shareholder,” i.e., Freer.

¶5            In June 2014, Vistria Group, LP (“Vistria”), through its
subsidiary Aviation West Charters, LLC, as purchaser, entered an Asset
Purchase Agreement with JTF, as seller, along with Freer, as JTF’s
shareholder, for the sale of substantially all of JTF’s assets for $80,000,000,
plus assumed liabilities. In the agreement, JTF warranted to Vistria that
JTF’s financial statements “were prepared in accordance with GAAP
consistently applied and present fairly the financial position and results of
operations.”

¶6             In September 2014, Vistria filed a complaint in Delaware state
court (the “Delaware Lawsuit”) against Freer, JTF, and JTF’s chief financial
officer, Richard Larson, alleging fraudulent inducement, breach of contract,
breach of warranty, breach of good faith and fair dealing, and civil
conspiracy. Vistria alleged the defendants fraudulently induced it to
purchase JTF at an inflated price because the company financial statements
on which it relied did not conform to GAAP. It asserted Freer and Larson
inflated JTF’s 2013 earnings before interest, taxes, depreciation, and
amortization (“EBITDA”) to $40,800,000, when in reality, JTF’s EBITDA
amounted only to $11,000,000.

¶7            In September 2016, Vistria settled its claims against Freer and
the other defendants in exchange for payment of $4,850,000.

¶8           On April 10, 2017, Freer and JTF sued CLA in Maricopa
County Superior Court, alleging that professional negligence, negligent
misrepresentation, and breach of fiduciary duty by CLA gave rise to the
claims against them in the Delaware Lawsuit. In its answer, CLA asserted


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                   JTF, et al. v. CLIFTONLARSONALLEN
                              Opinion of the Court

that applicable statutes of limitations and contractual limitations periods
barred the claims.

¶9            On cross-motions for summary judgment, the superior court
held that Freer was bound by the 24-month contractual limitations period
in the December Engagement Letter, and ruled the limitation provision
barred both plaintiffs’ claims. Freer and JTF timely appealed.

                                DISCUSSION

¶10            We review de novo the superior court’s grant of summary
judgment and application of the law. Andrews v. Blake, 205 Ariz. 236, 240,
¶ 12 (2003). Summary judgment is proper when no genuine issues of
material fact exist 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, 309–10 (1990).
We construe the facts and reasonable inferences in the light most favorable
to the opposing party. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement
Masons Local No. 395 Pension Tr. Fund, 201 Ariz. 474, 482, ¶ 13 (2002). “We
may affirm a summary judgment even if the trial court reached the right
result for the wrong reason.” See Guo v. Maricopa Cty. Med. Ctr., 196 Ariz.
11, 15, ¶ 16 (App. 1999).

¶11             “[T]he longstanding general rule” in Arizona is “that only
parties to a contract are subject to or may enforce its terms.” Sierra Tucson,
Inc. v. Bergin, 239 Ariz. 507, 510, ¶ 7 (App. 2016) (citation omitted). The
plaintiffs in Sierra Tucson were statutory beneficiaries of an estate who filed
a wrongful death action against a hospital with which the decedent had
signed a contract that contained a venue selection clause. Id. at 509–10,
¶¶ 2–3, 9. They had no control over contracts the decedent entered and no
reason to even know of the contract’s existence or terms. See id. at 510, ¶ 9.
Thus, consistent with the general rule, we held that the statutory
beneficiaries were not bound by the venue selection clause. See id.

¶12           In contrast, Freer’s claims arise from the December
Engagement Letter, by which JTF hired CLA to perform an audit in
anticipation of a planned sale of JTF’s assets. Freer is the sole shareholder,
president, and founder of JTF, and thus the beneficiary of that sale, with the
price to be negotiated based on the financial statements CLA was hired to
produce. Freer not only knew of the December Engagement Letter, he
signed the management representation verifying the financial information
JTF provided to CLA, and CLA relied on the accuracy of those financials in
performing its audit. Freer directly facilitated CLA’s performance of its
obligations for JTF under the letter, and those obligations are at the center

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                   JTF, et al. v. CLIFTONLARSONALLEN
                              Opinion of the Court

of his claims against CLA: that it misrepresented its expertise in the matters
for which JTF hired it and breached its fiduciary duty and duty of due care.
Thus, Freer’s relationship to the December Engagement Letter, his
knowledge of its terms, and the relationship of the obligations imposed by
the contract to his claim all distinguish the present case from the general
rule reiterated in Sierra Tucson.

