Valer C. Austin v. Josiah T. Austin

IN THE

ARIZONA COURT OF APPEALS

DIVISION TWO

VALER C. AUSTIN,

Petitioner/Defendant/Appellee,

VALERIE A. GORDON,

Defendant/Cross-Claimant/Appellee,

ALBERT H. GORDON III,

Defendant/Cross-Claimant/Appellee,

v.

JOSIAH T. AUSTIN,

Respondent/Plaintiff/Cross-Defendant/Appellant.

No. 2 CA-CV 2014-0134

Filed April 30, 2015

Appeal from the Superior Court in Pima County

Nos. D20134007 and C20140235 (Consolidated)

The Honorable Dean Christoffel, Judge Pro Tempore

AFFIRMED

COUNSEL

DePasquale & Schmidt, PLC

By Paul G. Schmidt and Mark DePasquale, Phoenix

The McCarthy Law Firm, P.L.L.C.

By Kathleen A. McCarthy, Tucson

Counsel for Petitioner/Defendant/Appellee Valer C. Austin

AUSTIN v. AUSTIN

Opinion of the Court

Snell & Wilmer L.L.P.

By Kevin J. Parker, Phoenix

Counsel for Defendant/Cross-Claimant/Appellee Valerie A. Gordon

Russell B. Stowers, PLLC

By Russell B. Stowers, Tucson

Counsel for Defendant/Cross-Claimant/Appellee Albert H. Gordon III

Gabroy, Rollman & Bossé, P.C.

By Richard M. Rollman and Richard A. Brown, Tucson

Counsel for Respondent/Plaintiff/Cross-Defendant/Appellant Josiah T.

Austin

OPINION

Presiding Judge Miller authored the decision of the Court, in which

Chief Judge Eckerstrom and Judge Espinosa concurred.

M I L L E R, Judge:

¶1 Josiah Austin appeals from the trial court’s judgment

denying his motion to compel arbitration. For the following reasons,

we affirm.

Factual and Procedural Background

¶2 In reviewing a denial of a motion to compel arbitration,

we must defer to the trial court’s factual findings unless clearly

erroneous. Harrington v. Pulte Home Corp., 211 Ariz. 241, ¶¶ 8, 16,

119 P.3d 1044, 1048, 1049-50 (App. 2005). None of the parties

directly challenges the court’s factual findings under this standard.1

1We note, however, that Josiah, for the first time in his reply

brief, alleges several of the trial court’s factual findings are clearly

erroneous. But “[w]e will not consider arguments made for the first

time in a reply brief.” Dawson v. Withycombe, 216 Ariz. 84, ¶ 91, 163

P.3d 1034, 1061 (App. 2007).

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AUSTIN v. AUSTIN

Opinion of the Court

Given the complex nature of the underlying property transactions in

the case before us, a detailed review of the factual background is

necessary.

¶3 Josiah and Valer Austin were married in 1982. Valer

has two children by a previous marriage (hereinafter “children”).

Valer had inherited substantial property before her marriage to

Josiah. Early in the marriage, Valer agreed to Josiah’s management

of a portion of her assets with the understanding that the majority of

the assets would continue to be managed by third parties and

monitored by Josiah.

¶4 Valer, in her estate planning, wished to ensure that

certain of her property would be transferred to the children at

specific future dates. Accordingly, in November 1987, Valer created

two Grantor Retained Income Trusts (GRITs)2 for the benefit of her

children. The Valer C. Austin Trust I dated November 19, 1987

(Valer GRIT) was created as an irrevocable trust for a period of 15

years, with the children designated as the beneficiaries, and was

funded by Valer’s separate property. The Josiah Austin Trust I

dated December 17, 1987 (Josiah GRIT) was created as an irrevocable

trust for a period of 20 years with the children designated as the

beneficiaries. Although Josiah was shown as the grantor of the

assets in the Josiah GRIT, those assets too were derived from Valer’s

separate property.

