Recent Appellate Opinions

Below are reviews of recent appellate opinions. Check back frequently as we update this page often.


Employment Law

CV-16-0314-SA CHAMBER OF COMMERCE ET AL v HON. KILEY/STATE ET AL

Prop 206 initiative withstands constititional challenge (minimum wage/accrued sick leave)

Pursuant to initiative in 2016, Arizona voters approved Proposition 206 which raised the minimum wage to $10 per hour effective January 1, 2017, and thereafter applied fifty-cent-per-hour increases annually up to $12 per hour. Prop 206 also required mandatory accrual of paid sick leave for most workers, excluding state employees.

Also in 2016, plaintiffs filed a complaint challenging Prop 206 on various grounds, including alleged violation of the “Revenue Source Rule.” The Revenue Source Rule refers to Ariz. Const. art. 9, §23, which resulted from a voter initiative in 2004. It provides:

§ 23. Expenditures required by initiative or referendum; funding source.

A. An initiative or referendum measure that proposes a mandatory expenditure of state revenues for any purpose, establishes a fund for any specific purpose or allocates funding for any specific purpose must also provide for an increased source of revenues sufficient to cover the entire immediate and future costs of the proposal. The increased revenues may not be derived from the state general fund or reduce or cause a reduction in general fund revenues.

B. If the identified revenue source provided pursuant to subsection A in any fiscal year fails to fund the entire mandated expenditure for that fiscal year, the legislature may reduce the expenditure of state revenues for that purpose in that fiscal year to the amount of funding supplied by the identified revenue source.

Plaintiffs argued that Prop 206 required the Industrial Commission to establish certain mandates with respect to the sick leave provisions. They also argued that it required the State to pay more to its contractors from the State general fund. On the premise that nothing in the Revenue Source Rule distinguished mandatory or direct expenditures from indirect expenditures, Plaintiffs argued that the mandates of Prop 206 caused the government to expend funds that made the initiative unconstitutional unless it also provided a revenue source to meet the resulting state obligations. Plaintiffs also sought an injunction to stop implementation of Prop 206.

The State denied that Prop 206 imposed mandatory expenditures of state revenues. Rather, the State’s position was that there was only the potential for increased administrative costs and that state contracts and statutes protected the State from having to pay more than budgeted. According to the State, any debatable violation of subsection “A” of the Revenue Source Rule was remedied by adjusting funding under its subsection “B,” and so there was no violation of the Revenue Source Rule.

The superior court denied Plaintiffs’ request for a preliminary injunction and they filed a petition for special action and request for stay. The supreme court denied the requested stay, accepted jurisdiction of the special action on the issue of whether Prop 206 violated the Revenue Source Rule, and received further briefing and argument from the parties, following which relief was denied.

The supreme court addressed three constitutional challenges by Plaintiffs: the Revenue Source Rule (Ariz. Const. art. 9, §23), the Separate Amendment Rule (Ariz. Const. art. 21, §1), and the Single Subject Rule (Ariz. Const. art. 4, pt. 2, § 13). The court rejected the argument adopted in the superior court that the Revenue Source Rule “applie[d] only when an initiative or referendum explicitly directs an expenditure of state revenues and not when it directs state action that itself inherently requires such an expenditure.” 13. Nevertheless, the court agreed with the superior court that Prop 206 was constitutional. "In sum, Proposition 206 complies with the Revenue Source Rule, § 23(A) by providing a revenue source to fund the ICA’s mandate to implement and enforce the earned paid sick time provisions. If the fines collected to fund the ICA mandate are insufficient, § 23(B) would apply to relieve the state from funding the shortfall." 20. “In sum, Proposition 206’s minimum wage increase and the provision of earned paid sick time for certain non–state workers does not constitute a “mandatory expenditure of state revenues.” The Revenue Source Rule, § 23(A) does not apply.” 26. The Separate Amendment Rule precludes bundling together distinct propositions so that voters favoring one must vote for all. The court disagreed that the rule applied with respect to the inclusion of minimum wage and earned sick leave as part of Prop 206. 27-29. The Single Subject Rule similarly precludes bundling in the context of requiring a legislator who favors one matter from having to vote for all that are combined. The court stated that the rule does not apply to initiative or referendum matters. 30-34. Prop 206 was held not to violate any of the three identified constitutional provisions.


Family Law

GUTIERREZ v. HON. FOX/KIVLIGHN - 1 CA-SA 17-0047 - 4/13/2017

Mother and Father never married, but did live together with their daughter who was born in 2016. Father was identified on the birth certificate. Following an argument, Mother moved to Wisconsin with their daughter. Father was unsuccessful in convincing Mother to return to Arizona. He petitioned the Maricopa County Superior Court to establish paternity, decision making, parenting time, and child support. A few days later, Mother filed a petition in Wisconsin to have that court establish paternity, decision making, and parenting time. Following a conference between the courts, the Arizona court was designated to decide which state would exercise jurisdiction pursuant to the Uniform Child Custody Jurisdiction and Enforcement Act. That resulted in a determination that the Arizona court would exercise jurisdiction.