¶13           The superior court held that in light of Freer’s role as founder,
president, and sole shareholder of JTF, he was bound by the limitations
provisions in the December Engagement Letter because his claims cannot
be adjudicated without analyzing whether CLA complied with that
contract. The court relied on Manila Indus., Inc. v. Ondova, Ltd. Co., 334 F.
App’x 821, 823 (9th Cir. 2009), which enforced a forum selection clause
against a non-party to an agreement because the plaintiff claimed rights
that were covered by the agreement and were “closely related” to it.

¶14             Federal courts have subjected a variety of individuals to
forum selection clauses under similar circumstances. See, e.g., Manetti-
Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 514 n.5 (9th Cir. 1988) (holding
that a non-signatory defendant was bound by a contractual forum selection
clause); see also Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190,
202–03 (3d Cir. 1983) abrogated on other grounds by Lauro Lines v. Chasser, 490
U.S. 495 (1989). In Manetti-Farrow, the plaintiff sued a number of
defendants, only one of which had signed the dealership agreement on
which the plaintiff’s claims were based. 858 F.2d at 511, 514 n.5. The plaintiff
argued the forum selection clause applied only to the lone defendant that
had signed the dealership contract. Id. The Ninth Circuit rejected the
plaintiff’s argument, reasoning that “a range of transaction participants,
parties and non-parties, should benefit from and be subject to forum
selection clauses.” Id. (quoting Clinton v. Janger, 583 F. Supp. 284, 290 (N.D.
Ill. 1984)). The court held that all the defendants were bound by the forum
selection clause because their conduct giving rise to the claims was “closely
related to the contractual relationship.” Id. This closely-related-party
doctrine, as other courts have recognized, requires application of
contractual obligations to non-signatories that are entangled with the
contract. See Magi XXI, Inc. v. Stato della Città del Vaticano, 714 F.3d 714, 723
(2d Cir. 2013) (holding non-signatory may enforce a contract when the non-
signatory is “closely related” to another signatory); Holland Am. Line Inc. v.
Wärtsilä N. Am., Inc., 485 F.3d 450, 456 (9th Cir. 2007) (“[W]here the alleged
conduct of the nonparties is closely related to the contractual relationship,
a range of transaction participants, parties and non-parties, should benefit
from and be subject to forum selection clauses.”) (internal quotation marks
omitted).

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                   JTF, et al. v. CLIFTONLARSONALLEN
                              Opinion of the Court

¶15            “In determining whether a non-signatory is closely related to
a contract, courts consider the non-signatory’s ownership of the signatory,
its involvement in the negotiations, the relationship between the two
parties and whether the non-signatory received a direct benefit from the
agreement.” Carlyle Inv. Mgmt. LLC v. Moonmouth Co. SA, 779 F.3d 214, 219
(3d Cir. 2015). Further, in considering whether to apply the closely-related-
party doctrine, a court must decide whether “enforcement of the clause by
or against the non-signatory would be foreseeable.” In re McGraw-Hill Glob.
Educ. Holdings LLC, 909 F.3d 48, 64 (3d Cir. 2018); see also Hugel v. Corporation
of Lloyd’s, 999 F.2d 206, 209 (7th Cir. 1993) (“In order to bind a non-party to
a forum selection clause, the party must be ‘closely related’ to the dispute
such that it becomes ‘foreseeable’ that it will be bound.”) (citing Manetti-
Farrow, Inc., 858 F.2d at 514 n.5).

¶16            Freer argues that Manetti-Farrow applies only to third-party
beneficiaries of the underlying contract. The reasoning of Manetti-Farrow
contains no such restriction. 858 F.2d at 514 n.5. And in a later decision, the
Seventh Circuit held that although third-party beneficiary status would be
sufficient to “satisfy the ‘closely related’ and ‘foreseeability’ requirements,”
a “closely related” party need not be a third-party beneficiary for the rule
to apply. Hugel, 999 F.2d at 209 n.7. We agree with the Seventh Circuit’s
analysis in Hugel that a non-signatory need not be a third-party beneficiary
to fall within a contract’s obligations under the closely-related-party
doctrine.

