## Facts

- Underhill Holding Company, Inc. (UHC) had 1,159 issued shares; David Caruthers and Ruby Rumiko Tanouye owned 64 shares.
- Clinton Underhill, assisted by financing and loan co-signing from his father, James Underhill, bought shares from various shareholders to obtain a controlling interest for Clinton and James together.
- In July 2006, Clinton purchased Plaintiffs’ 64 shares for $6,000 per share.
- Plaintiffs later asserted Clinton misrepresented UHC’s value to buy the shares at an undervalued price and sued for securities fraud; they also asserted related liability theories against James.
- At trial, Plaintiffs prevailed on liability. The superior court required Plaintiffs to elect remedies; Plaintiffs elected rescission.
- The superior court later ruled rescission was unavailable as a matter of law (including as to James, who did not receive the stock), treated the election as binding, and awarded Plaintiffs no remedy despite their liability verdict.

## Issues

1. Whether plaintiffs pursuing a single theory of fraud in the inducement must elect between rescission and damages during trial.
2. Whether rescission under Arizona securities-fraud law is subject to equitable defenses and, if so, whether the superior court properly applied them to deny rescission.
3. Whether plaintiffs who elected rescission may seek damages if the court later determines rescission is unavailable.

## Decision

- The Arizona Court of Appeals reversed in part and remanded.
- The court held that when a plaintiff proceeds on a single fraud-in-the-inducement theory, an election between rescission and damages is not required.
- The court held that rescission in securities-fraud cases may be limited by equitable defenses, but the superior court erred in denying rescission based on its stated findings.
- The court held that if rescission is unavailable, plaintiffs must be permitted to pursue damages rather than be left without any remedy after prevailing on liability.
- The court ordered a new trial at which Plaintiffs may seek satisfaction by damages, rescission, or both, subject to prevention of double recovery.

## Legal Principles

- Election of remedies is not required where a plaintiff seeks relief on a single, consistent theory of fraud in the inducement; the doctrine primarily prevents inconsistent remedies or double recovery.
- Rescission under Arizona securities-fraud remedies is subject to equitable defenses, but those defenses must be applied in a manner consistent with the statutory remedial scheme and the trial court’s supported findings.
- A prevailing plaintiff in a securities-fraud action may not be denied all relief based solely on an unnecessary or mismanaged remedy election; if rescission is unavailable, damages must remain available.
- Concerns about duplicative recovery may be addressed at the satisfaction stage rather than by forcing a pre-verdict, exclusive remedy selection.

## Conclusion

The court held that plaintiffs who prove securities fraud on a single fraud-in-the-inducement theory need not elect between rescission and damages, that rescission may be limited only by properly applied equitable defenses, and that damages must be available if rescission cannot be granted; it remanded for a new trial on remedies.


Caruthers v. Underhill, 326 P.3d 268 (Ariz. Ct. App. 2014)