Thereafter, the Arizona court held an evidentiary hearing on Father’s petition. That resulted in an order establishing Father’s paternity, awarding him parenting time to occur in Arizona, jointly assigning decision making authority to Mother and Father. As the ruling was in the form of a temporary order, Mother sought review by a petition for special action. She argued that Arizona was not the home state of the child, that the family court failed to make written findings, and she did not need consent to move as Father did not establish paternity beforehand. The court of appeals accepted jurisdiction and affirmed the lower court order.

We hold that (1) under A.R.S. § 25-1002(7)(b) when a child of six months or younger has lived in Arizona “from birth with a parent,” and the proceeding is commenced by a parent still living in Arizona within six months of the child leaving Arizona, Arizona remains the home state of the child; (2) statutory findings under A.R.S. § 25-403 are not mandatory when determining temporary orders under A.R.S. § 25-404; and (3) a voluntary acknowledgment of paternity has the same effect as a judgment, thereby requiring Mother to obtain Father’s consent or a court order to permanently move the child out of Arizona.

¶2.


Real Estate Law

EARLE v. SOUTHERN PARTNERS - 1 CA-CV 15-0507 - 4/13/2017

In 1974 Du Paul Ltd., by warranty deed, conveyed land to Arizona Title, which in 1976 leased the land for 50 years to Southern Desert Medical Center (SDMC Corp.). Duane Alleman was the principal of both Du Paul and SDMC Corp. The lease stated the SDMC Corp. could only use the land for medical related services, but also stated that a horizontal property regime could be imposed on the leasehold interest – that is, the lease could be condominiumized. In the latter event, leasehold “unit” owners would be responsible for proportionate shares of rent, taxes, and assessments and Arizona Title as the lessor could terminate the lease as to individual unit holders for their breach. The lease provided that Arizona Title could encumber the land and the lease would be subordinate to such encumbrance, provided the lease remained in effect. Owners of units were permitted to encumber their interest in the leasehold estate.

SDMC Corp. indeed did establish a 50-year horizontal property regime upon executing the lease with Arizona Title. SDMC Corp. constructed a medical professional building on the land. In 1977, SDMC Corp. conveyed two suites of condominiums to Duane Alleman individually. The condo deed conveyed the units plus an undivided interest in the common areas. Alleman in turn secured financing of his tenant improvements with deeds of trust on each of the two suites. Concurrently, SDMC Corp. and Arizona Title executed subordination agreements (the provisions of which are the subject of this lawsuit). Around 1979, Arizona Title conveyed the land to Du Paul and Du Paul conveyed it to SDMC Partners.

In 1997, Alleman’s lender foreclosed on the deed of trust securing his two suites. After the trustee’s sale, the condo suites eventually were conveyed to Earle Investments. Initially, Earle paid no rent to SDMC Partners, then in 2012 Earle agreed to pay backrent, but thereafter refused to pay additional rent and asserted that, pursuant to the subordination agreements, Earle held fee simple title to the land under its units. In 2013, Earle filed a quiet title action and a motion for summary judgment, which the trial court granted. SDMC Partners appealed.

On appeal, the reviewing court rejected the argument that Earle’s rent payments constituted ratification of the lease. Instead, it considered whether the subordination agreements functioned as mortgages or deeds of trust encumbering the owner-lessor interest in the land. The court of appeals considered various provisions. The court noted language that stated that the lender’s deed of trust was to be an encumbrance upon the land superior to the owner’s interest and that the owner was consenting to the interest of the owner being subject to the deed of trust. The appellate court rejected the argument that the reference in the legal description of the encumbered units as being “subject to” to the lease was inconsistent with the subordination making the owner’s interest subject to the deed of trust. The court of appeals did not agree with Earle that the foreclosure of the deed of trust necessarily conveyed to Earle’s predecessor fee title to the land beneath the subject units. The subordination agreements had identified the “Property” as the specified units, together with an undivided interest in the leasehold estate, together with a fractional interest in the common areas. The court noted that none of those references identified the land beneath the units.

Thus, when the lender foreclosed, it received (1) the Unit-owner’s interest in the Units (as defined by and subject to the Declaration), (2) an undivided fee-simple interest in the leasehold estate “in and to the subject Real Property,” and (3) an undivided fee-simple interest in the Common Areas and facilities, as set forth in the Declaration.

[W]e conclude that in executing the Subordination Agreements, the owner/lessor conveyed to the lender, in trust as security for repayment of the loan to the Unit-owner, an undivided fractional fee-simple interest in the entire parcel of property that was the subject of the Lease. In foreclosing on the Deed of Trust, the lender therefore succeeded to an undivided fractional fee-simple interest in that property, and after foreclosure, the lender owned the relevant Units and the associated undivided fractional fee-simple interests in the leasehold and “Common Areas” and facilities. Since its fee-simple interest was free and clear of the owner/lessor’s interest in the leasehold, the lender and its assigns were not subject to the lease or any rent obligation. But they did not gain a fee-simple interest in any particular portion of the land subject to the Lease; instead their interests is an undivided fractional fee-simple interest in the entire subject property. Moreover, just as the owner/lessor’s interests were subject in the first instance to the Declaration, the interests to which the lender took title (and which now are owned by Earle) remain subject to the Declaration. Accordingly, Earle is subject to the obligations spelled out in the Declaration (other than the obligation to pay rent under the lease).