¶17            Arizona courts have not previously adopted the closely-
related-party doctrine. See Sierra Tucson, Inc., 239 Ariz. at 511–12, ¶¶ 17–19
(declining to extend the closely-related-party doctrine in Manetti-Farrow to
statutory estate beneficiaries). We agree with the Sierra Tucson court that the
closely-related-party doctrine was not applicable under those
circumstances, as discussed supra at ¶ 12. We hold, however, that under
appropriate circumstances, non-signatory transaction participants may
benefit from and be bound by contract terms when the non-signatories are
“closely related” to a signatory or the dispute. We agree with the reasoning
of the Second Circuit, Seventh Circuit, and Ninth Circuit, as described
supra, and note that several other states have adopted the closely-related-
party doctrine to promote efficient resolution of contract disputes. See, e.g.,
Titan Indemnity Co. v. Hood, 895 So.2d 138, 149, ¶ 52 (Miss. 2004) (binding
non-signatory transaction participants to a forum selection clause); Caperton
v. A.T. Massey Coal Co., Inc., 690 S.E.2d 322, 347 (W.Va. 2009) (adopting the
closely-related-party doctrine).



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                   JTF, et al. v. CLIFTONLARSONALLEN
                              Opinion of the Court

¶18            The closely-related-party doctrine applies here. Though
Manetti-Farrow, Hugel, and other closely-related-party doctrine cases
typically address forum selection clauses, the same reasoning applies to the
limitation provision in the December Engagement Letter. The limitation
provision, along with other terms of the December Engagement Letter,
promote efficient resolution of disputes while preserving an appropriate
avenue for dispute resolution. The application of the 24-month limitation
period to Freer’s claims arising out of the contractual relationship between
JTF and CLA would not have precluded Freer from pursuing those claims.
Instead, it merely required him to bring his claims within 24 months after
the completion of CLA’s report. For the reasons cited above, we conclude
that Freer is so “closely related” to the contract or its signatories that
enforcement of the contract terms was “foreseeable.” As the superior court
observed, Freer owns JTF and his claims against CLA arise out of and relate
directly to the December Engagement Letter between JTF and CLA. See
Carlyle Inv. Mgmt., 779 F.3d at 219 (“In determining whether a non-
signatory is closely related to a contract, courts consider [inter alia] the non-
signatory’s ownership of the signatory . . . .”).

¶19         By way of example, Freer’s negligent misrepresentation claim
alleged CLA misrepresented:

       (1) it was qualified and capable of performing an analysis of
       [JTF]’s historic collection and revenue percentages and
       converting [JTF] from a modified accrual basis of accounting
       to a full accrual basis; (2) it was qualified and capable of
       preparing complete and accurate draft 2013 financial
       statements and accompanying notes and adjusting journal
       entries; (3) it was qualified and capable of performing an
       independent and unbiased audit of [JTF]’s 2013 financial
       statements in compliance with U.S. GAAS [sic], despite
       having performed consulting services for [JTF] on the very
       same control systems and procedures that it would be
       auditing; (4) it was qualified and capable of detecting and
       reporting material misstatements in [JTF]’s financial
       statements and weaknesses in [JTF]’s bookkeeping and
       accounting practices; and (5) [JTF]’s 2013 audited financial
       statements had been prepared in accordance with GAAP.

Freer went on to allege that he “relied upon the false information . . . and
engaged CLA” to perform certain services.



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                  JTF, et al. v. CLIFTONLARSONALLEN
                             Opinion of the Court

¶20          In short, the crux of Freer’s allegations is that CLA negligently
misrepresented its qualifications and capabilities so that Freer and JTF
would engage CLA to perform the audit, and that CLA’s audit was not
prepared in accordance to GAAP. Tellingly, Freer alleged his claim against
CLA “stems from actions taken by CLA in performing audit and other
accounting work on behalf of its client, JTF.”

¶21           We hold that Freer’s allegations are closely related to the
contractual relationship between JTF and CLA. Moreover, enforcement of
the limitation provision was foreseeable to Freer because of his close
relationship to JTF and his involvement in the conduct of the contract.
Accordingly, Freer is bound by the terms of the December Engagement
Letter.

                              CONCLUSION

¶22       For the foregoing reasons and those in our related
memorandum decision, we affirm entry of judgment against Freer.




                          AMY M. WOOD • Clerk of the Court
                          FILED: AA




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