¶5 In 1996, Josiah was appointed trustee of the GRITs and,

in 1997, El Coronado Holdings, LLC (ECH) was formed. The 1997

ECH operating agreement shows the initial members as Josiah,

Valer, the Josiah GRIT, and the Valer GRIT. Directly pertinent

provisions of the 1997 operating agreement include:

2“The GRIT is a variation on the inter vivos gift, which has

long been used by taxpayers as an estate-planning strategy designed

to reduce transfer-tax liability.” Mitchell M. Gans, GRIT’s, GRAT’s

and GRUT’s: Planning and Policy, 11 Va. Tax Rev. 761, 763 (1992).

The GRIT was recognized in the 1980s as a particularly attractive

method by which to effect an inter vivos gift and was therefore one

of the most popular estate-planning strategies. See id.

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Opinion of the Court

a. Josiah was designated as the sole

manager with absolute, exclusive

authority, power, and discretion to act

on behalf of ECH, which provided Valer

with no authority or control over the

assets transferred into ECH.

b. Josiah’s removal as manager required

the affirmative vote of members holding

two-thirds of the ownership interests,

which, given the size of holding

attributable to Josiah under the

agreement, made it impossible for Valer

or any other member to remove Josiah

without his consent.

c. Withdrawal by a member constituted a

breach of the 1997 operating agreement,

permitting ECH to recover damages as

an offset against any amount

distributable to the withdrawing

member. The amount of damages was

determined in the Manager’s sole

discretion.

d. Josiah had the sole power to determine

whether distributions would be made to

members and, if so made, whether or

not it would be distributed on a pro-rata

basis.

e. All disputes among members were to be

arbitrated if they could not be resolved

through mediation.

¶6 Josiah and Valer signed the 1997 operating agreement in

August 1997. Valer testified she had signed the 1997 operating

agreement without reading it and without knowing it contained an

arbitration provision. Josiah testified it was possible he only gave

the signature page of the 1997 operating agreement to Valer and told

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Opinion of the Court

her to sign it. Valer testified she had not seen the 1997 operating

agreement before she signed it and it was her practice to trust her

husband as to signing what he put in front of her. Valer was not

advised about the operating agreement, its arbitration clause, or its

effect on her rights or property.

¶7 In January 2000, Valer signed a document creating the

Austin Family Revocable Trust. Valer was not advised that the

family trust document might transmute her sole and separate

property into community property, nor was she advised of the

significant effects of transmuting sole and separate property to

community property in the event of a divorce. The family trust

document did not describe which assets would be transferred into

that trust nor was Valer so advised. As of August 1997, the value of

Valer’s separate property brokerage account, which Josiah had

transferred into ECH, was valued at approximately $58 million.

¶8 In April 2005, Josiah provided Valer with the signature

page for an Amended and Restated Operating Agreement for ECH

effective April 16, 2005 (2005 operating agreement). Valer was not

provided the text of the rest of the 2005 operating agreement and

signed it based on Josiah’s direction. The 2005 operating agreement

amended the members of ECH to include: the Austin Family

Revocable Trust, the Josiah GRIT, and the Valer GRIT. In the 2005

operating agreement, Josiah was once again designated as the sole

manager of ECH, and a vote of ninety percent of the ECH members

was required to remove him as manager.

¶9 In November 2013, Valer filed a petition for dissolution

of marriage from Josiah. Soon after, Valer moved for joinder of the

children as additional parties necessary to resolve disputes

regarding the management of ECH.3 In January 2014, Josiah filed a

3 Valer also moved to join the Chisos Trust and Hanu

Holdings, LLC as members of ECH. In 2010, the Chisos Trust was

funded with assets previously held in the Josiah GRIT and was

created to hold assets in trust for the children’s lifetimes. Chisos

Trust included Chisos 1 and Chisos 2. In December 2010, the

entirety of the membership interest of Chisos 2 in ECH was

transferred to Hanu Holdings, LLC.

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Opinion of the Court

civil complaint against Valer and the children seeking to compel

arbitration of the ECH dispute. The trial court granted Valer’s

motion to join the children as necessary parties as well as her motion

to consolidate Josiah’s civil case with the dissolution proceeding. In

March 2014, the children filed a cross-claim against Josiah. In

response, Josiah moved to compel the children to arbitrate their

cross-claims.