The judgment was affirmed as to the ownership of Earle in the foreclosed units and the undivided fractional interest in the land, but reversed and remanded as to the ruling with respect to the land beneath the units.


Family Law

IN RE THE MARRIAGE OF PECK - 2 CA-CV 2016-0131-FC - 04/20/2017

John (a U.S. citizen) and Sabine (a German citizen) were married in Switzerland in 2001 and thereafter resided separately in Switzerland, England, and Spain. John moved to Tucson in 2014, while Sabine remained in Spain, although she co-signed John’s lease in Tucson and visited him there on several occasions during 2014-15. In 2016, John filed a petition in Pima County to dissolve their marriage. The petition alleged personal jurisdiction over both based on John’s domicile and events Sabine was alleged to have caused in Pima County, including the lease. Sabine’s motion to dismiss for lack of personal jurisdiction was granted based on insufficient minimum contacts. John appealed.

The court of appeals agreed with the trial court that the record did not support sufficient minimum contacts for personal jurisdiction over Sabine. Sabine had never resided in the United States and only visited John in Tucson in an effort to reconcile their marriage, and had co-signed the lease only because John said she was required to, but not with an intention to submit to Arizona jurisdiction. The court also made a distinction that personal jurisdiction might exist if Sabine were involved in a suit for breach of that lease, but that it did not establish personal jurisdiction for the divorce action.

The appellate court disagreed with the dismissal, though, on John’s alternative argument based upon Ariz. Rev. Stat. § 25-312. “That statute provides that the court ‘shall enter a decree of dissolution of marriage if it finds . . . [t]hat one of the parties, at the time the action was commenced, was domiciled in this state . . . for ninety days prior to filing the petition for dissolution of marriage,’ that certain conciliation provisions do not apply, and that the marriage is irretrievably broken.” 17. Although not argued in the superior court, the appellate court chose not to treat the argument as waived as Sabine did not object to it on appeal. While the trial court had no personal jurisdiction over Sabine and could not dispose of marital property, the statute did authorize it to grant a “divisible divorce.” 18. The matter was remanded to the superior court to consider that latter issue.


Family Law

MITTON v. MITTON - 1 CA-CV 15-0769-FC - 4/11/2017

Mother and Father divorced in 2013. The decree provided equal parenting time and for Father to pay child support for their three children. Father filed a petition to modify support in 2015 as one child was then living solely with Mother. Mother argued for increased child support. Mother and Father submitted multiple competing worksheets and Father objected to Mother’s worksheets as overstating the support obligation. The family court ruled setting an amount based upon adding together Mother’s two worksheets (one based on shared parenting for all three children and one based on sharing as to two children with the third living full time with Mother).

Father appealed and argued that combining the worksheets was inconsistent with the Arizona Child Support Guidelines because some expenses for supporting a single child do not increase in equal proportion to the number of children (for instance, housing expenses). Mother relied on an example from Section 16 of the Guidelines using separate worksheets, which the court of appeals rejected as based on each parent having sole custody of at least one child.

The court of appeals, citing cases from other jurisdictions, approved of the “income shares” method of determining child support with respect to unusual parenting time arrangements. “The income shares model ‘is based on two principles: (1) “The total child support amount approximates the amount that would have been spent on the children if the parents and children were living together ,” and (2) “Each parent contributes his/her proportionate share of the total child support amount.” “As with the cases in other income shares model states, the Guidelines recognize that adding each child to a household increases costs in an incremental, but not equal, amount. Thus, treating one of three children as an only child and then adding those costs to a two-child household results in an inflated child support obligation. As a result, the child support order in this case was erroneous and is vacated.”

On remand, the court should treat all the children as one household and prepare one worksheet. To determine the adjustment for costs associated with parenting time, the court must “first determine the total annual amount of parenting time indicated in a court order or parenting plan or by the expectation or historical practice of the parents” for each child. A.R.S. § 25-320 Appendix § 11. Adding together the total number of parenting time days for each parent for all children and then dividing that total by the number of children yields an average annual amount of parenting time days for use in determining child support under the Guidelines. Id. And after determining the child support amount under the Guidelines, the court still retains the discretion to deviate, provided it makes sufficient written findings for doing so. See A.R.S. § 25-320 Appendix § 20 (when deviating from Guidelines, court is to make written findings considering “the best interests of the child in determining the amount of a deviation”).

The existing support modification order was vacated and the matter remanded for proceedings consistent with the foregoing.


Estate Planning & Wealth Preservation

DI GIACINTO v. ASRS, et al. - 1 CA-CV 15-0722 - 4/4/2017

Sharon and Richard were married in 1983 and divorced in 2006. Richard had retired in 2003 after working 39 years at a job participating in the Arizona State Retirement System (ASRS). A final qualified domestic relations order (QDRO) was approved in 2007 which awarded Sharon 48.75% of Richard’s monthly annuity benefit and 100% survivor benefits as a contingency benefit.

