¶2 Schlussel, Bentley Terrace Dillard ("Dillard"), and Glen Lineberry ("Lineberry") formed "A Little More Red" ("ALMR"), an Arizona limited liability company, during the summer of 2002. ALMR sold art to architects and interior designers.
¶3 Initially, Schlussel and Dillard each held a 41.25 percent interest in ALMR, and Lineberry held the remaining 17.5 percent interest. Dillard later assigned her interest to the Bentley Terrace Dillard Family Trust ("Trust"), of which Dillard is trustee (the "Trustee"), effective April 30, 2003. Lineberry was ALMR's president and was responsible for the company's day-to-day operations.
¶4 The ALMR members decided to initially fund the company with a $500,000 line of credit from Salomon Smith Barney ("Smith Barney"). The Trust provided a guarantee of payment by ALMR to Smith Barney, secured by Trust assets. Schlussel signed an Agreement and Guarantee of Mark E. Schlussel (the "Guarantee"), which stated, in relevant part:
1. In the event the Company fails to repay the Debt [sums extended under the Line of Credit] to Salomon Smith Barney according to its terms, Guarantor hereby guarantees payment of up to one half of the Debt outstanding at the time of any default, said sum not to exceed $250,000 plus costs and fees as herein provided.
2. This guarantee is an absolute continuing and unlimited personal guarantee of payment without regard to the regularity, validity, or enforceability of any liability or obligation of the Company.
....
8. Guarantor hereby waives a) the benefit of any defense against the enforcement of this Guarantee including without limitation the right to require the Family Trust to proceed against the Company; proceed against or exhaust any security or right of set off; proceed against any other guarantor or pursue any other remedy whatsoever, b) any defense arising from or by reason of any disability or by reason of the cessation from any cause whatsoever (other than payment in full) of the underlying debt and c) all rights and/or privileges Guarantor might otherwise have to require the Family Trust to pursue any other remedy available to it against the Company in any particular manner or order under the legal or equitable doctrine or principle of marshaling and further agrees that the Family Trust may proceed against any or all security or right of set off in such order and manner as the Family Trust in its sole discretion may determine.
¶5 During its first year of operations, ALMR nearly exhausted funds available through the line of credit. In January 2003, Dillard and Schlussel each agreed to contribute half the amounts necessary to continue operating ALMR. Later that month, Schlussel told Dillard he was having cash flow problems and indicated he could put money toward either the line of credit or the business, but not both. On January 24, 2003, Schlussel sent Dillard an e-mail stating, in relevant part:
I especially want to thank you for your support on the Trust loan. It was very meaningful to me that you offered to cover me and I would work it out with you. This gave me the ability to fund my ½ of the ongoing burn rate so that we can make ALMR into a huge success we both believe it will be.
By the end of 2003, Dillard had loaned ALMR $177,000, Schlussel had loaned $164,436.83, and Lineberry had loaned $40,000. Schlussel also contributed $2500 in January 2004, $10,000 in March 2004, $25,000 in June 2004, and $5000 in August 2004. Schlussel's total contribution was $206,936.83. By early 2004, ALMR had relocated to the Bentley Projects in an effort to save money.1
¶6 ALMR obtained a $100,000 loan from Norman Pappas and Philip Elkus in 2004, which sustained company operations until the end of June 2004. Dillard made a $125,000 payment on the line of credit in August 2004. Dillard communicated with Schlussel about moving or refinancing the line of credit, and Schlussel responded that he was working on it. By October 2004, Dillard was insisting that Schlussel move the line of credit to his own bank so that her bonds could be released. To Dillard, this meant that Schlussel would pay his share of the line of credit, or $207,500. Meanwhile, Bentley Gallery had been advancing a series of payments to ALMR totaling $68,647.72, beginning in January 2003.
¶7 With no additional investors on the horizon, the members made a collective decision to suspend ALMR's operations. Schlussel was advised of the steps being taken to shut down ALMR and admitted at trial he did not object to Dillard's e-mails recommending they split the "open payables" to Bentley Gallery before paying Pappas and Elkus.
¶8 As of December 2, 2004, the line of credit balance was $345,455.52. On December 3, 2004, the Trustee initiated payments from the line of credit of: (1) $85,000 to the Trust, and (2) $67,000 to Bentley Gallery (collectively, the "December Payments"). Regarding the $85,000 payment, Dillard testified the Trust had contributed $127,500 to the line of credit, andSchlussel had paid $42,500. Dillard drew $85,000 from the line of credit and had a check in that amount made payable to the Trust, thereby equalizing the Trust's and Schlussel's payments. Dillard contended the equalization was warranted under her agreement with Schlussel, circa April 2002, to equally share ALMR's expenses. Dillard testified Schlussel agreed to the $85,000 transaction, though he later objected. Dillard also testified the Bentley Gallery check was issued after receiving e-mail authorization from Schlussel and securing his consent via telephone. At trial, Schlussel denied ever approving the December payments, but agreed that, without the equalization payment, he would have received a $42,500 windfall as to the line of credit.
¶9 During a December 16, 2004 meeting with Smith Barney, Dillard explained ALMR's financial situation. Smith Barney stated it would be relying on the Trust's guarantee. The Trust subsequently paid the line of credit balance of $499,249.01 and demanded that Schlussel pay one-half. The Trust sent a promissory note for Schlussel to sign, setting forth a twelvemonth repayment term. After receiving no response, the Trustee followed up with a demand letter. Schlussel neither responded nor tendered payment.
¶10 The Trust sued Schlussel for breach of the Guarantee. Schlussel filed a counterclaim and a third-party complaint against Dillard, Lineberry, ALMR, and Bentley Gallery. The December Payments formed the basis for Schlussel's claims of breach of fiduciary duty, unjust enrichment, tortious interference with business expectancies, fraud, conversion, and ultra vires actions. Schlussel alleged that by making the December Payments from the line of credit, Dillard increased his obligations under the Guarantee and converted the Bentley Gallery into a secured creditor. Schlussel sought compensatory and punitive damages.
¶11 The Trust moved for summary judgment on its claim against Schlussel for one-half of the $499,249.01 line of credit balance. Schlussel disputed the amount due. He also argued Dillard had agreed to modify the Guarantee so that his earlier contributions would decrease his Guarantee liability to $43,064.
¶12 The trial court granted partial summary judgment to the Trust on the breach of the Guarantee claim, stating, in part: "It is irrelevant that Schlussel has filed counter-claims [sic] separately against the former members of ALMR alleging various acts of misconduct, since those claims are not effective to thwart the enforcement of the guarantee by the PlaintiffTrust for ALMR's actual and undisputed debts." The court held that, as a matter of law, Schlussel was liable for $172,727.76, representing one-half the line of credit balance without the December Payments. It implicitly ruled that a trier of fact would have to determine whether the December Payments were valid debts of ALMR. Schlussel later amended his third-party complaint to include claims against the Trust, including declaratory relief on a right of inspection, breach of fiduciary duty, declaratory relief for ultra vires actions, tortious interference with business expectations, common law fraud, unjust enrichment, and conversion.
¶13 The Trust moved in limine to exclude evidence at trial regarding Schlussel's liability under the Guarantee and to limit the evidence to whether the December Payments were ALMR's legitimate debts. The Trust argued Schlussel could not relitigate whether the parties had modified the Guarantee to credit Schlussel for every dollar he invested in ALMR. The trial court granted the motion, finding the prior trial judge had implicitly rejected the modification argument by granting the Trust's motion. The court ruled that...