¶10 After a two-day evidentiary hearing the trial court

issued an under advisement ruling and signed order denying

Josiah’s motions to compel arbitration. Josiah timely filed this notice

of appeal, and we have jurisdiction pursuant to A.R.S.

§ 12-2101.01(A)(1).

Valer’s Claims

¶11 Josiah argues the trial court erred when it improperly

applied the heightened standards of In re Harber’s Estate, 104 Ariz.

79, 449 P.2d 7 (1969), instead of ordinary contract principles in its

analysis of the arbitration agreement, as it concerned Valer and him.

Our review of this issue is de novo. Smith v. Pinnamaneni, 227 Ariz.

170, ¶ 7, 254 P.3d 409, 412 (App. 2011).

¶12 Although public policy supports arbitration

agreements, “‘[o]nly when the arbitration provision is enforceable

will the court compel arbitration.’” WB, The Building Company, LLC

v. El Destino, LP, 227 Ariz. 302, ¶ 11, 257 P.3d 1182, 1186 (App. 2011),

quoting Stevens/Leinweber/Sullens, Inc. v. Holm Dev. & Mgmt., Inc., 165

Ariz. 25, 30, 795 P.2d 1308, 1313 (App. 1990) (alteration in WB). An

arbitration provision is not valid or enforceable where “a ground

exists . . . at law or in equity for the revocation of a contract.” A.R.S.

§ 12-3006(A). Generally, “[l]egal or equitable grounds for revoking

any contract include allegations that ‘the contract is void for lack of

mutual consent, consideration or capacity or voidable for fraud,

duress, lack of capacity, mistake or violation of a public purpose.’”

Stevens/Leinweber/Sullens, 165 Ariz. at 28-29, 795 P.2d at 1311-12,

quoting U.S. Insulation v. Hilro Const. Co., 146 Ariz. 250, 253, 705 P.2d

490, 493 (App. 1985).

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Opinion of the Court

¶13 In Harber’s Estate, a husband and wife entered into a

postnuptial agreement, not incident to or in contemplation of

separation or divorce, which provided all property not otherwise

described therein was to become the sole property of husband. See

104 Ariz. at 84, 449 P.2d at 12. Our supreme court concluded that

marital partners may “validly divide their property presently and

prospectively by a post-nuptial agreement” but such an agreement

must include built-in safeguards to ensure the agreement is “free

from any taint of fraud, coercion or undue influence; that the wife

acted with full knowledge of the property involved and her rights

therein, and that the settlement was fair and equitable.” Id. at 88,

449 P.2d at 16. Accordingly, although “all contracts or agreements

between husband and wife in Arizona are [not] presumptively void

or fraudulent,” our supreme court held that spouses may enter a

contract to divide their property outside a divorce or separation, but

that when such a postnuptial agreement is

attacked by a wife on the grounds that the

transaction was fraudulent or coerced, or is

inequitable and unfair, the wife may have a

judicial determination at that time whether

the agreement is invalid as to her, and that

it is the husband’s burden to prove by clear

and convincing evidence that the

agreement was not fraudulent or coerced,

or that it was not unfair or inequitable.[4]

Id.

¶14 We therefore examine whether the ECH operating

agreement is a postnuptial agreement governed by the principles

outlined in Harber’s Estate. A postnuptial agreement is defined as

4 Although Harber’s Estate employs antiquated language

indicative of its time, the principle applied therein—that the

relationship between spouses is confidential and fiduciary—is still

applicable today. See 104 Ariz. at 88, 449 P.2d at 16; Gerow v. Covill,

192 Ariz. 9, ¶ 40, 960 P.2d 55, 64 (App. 1998) (holding that fiduciary

relationship exists between spouses).

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“[a]n agreement entered into during marriage to define each

spouse’s property rights in the event of death or divorce.” Black’s

Law Dictionary 1356 (10th ed. 2014).