In 2014, Richard asked ASRS to review the QDRO allocation pursuant to Ariz. Rev. Stat. § 38‑765, which gives ASRS authority to correct errors. ASRS determined that the QDRO violated Arizona Administrative Code Regulation R2-8-126(H) by preserving the survivor benefits for Sharon. Sharon then requested a hearing on that issue, resulting in an administrative law judge ruling that she was automatically removed as a contingent annuitant by the divorce decree. Sharon appealed that ruling to the superior court where it was affirmed and she then appealed to the court of appeals.

The court of appeals held that, pursuant to federal tax law, a former spouse whose benefits are subject to a QDRO is excluded from the definition of “nonspouse” in Regulation R2-8-126. The appellate court also held that, while the divorce decree was not itself a QDRO, there was a QDRO entered subsequent to the decree, that it was not required to be entered contemporaneously with the decree, and that it met all the federal tax code requirements.

The court of appeals reversed and remanded for entry of judgment for Sharon. It held that Ariz. Rev. Stat. § 38‑765 requires ASRS to treat a former spouse as a spouse, rather than a nonspouse, for retirement survivor benefits awarded. It also held that the age limits on non-spousal contingent annuitants did not apply to former spouses with respect to payments ordered pursuant to a QDRO.


Family Law

BRENDA D. v. DCS, Z.D. - 1 CA-JV 16-0277 - 3/23/2017

In July 2014, the Department of Child Safety filed a dependency petition regarding a Down Syndrome child based upon allegations of Mother’s neglect, mental illness, and unstable home. In May 2015, DCS filed a motion to terminate Mother’s parental rights based on history of substance abuse and duration of out-of-home placement. On the first day of the severance hearing, Mother announced severe back pain and the court continued the hearing to the next day, stating that Mother needed to appear in person with medical documentation regarding the back pain. The next day, Mother was not present at the time set for the hearing. The juvenile court held she lacked good cause for her absence and proceeded with the hearing, stating Mother’s counsel could address the weight of evidence, but not admissibility. While the hearing was underway, Mother arrived, 25 minutes late, attributing it to a bus delay. The court refused to allow her to testify, found grounds for severance, and terminated Mother’s parental rights. Mother appealed.

Although accepting the juvenile court determination that Mother lacked good cause for her tardy appearance at the hearing, the appellate court nevertheless found that tardiness is not a failure to appear and it was a denial of due process to preclude Mother from testifying. Only if the parent had failed to appear by the time both parties have presented their evidence, could the court treat the absence as a waiver of the right to deny the allegations of the petition. ¶18. The appellate court denied the DCS argument that Mother had waived the due process argument by not having submitted it to the court below, holding that denial of her right to testify was a fundamental right and so subject to review at any time. The appellate court also agreed with Mother that the juvenile court restriction of her counsel to addressing the weight and not admissibility of evidence was a denial of the right to the effective assistance of counsel. ¶25-26. The matter was reversed for a new severance hearing.


Family Law

BOBROW v. BOBROW - 1 CA-CV 14-0806-FC - 3/9/2017

Husband and Wife married in 2002 with a premarital agreement. Among other things, that agreement provided that Wife would not receive maintenance in the event of divorce and that in the event of a dispute, the prevailing party was entitled to an award of attorneys’ fees. Wife filed for divorce in 2013.

Subsequent to the petition for dissolution and prior to the decree, Husband continued to make loan payments upon the marital residence and Wife’s vehicle. At trial, Husband requested a more than $77,000 offset for those as Wife’s share of community expenses. The family court denied the offset and treated those payments as gifts because they had been made without any specific agreement. The family court also denied any award of attorneys’ fees, finding neither party to be a prevailing party pursuant to the premarital agreement. Both parties appealed.

The court of appeals distinguished cases applying a presumption of gift for pre-petition payments. The court held that the payments made by Husband post-petition were not subject to any such presumption. 13. Husband stated he did not intend the payments as gifts. The fact that the payments were made to preserve the assets and avoid foreclosure also indicated the payments were not intended as gifts. Since there was no presumption, the burden was upon Wife to prove the payments were gifts, which she failed to do. The family court finding of gift was reversed.

With respect to the attorneys’ fee to prevailing party provision of the premarital agreement, the court of appeals agreed with the family court that neither party had been successful as to all of the relief the party had requested. 26. On appeal, Wife argued that applying the prevailing party fee provision of the premarital agreement violated public policy as the legislature has provided the basis for fees in a dissolution proceeding by statute. The appellate court held that Wife had waived that issue by failing to identify it in the pretrial statement in the superior court in which Wife had instead agreed that the premarital agreement was binding. 28-29. With respect to an award of fees regarding the appeal, however, the issue was not waived and the appellate court held that the premarital agreement provision was a per se violation of public policy and that Ariz. Rev. Stat. §25-324 continued to apply. 32. The court declined to award fees on appeal.