¶15 Both the ECH 1997 operating agreement and the 2005

operating agreement, as well as the arbitration clauses, were made

between Josiah and Valer while husband and wife. ECH was

created to allow the Austins to obtain discounts on the valuation of

the LLC assets and tax savings for the surviving spouse when either

Josiah or Valer died, or for Valer’s children when one or both of

them passed. As the trial court found, the operating agreements

placed “severe and permanent” limitations on Valer’s property

rights and resulted in a significant transfer of authority to Josiah,

such that the operating agreements affected Valer’s property rights

“to the same or greater extent than would a post-nuptial property

settlement agreement.”

¶16 Josiah argues that Harber’s Estate is limited only to

postnuptial property division agreements and “should not be

extended to all business agreements between spouses.” But Josiah’s

attempt to characterize the ECH operating agreements as arm’s-

length business transactions between spouses is unavailing.

Substantial evidence supports the trial court’s finding that the net

effect of the operating agreements was to place permanent and

significant limitations on Valer’s property rights, arguably including

the transformation of separate property to community property. 5

Despite the sophistication of the legal instruments employed, the

impact of the operating agreements was no less severe than a more

traditional postnuptial property division agreement.

5Josiah asserted at oral argument that the documents did not

automatically transform Valer’s separate property to community

property. But he qualified this assertion with the limitation that the

trial court would decide later if some or all of her separate property

was transformed, presumably on the basis of the subject documents.

This distinction in timing does not constitute a meaningful

difference.

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Opinion of the Court

¶17 Josiah correctly observes that all subsequent Arizona

cases applying the requirements outlined in Harber’s Estate have

been applied to marital property division agreements. See Wick v.

Wick, 107 Ariz. 382, 384-85, 489 P.2d 19, 21-22 (1971); Breitbart-Napp

v. Napp, 216 Ariz. 74, 76, 163 P.3d 1024, 1026 (App. 2007); Sharp v.

Sharp, 179 Ariz. 205, 207, 877 P.2d 304, 306 (App. 1994); Keller v.

Keller, 137 Ariz. 447, 448, 671 P.2d 425, 426 (App. 1983). But Josiah

points to no authority, and we are aware of none, that precludes

application of Harber’s Estate to the facts before us. Unlike the

agreements at issue in the cases cited by Josiah, both the postnuptial

agreement in Harber’s Estate and the operating agreements between

Josiah and Valer were made at a time when separation or divorce

was not imminent or contemplated. See Harber’s Estate, 104 Ariz. at

84, 449 P.2d at 12.

¶18 Josiah also relies on Bell-Kilbourn v. Bell-Kilbourn, 216

Ariz. 521, ¶¶ 8-11, 169 P.3d 111, 113-14 (App. 2007), and Bender v.

Bender, 123 Ariz. 90, 94, 597 P.2d 993, 997 (App. 1979), to distinguish

Harber’s Estate. But both cases involved disclaimer deeds and both

are clear that such deeds are not analyzed as postnuptial

agreements. See Bell-Kilbourn, 216 Ariz. 521, ¶¶ 9-10, 169 P.3d at 113-

14; Bender, 123 Ariz. at 93-94, 597 P.3d at 996-97. Moreover, both

Bell-Kilbourn and Bender explicitly noted that the issue of mistake or

fraud had not been raised. See Bell-Kilbourn, 216 Ariz. 521, ¶ 9, 169

P.3d at 114; Bender, 123 Ariz. at 94, 597 P.2d at 997. Therefore, these

cases are inapposite.

¶19 Finally, Josiah contended at oral argument that

application of Harber’s Estate in this context would result in the need

for separate counsel for both spouses before creating trusts or other

complex estate documents, which would burden the delivery of

legal services. To the extent that separate property is transferred to

the community estate, or even significant limitations are placed on

separate property, lawyers have always had to consider whether

joint representation is possible or nonconsentable. See, e.g., ER 1.7,

Ariz. R. Prof’l Conduct, Ariz. R. Sup. Ct. 42. Even if separate

counsel is deemed necessary to ensure the independence and loyalty

of counsel’s advice, it preserves “essential elements in the lawyer’s

relationship to a client.” Id. at cmt. 1. Although we do not see our

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Opinion of the Court

holding as an expansion of Harber’s Estate, if there is an increase in

independent legal advice, it will be for a permissible and laudable

purpose.

¶20 In sum, the mere use of a limited liability company to

effectuate changes to the property rights of spouses does not

transmute such an agreement into an arm’s-length business

transaction as Josiah suggests. The trial court did not err in applying

the requirements in Harber’s Estate to the facts of the instant case.

Because the operating agreements were made during Valer and

Josiah’s marriage and altered each spouse’s property rights in the

event of death, the ECH operating agreements meet the definition of

a postnuptial agreement. Therefore, the requirements of Harber’s

Estate apply. See 104 Ariz. at 88, 449 P.2d at 16. The court did not err

when it required Josiah to demonstrate by clear and convincing

evidence that Valer was aware of the property subject to the

arbitration provision or advised of the effect of the arbitration

provision, or her rights therein.

¶21 Josiah argues in the alternative that “under ordinary

contract law principles, a party is bound by the terms of an

agreement that she signs without reading it.” Although we agree

with Josiah’s contention as a general legal principle, he does not

provide Arizona authority applying that principle to a postnuptial

agreement. See Jones v. Chiado, 137 Ariz. 298, 298-99, 670 P.2d 403,

403-04 (App. 1983) (dispute between real estate developers);

Harrington, 211 Ariz. 241, ¶ 2, 119 P.3d at 1046 (dispute between

homeowners and homebuilder); Rocz v. Drexel Burnham Lambert, Inc.,

154 Ariz. 462, 463, 743 P.2d 971, 972 (App. 1987) (dispute between

securities brokerage firm and client). Thus, we find the cited cases

unpersuasive in the context of a postnuptial agreement that falls

under Harber’s Estate. To the extent Josiah argues we should

overrule the holding in Harber’s Estate to analyze postnuptial

agreements the same as all commercial agreements under ordinary

contract law, this court is bound by the decisions of our supreme

court and must apply the law it has declared. See Bazzanella v.

Tucson City Court, 195 Ariz. 372, ¶ 8, 988 P.2d 157, 161 (App. 1999).

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The Children’s Claims

¶22 Josiah argues the trial court erred in concluding that the

children were not bound by the arbitration agreement. Although he

concedes the children were not signatories to either the 1997 or 2005

operating agreement, he contends they are intended beneficiaries

and therefore estopped from avoiding arbitration. We review

separately, but de novo, whether the children’s claims are subject to

arbitration. See Estate of Decamacho ex rel. Guthrie v. La Solana Care

and Rehab, Inc., 234 Ariz. 18, ¶ 9, 316 P.3d 607, 609-10 (App. 2014).

We also review a trial court’s decision not to apply estoppel for an

abuse of discretion. Flying Diamond Airpark, LLC v. Meienberg, 215

Ariz. 44, ¶ 27, 156 P.3d 1149, 1155 (App. 2007). “To constitute an

abuse of discretion, the [trial] court’s decision must be either

premised on an application of the law that is erroneous, or on an

assessment of the evidence that is clearly erroneous.” Grigson v.

Creative Artists Agency L.L.C., 210 F.3d 524, 528 (5th Cir. 2000); see also

City of Tucson v. Clear Channel Outdoor, Inc., 218 Ariz. 172, ¶ 65, 181

P.3d 219, 237 (App. 2008).

Third-Party Beneficiary

¶23 With certain exceptions, the general rule is that an

arbitration agreement is binding only on parties to the agreement.

Dueñas v. Life Care Ctrs. of Am., Inc., 236 Ariz. 130, ¶ 26, 336 P.3d 763,

772 (App. 2014). Courts have made clear, however, that a

“nonsignatory party may be bound to an arbitration agreement if so

dictated by the ‘ordinary principles of contract and agency,’”

Thomson-CSF, S.A. v. Amer. Arbitration Ass’n, 64 F.3d 773, 776 (2d.

Cir. 1995), quoting McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d

519, 524 (2d Cir. 1980). Although “there is a dearth of Arizona

precedent” on arbitration-by-estoppel, Crawford Prof’l Drugs, Inc. v.