Family Law

IN RE THE MARRIAGE OF HENDERSON - 2 CA-CV 2015-0193 - 02/28/2017

Suzanne and Scott were divorced in Canada in 2003. In January 2009, a Canadian court issued a final order that Scott owed more than $360,000 Canadian Dollars (CAD) in arrears for child support. The order also imposed a continuing obligation on Scott to pay support of $9,774 CAD monthly. Scott remarried in 2011 and bought a home in Tucson in March 2012. Suzanne sought to register the 2009 Canadian order in Pima County. The Pima County Superior Court confirmed the registration, but stayed enforcement to resolve Scott’s objections based on allegation of fraud, modification, and partial payment. In the meantime, Scott also sought modification of the order in a Canadian court. The Canadian court eventually struck Scott’s motion as an abuse of process. Suzanne also had been active in another court, obtaining an injunction from a Hong Kong court (where Scott’s employer was based) purporting to impose a worldwide freeze on Scott’s assets, but specifically excepting the pending proceedings to register and enforce the Canadian order in Arizona.

After hearing Scott’s challenges, the Pima County Superior Court determined that the Canadian order was enforceable in Arizona. Suzanne then filed a petition for contempt and an arrears calculation. That resulted in hearings ultimately finding Scott in contempt and obligated upon a judgment for over $755,000 USD, exclusive of approval of an award of attorney’s fees for Suzanne. The superior court later issued an income-withholding order, including enjoining Scott from accessing his retirement account. Scott appealed various orders. The court of appeals determined that some orders were not appealable, but determined to treat those as accepted pursuant to special action jurisdiction, and consolidated Scott’s appeals.

Among his issues, Scott argued that the Canadian order was subject future, retroactive modification, and that a foreign child support order may not be registered and enforced in Arizona under the Uniform Interstate Family Support Act (UIFSA) if the order is subject to retroactive modification. The court of appeals disagreed, holding that Arizona’s UISFA permits registration of an order subject to modification, so being retroactively modifiable is not a valid defense to enforcement. The appellate court also rejected Scott’s argument based upon their children having reached the age of majority. Under Canadian law a court may enter an order for continuing support of adult children to obtain post-secondary education.

Scott’s appeal also challenged the trial court finding of willful contempt and the purge conditions. The record reflected occasions when Scott had access to substantial assets, without paying his support obligations, instead using assets for a $500,000 USD down payment on his Arizona home. Scott also had rejected an order of the Hong Kong court to release his income on the condition that he pay the child support. That was sufficient evidence to support the contempt finding. With respect to the purge conditions, which were to within 60 days obtain access to his income and make monthly support payments, the appellate court rejected Scott’s claim of inability to comply. The court also rejected Scott’s argument that it was unreasonable to award Suzanne her attorney’s fees.

During the pendency of the appeal the superior court has issued an income-withholding order and enjoining access to two international bank accounts in enforcement of its existing orders. Scott challenged those on the basis of jurisdiction pending the appeal and as to whether the equitable remedies imposed were an abuse of the trial court’s discretion. The court of appeals rejected those arguments, as well. The pendency of an appeal does not divest a superior court of jurisdiction to execute and enforce a child support order. The appellate court also held that Scott failed to identify evidence in the record to demonstrate any abuse of discretion by the superior court.

The court of appeals affirmed all of the superior court rulings. It also held that Scott’s use of the appeal process was to avoid and delay paying a valid judgment, so Suzanne was awarded her attorney’s fees on appeal.


FAMILY LAW

RAMIREZ v. BARNET - 1 CA-CV 15-0568-FC - 11/22/2016

Interaction of federal Parental Kidnapping Prevention Act and Uniform Child Custody Jurisdiction and Enforcement Act in paternity action

Barnet gave birth to a child in October 2014. Ramirez believed he was the father, but Barnet had stopped communicating with him before the birth and he was not permitted to see the child at the hospital. Three days after the birth, Ramirez filed a petition to establish his paternity and a motion for temporary orders as to custody. According to that motion, Barnet was already the subject of a pending dependency proceeding regarding an existing child in which the Department of Child Safety had notified her that it would take custody if she had another child. Prior to the return hearing date on the Ramirez motion, Barnet moved to dismiss his petition, alleging that prior to the child’s birth (1) she had consented to the baby’s adoption by Mersimovski and Hildebrant (Intervenors), (2) they had received physical custody of the child the same day as Ramirez filed his petition and taken the child to New York (allegedly with the consent of the administrator of the Interstate Compact of the Placement of Children), and (3) Intervenors also had initiated adoption proceedings in New York on the same day they obtained physical custody of the child in Arizona. At the November return hearing on Ramirez’s motion, Barnet also asserted that he was not the father. Ramirez was then served with notice of a January hearing in New York if he wished to contest the adoption. Ramirez argued that the Arizona court had jurisdiction, rather than the New York court.

The Arizona family court did not follow through on a representation to communicate with the New York court. Instead the judge declined to rule on Barnet’s motion to dismiss for various reasons and directed Barnet to provide support and additional information for her claims. The judge also then transferred the case to another judge.