CVS Caremark Corp., 748 F.3d 249, 261 (5th Cir. 2014) (applying

Arizona law), the third-party beneficiary doctrine is one of the

established grounds upon which a party to an arbitration agreement

can require a nonsignatory to arbitrate, see Bridas S.A.P.I.C. v. Gov’t of

Turkmenistan, 345 F.3d 347, 356, 362 (5th Cir. 2003).

¶24 Under the third-party beneficiary exception, a non-

signatory party may be barred from avoiding arbitration if he has

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received a direct benefit from the arbitration agreement.

Schoneberger v. Oelze, 208 Ariz. 591, ¶ 14, 96 P.3d 1078, 1081 (App.

2004). “Arbitration rests on an exchange of promises,” and

“[p]arties to a contract may decide to exchange promises to

substitute an arbitral for a judicial forum.” Id. ¶ 20. In evaluating

whether the third-party beneficiary theory applies to a particular

arbitration agreement, “a court must look to the intentions of the

parties at the time the contract was executed.” Id. n. 6, quoting Bridas

S.A.P.I.C., 345 F.3d at 362.

¶25 The trial court found “that the children did not receive

benefits directly from ECH that they were not already entitled to

receive as beneficiaries of the GRITs.” Additionally, the court found

that the children’s “interests in the GRITs were detrimentally

impacted by Josiah putting the GRIT assets into ECH without their

knowledge or consent.” Therefore, it concluded the ECH operating

agreement was not enforceable against the children.

¶26 Josiah contends the trial court erred in finding the

children did not receive a direct benefit from the ECH operating

agreement because the children were “intended to benefit from ECH

as the ultimate heirs of the ECH assets, which would be

substantially discounted in value for estate tax purposes.” This

argument lacks support in the record. For instance, the children

would not receive any additional estate tax benefit for the GRIT

assets by being included in ECH, at least as long as the children are

alive, as acknowledged at the hearing by the Austins’ attorney. To

the extent Josiah also claims the children would receive a federal

estate tax discount on the non-GRIT assets in ECH, the evidence at

the hearing demonstrated that the ECH structure, combined with

another family trust created by Josiah, was a vehicle that would

allow Josiah to take all of these assets for himself, to the exclusion of

the children, should Valer predecease Josiah. Thus, even assuming

arguendo the third-party beneficiary doctrine can be applied in

circumstances in which the benefit has not yet been received, the

benefits Josiah alleges the children will enjoy are entirely contingent

on whether Valer predeceases Josiah, an outcome that is by no

means assured. Accordingly, any tax benefits the children might

enjoy are speculative in nature.

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¶27 Josiah also argues the children were intended to benefit

from “the asset protection features of ECH.” To the contrary,

however, any judgment creditor of the children could obtain a

charging order against ECH, and thereby “intercept” any ECH

assets that might otherwise be paid to the children. See A.R.S.

§ 29-655(A) (upon court order, judgment creditor “may charge the

member’s interest in the limited liability company with payment of

the unsatisfied amount of the judgment plus interest”). In addition,

by placing the GRIT assets into ECH, the children may have those

assets exposed to ECH’s creditors.

¶28 In sum, the record discloses no evidence of a benefit or

exchange of promises between Josiah and the children. Here, the

children do not seek any benefits under the arbitration agreement; in

fact, they claim “that ECH and/or its Operating Agreement were

invalid from inception.” In addition, as this court pointed out in

Schoneberger, a non-party to an arbitration agreement must receive a

direct benefit from the agreement if they are going to be required to

abide by the arbitration. See 208 Ariz. 591, ¶¶ 13-14, 96 P.3d at 1081;

see also E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin

Intermediates, S.A.S., 269 F.3d 187, 196-97 (3d Cir. 2001) (“[I]f it was

not the promisee’s intention to confer direct benefits upon a third

party, but rather such third party happens to benefit from the

performance of the promise either coincidentally or indirectly, then

the third party will have no enforceable rights under the contract.”).

No such direct benefit is present here.

Direct Benefits Estoppel

¶29 Josiah next argues the children are compelled to

arbitrate under the direct benefits estoppel theory because their

cross-claims must be determined by reference to the arbitration

agreement. Under direct benefits estoppel, a nonsignatory may be

compelled to arbitrate only when the nonsignatory (1) knowingly

exploits the benefits of an agreement containing an arbitration

clause, or (2) seeks to enforce terms of that agreement or asserts

claims that must be determined by reference to the agreement. See

Reid v. Doe Run Res. Corp., 701 F.3d 840, 846 (8th Cir. 2012).

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¶30 As noted above, the children do not benefit from the

ECH operating agreement; instead their interests “were

detrimentally impacted by Josiah putting the GRIT assets into ECH

without their knowledge or consent.” Thus, the children cannot be

said to have knowingly exploited the benefits of the ECH operating

agreement. We therefore next examine whether the children seek to

enforce terms of the ECH operating agreement or assert claims that

must be determined by reference to the agreement.

¶31 In making this determination, we must “‘look past the

labels the parties attach to their claims to the underlying factual

allegations.’” Id. at 848, quoting 3M Co. v. Amtex Sec., Inc., 542 F.3d

1193, 1199 (8th Cir. 2008). Although it is true that one or more of the

children’s alternative cross-claims may require reference to the ECH

operating agreement, the principal factual allegation underlying the

children’s cross-claims is that the GRITs should never have been

transferred into ECH and that they are involuntary members of

ECH. As the trial court concluded, the alternative relief sought by

the children in their cross-claim applies only if the court deems the

ECH structure to be binding on them. Such a contingency, to which

they object, is not sufficient to create estoppel that requires the

children to arbitrate their claims. Thus, the children are not

estopped from avoiding arbitration, and the trial court did not err by

finding the arbitration provision unenforceable against them.

Scope of Trial Court’s Findings

¶32 Josiah argues the “trial court failed to limit itself to the

questions of whether an arbitration agreement exists and whether

the parties were bound by it.” He cites A.R.S. § 12-3006 and National

Bank of Arizona v. Schwartz, 230 Ariz. 310, ¶ 4, 283 P.3d 41, 42 (App.

2012), for the proposition that a reviewing court is limited in its

review to the determination of whether an arbitration agreement

exists and whether the parties are bound by that agreement. But to

the extent the court made findings such as the source of the

securities that funded the GRITs and ECH was Valer’s sole and

separate property, such findings were necessary to determine

whether the operating agreement was fraudulent or coerced, or

whether it was unfair or inequitable. See Harber’s Estate, 104 Ariz. at

88, 449 P.2d at 16. Accordingly, the court did not err in the scope of

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its findings in determining whether the arbitration agreement was

enforceable as to Valer and the children.6

Language of Arbitration Agreement

¶33 Josiah raises several arguments related to the trial

court’s determination that the plain language of the arbitration

clause did not permit Josiah, as manager of ECH, to enforce the

arbitration agreement. Because we affirm the court’s denial of

Josiah’s motions to compel arbitration on other grounds, we need

not address them.

Attorney Fees

¶34 The parties request attorney fees pursuant to A.R.S.

§ 12-341.01, under which a court may award reasonable fees to the

successful party in an action arising out of contract. But we have

interpreted § 12-341.01 to mean that the ultimate prevailing party in

an underlying action arising out of contract may be awarded

attorney fees. See U.S. Insulation, 146 Ariz. at 259, 70 P.2d at 499.

Because a decision on the merits has not yet been made in this case,

we deny the attorney fees requests. See id.; Esmark, Inc. v. McKee, 118

Ariz. 511, 514, 578 P.2d 190, 193 (App. 1978).

Disposition

¶35 For the foregoing reasons, we affirm the trial court’s

ruling denying Josiah’s motions to compel arbitration.

6We also note that Josiah, for the first time in his reply brief,

asserts that we should “establish the proper procedures for findings

on a motion to compel arbitration and direct that the case be

reassigned.” But again, we do not consider arguments made for the

first time in a reply brief. Dawson, 216 Ariz. 84, ¶ 91, 163 P.3d at

1061. Accordingly, we deny as moot Valer and the children’s joint

motion to strike portions of the reply brief in which they request we

strike those arguments made for the first time therein.

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