Ramirez did not appear at the January hearing in New York. At an April hearing in Arizona, Ramirez acknowledged that the New York court had entered an adoption order, but continued to dispute its validity based on which court had jurisdiction. The family court judge ruled that at the time Ramirez filed his paternity petition there was home state jurisdiction pursuant to the Uniform Child Custody Jurisdiction and Enforcement Act. The judge then held a conference with the New York court, but upon being advised that the adopting proceedings had concluded and that the New York court no longer had any jurisdiction to require a DNA test of the child, the Arizona court decided it did not have jurisdiction and granted Barnet’s motion to dismiss. Ramirez appealed. Intervenors were permitted to intervene in the appeal.

Intervenors argued that the Arizona court was required to give full faith and credit to the New York adoption order based upon the federal Parental Kidnapping Prevention Act. The Arizona Court of Appeals agreed with the applicability of the federal PKPA, but disagreed that its application required the result urged by Intervenors. The appellate court also ruled that the Arizona court continued to have jurisdiction over the paternity petition pursuant to the UCCJEA.

The Arizona Court of Appeals held that the New York court was barred by 28 U.S.C.A. § 1738(g) of the PKPA from exercising jurisdiction because of the pending paternity action in Arizona and as a result, the adoption order was not entitled to full faith and credit.The court of appeals disagreed with Intervenors that the temporary orders Ramirez obtained in Arizona were void. Instead, the appellate court ruled that the family court did have jurisdiction over the paternity petition pursuant to the UCCJEA and should not have dismissed the petition. The matter was remanded with directions that Ramirez serve a copy of the paternity petition on Intervenors, that the family court order a paternity test, and, if the paternity test confirmed Ramirez’s paternity, initiate a conference with the New York court to consider whether to continue exercising jurisdiction under the UCCJEA.


REAL ESTATE LAW

TUCSON LOT 4, LLC v. SUNQUEST INFORMATION SYSTEMS, INC. - 2 CA-CV 2016-0088 - 11/22/2016

The predecessor to Tucson Lot 4, as landlord, entered into a 10-year commercial lease with Sunquest, as tenant. In 2012, Sunquest challenged the square footage used as the basis for calculation of charges. In February 2016, Tucson Lot 4 sued Sunquest, alleging that it had breached the lease by not paying some of the operational charges. Sunquest then counterclaimed and stopped paying rent.

Sunquest requested a preliminary injunction precluding Tucson Lot 4 from evicting it. Tucson Lot 4 amended its complaint to seek eviction. The superior court granted Sunquest’s requested preliminary injunction and denied Tucson Lot 4’s request for an eviction order. Tucson Lot 4 appealed.

Sunquest acknowledged appealability of the injunction, but challenged the jurisdiction for the appeal from denial of the eviction order which lacked finality language pursuant to Ariz. R. Civ. P. 54(b). The court of appeals disposed of that challenged, noting both that there was no analog to rule 54(b) in the Arizona Rules of Procedure for Eviction Actions and that appeals from forcible detainer actions were authorized by Ariz. Rev. Stat. § 12-1182(A).

With respect to the preliminary injunction, the court of appeals held that the trial court lacked authority to grant it because it deprived Tucson Lot 4 of its statutory right to a forcible detainer proceeding. 4. Since the trial court had denied the eviction order only because of the injunction, that ruling was vacated and remanded for the superior court to consider that eviction request on the merits.


FAMILY LAW

SHERMAN v. SHERMAN - 1 CA-CV 15-0201-FC - 11/1/2016

Mother and Father were married in 2001, had three children, and a petition for divorce was filed in 2013. Prior to the decree, Father suffered a serious medical event and was unable to work in his previous occupation. Father was supporting himself using funds borrowed from a relative by the time of the decree.

In the decree, the superior court found that Father was not intentionally unemployed, but because Father had not significantly changed his lifestyle, concluded to calculate child support by attributing to Father the average monthly deposits of borrowed funds to his checking account, resulting in a support award of $675 per month. Father’s request for maintenance was denied and he was ordered to pay $50 per month maintenance to Mother. The superior court presumed that Father “might someday be able to return to ‘some sort of employment, ‘” and further stated that “’sufficient factors necessary to make th[e] determination [of the propriety of spousal maintenance] did not exist at the time of trial[, a] nominal award of spousal maintenance should be awarded so that this issue may be revisited at the appropriate time.’” Father appealed.

With respect to child support, the court of appeals held there was no error. Gross income is broadly defined under Section 5(A) of the Child Support Guidelines and may include all aspects of the parent’s income. Because Father received the loan proceeds as a source for living and personal expenses, the court of appeals held that the superior court was entitled to treat those funds as available for child support. The appellate court disagreed with the award of spousal maintenance, however. Maintenance could not be awarded in some placeholder amount based on “speculation that Father might later regain the ability to return to work.” “The court was obligated to assess maintenance based on the parties’ historic and existing circumstances, not on speculative predictions about the future.” Id. The support award was affirmed and the maintenance award vacated.


CONSTRUCTION LAW

RAMSEY v. AZROC - 1 CA-CV 15-0355 - 11/1/2016

Ramsey contracted with Edens for home construction. Edens ceased working on the project at a time when approximately $130,000 remained to be paid on the contract. Ramsey hired another contractor and completed the construction at a cost of about $52,000. Ramsey filed a complaint against Edens for damages for deficiencies in performance. The Arizona Registrar of Contractors intervened on the issue of whether Ramsey was eligible to recover from the Arizona Residential Contractors’ Recovery Fund.

In the superior court, Ramsey obtained a judgment of $111,000 against Edens. The Registrar moved to dismiss with respect to eligibility for compensation from the Fund, arguing Ramsey had not suffered any actual damages pursuant to Ariz. Rev. Stat. §§ 32-1132, -1136(E). The superior court disagreed and ordered that Ramsey be paid $30,000 from the Fund, which was the maximum amount allowed by the statutes. The Registrar appealed.

The court of appeals disagreed with the Registrar that an application for recovery from the Fund had to meet the summary judgment standards for evidence of Ariz. R. Civ. P. 56, but the court did agree that the “actual damages” requirement of Ariz. Rev. Stat. §§ 32-1132(A) limited recovery to the reasonable cost of repairing the contractor’s defective work and/or completing the contract, less any portion of the contract price still unpaid. Since Ramsey was able to complete the original construction contract with another contractor for less than the balance still owed to Edens, Ramsey was not entitled to any recovery from the Fund. The superior court order was vacated.


FAMILY LAW

KIMBERLY MCLAUGHLIN v. SUZAN MCLAUGHLIN - 2 CA-SA 2016-0035 - 10/11/2016

Kimberly and Suzan were married in California in 2008, became the parents of a child via artificial insemination of Kimberly, and relocated to Arizona where the child was born in 2011. In 2013, Kimberly separated from Suzan, taking the child with her and denying contact to Suzan. Suzan filed a dissolution petition and sought temporary orders to include parenting time. Kimberly moved for a determination whether the dissolution was with or without children, asserting a presumption of paternity pursuant to Ariz. Rev. Stat. § 25-814(A) (which states that a man is presumed to be the father of a child based on certain criteria) precluded recognizing Suzan as a parent. Relying on the Supreme Court ruling in Obergefell v. Hodges, 135 S. Ct. 2584 (2015) (that the Constitution affords same sex couples a fundamental right to marry), the trial court held that the Fourteenth Amendment required affording Suzan the same presumption of parenthood that would apply to a man in a heterosexual marriage. Kimberly filed a petition for special action to challenge that ruling. The court of appeals accepted jurisdiction, but denied relief, upholding the trial court ruling.

Kimberly acknowledged that the couple had agreed to become parents via artificial insemination and have equal parenting rights. Her argument was that Suzan was not a parent as defined in Ariz. Rev. Stat. § 25-401(4) and that as the biological mother, only Kimberly was a parent and only she had fundamental rights as a parent. The court of appeals noted that Ariz. Rev. Stat. § 25-401(4) includes “biological or adoptive parent” as a legal parent. The statute also included as a legal parent a person whose paternity was established pursuant to Ariz. Rev. Stat. § 25-814(A)(1) – (4). While the latter statute refers to the presumptions with respect to a “father,” the court acknowledged that it was written with gender-specific language prior to the Supreme Court ruling requiring recognition of same-sex marriage. 11.

Under § 25-814(A)(1), the male spouse of a woman who delivers a child is the presumptive parent, and, therefore, a “legal parent” for purposes of § 25-401(4). If the female spouse of the birth mother of a child born to a same-sex couple is not afforded the same presumption of parenthood as a husband in a heterosexual marriage, then the same-sex couple is effectively deprived of “civil marriage on the same terms and conditions as opposite-sex couples,” . . . . Mindful of our obligation to find statutes constitutional if possible . . . , we find it accommodates a gender-neutral application and Obergefell requires us to apply it in this manner.

14. The appellate court disagreed with Kimberly’s argument that Ariz. Rev. Stat. § 25-814 is merely a “biological paternity statute” and that it is constitutionally permissible to treat men and women differently in the existing context. The court also acknowledged the rebuttal provision in Ariz. Rev. Stat. § 25-814(C), but stated it did not need to resolve how that would apply in a same-sex marriage because Kimberly was estopped to assert it in the case before it because of the acknowledged prior agreement between Kimberly and Suzan when they were married to have and raise a child as parents with equal rights. 20-21.


FAMILY LAW

JADE K. v. LORAINE K. and A.K. - 2 CA-JV 2016-0067 - 09/16/2016

Jade (father) and Lorraine (mother) are the divorced parents of AK (age 8). Lorraine remarried since the divorce and was living with her military husband in another state. During a time when AK was with Jade, she was unsupervised, went outside to play, found and ate some wild mushrooms, became ill, and ended up being treated at a hospital. Subsequently, Lorraine sought termination of Jade’s parental rights on grounds of abandonment and neglect, indicating that her current husband intended to adopt AK.

Following a multi-day evidentiary hearing, the juvenile court granted the petition for severance, specifically based upon the “mushroom” event and holding that no other acts of neglect had been proven by clear and convincing evidence. Jade appealed. The court of appeals reversed.

The court of appeals stated that the focus is solely upon the parent when evaluating grounds for termination of parental rights and that a heightened standard of proof applied in recognition of the severe consequence of any error in termination. The appellate court determined that the record focused much on allegations other than those will respect to Jade’s supervision of AK on that day in question. With respect to that supervision, no one had questioned Jade as to why he thought she was playing outside under the supervision of some other adult, as he suggested. A social worker had opined that Jade’s belief was negligent that AK was playing beneath his apartment window with children supervised by other adults in the apartment complex. The court of appeals held that to be too speculative to support the heightened standard of proof. The termination based upon the single act of neglect was reversed.


EMPLOYMENT LAW

SANTORII v. MARTINEZRUSSO - 1 CA-CV 15-0211 - 8/23/2016

Horcos was a real estate agent associated with MartinezRusso, a real estate broker. While returning from a real estate sales appointment, Horcos crossed the center line and collided with another vehicle driven by Santorii. Both drivers died. Santorii’s widow sued for wrongful death and argued that MartinezRusso was vicariously liable for the negligence of Horcos. MartinezRusso argued that Horcos was an independent contractor for which it was not responsible.

Pursuant to Arizona’s real estate laws, real estate brokers may hire only licensed salespersons, and a licensed real estate salesperson may accept compensation only from the broker to which that salesperson is licensed. The broker is required to review all sales transactions of the salesperson and to maintain all records of such transactions. The broker is required to exercise reasonable supervision of the salesperson, as well.

Notwithstanding those statutory requirements, upon cross-motions for summary judgment, the superior court granted the motion of MartinezRusso that Horcos was an independent contractor and not an employee. As an independent contractor, MartinezRusso was not vicariously liable for any negligence of Horcos. Santorii appealed.

The court of appeals also did not find that statutory obligation to supervise the salesperson to make the broker responsible as an employer. “The regulations do not specify supervision of other aspects of the salesperson’s activities, such as prospecting for clients, showing properties, or sales tactics, unless they affect the transaction.” The court also distinguished the law holding salespersons to be employees of brokers for workers’ compensation purposes. The court rejected that there was any non-delegable duty making the broker responsible for supervising the salesperson’s driving. Applying the primarily control-based factors of Restatement (Second) of Agency § 220 did not provide a different result.

Despite working exclusively for MartinezRusso over a six-year period, Horcos was a licensed professional who had nearly complete discretion in the time, manner, and means in which he traveled to meet clients. The contract expressly characterized Horcos as an independent contractor who was “free to devote” his time, energy, effort, and skill as he saw fit. Horcos was not required to keep specific hours, attend sales meetings, or meet any sales quotas, and although MartinezRusso provided optional office space, administrative services, sales leads, and training, Horcos was charged a monthly fee for these services. There is no dispute that Horcos chose the territory where he worked, created his own advertisements, prospected for clients, drove his own car, worked from his home office, worked purely for commission, and set up his own appointments.

24. The judgment for MartinezRusso was affirmed.


MEDIA LAW

PHX NEWS v. HON REINSTEIN/STATE/MORAN - 1 CA-SA 16-0096 - 08/11/2016

Moran was charged with murder and aggravated assault with respect to two priests. Reporter D’Anna authored two articles about the matter. With respect to the assaulted priest, the article stated Father Terra’s desire to forgive Moran. Moran’s defense attorney sought D’Anna’s notes from interviewing Father Terra. D’Anna (through publisher PNI) moved to quash the subpoena, arguing that the Media Shield Law protected the source of information and that Moran could not overcome the privilege from compelled disclosure without a showing that he had exhausted all other reasonable sources to obtain the information. The superior court ruled against PNI, holding that the Media Shield Law applied only to confidential sources, Moran had established inability to get the information from other reasonable alternative sources, and the information sought was relevant to Moran’s defense.

The court of appeals accepted PNI’s special action petition to review the disclosure order. Ariz. Rev. Stat. § 12-2214 protects members of the media from burdensome discovery and to be overcome requires an affidavit addressing six requirements. Before ordering disclosure, the reporter is also entitled to controvert the affidavit or otherwise move to quash the subpoena. The appellate court analyzed various arguments posed by PNI with respect to First Amendment protections and the requirements of the Media Shield Law, but ultimately focused on the requirement to demonstrate a sufficiently compelling need for the information. The appellate court disagree with the superior court and held that Moran had not demonstrated an inability to obtain the information from other sources. There had been no showing that the information sought was not duplicated in the already published articles, the police interview with Father Terra, and his 911 call. “At a minimum, Moran cannot overcome the reporter’s privilege without showing that he is unable to interview Fr. Terra or that, having interviewed Fr. Terra, he still lacks an alternative means of obtaining the information.” ¶28. The disclosure order was vacated and the matter remanded for further proceedings.


CONSTRUCTION LAW

MARKHAM v. FDIC et al. - 1 CA-CV 14-0752 - 08/09/2016

Markham Contracting perfected a mechanic’s lien on Troon’s property. At the time, First Arizona held a first position deed of trust encumbering Troon’s property. Thus, Markham’s lien was in second position. Subsequently, First Arizona (together with another lender) made a new loan to Troon, part of which was used to pay off the earlier loan. The deed of trust to First Arizona (together with another lender) for that loan was subsequent to the recording of the Markham lien.

After First Arizona filed notice of a trustee’s sale of the Troon property, Markham asserted that its mechanic’s lien was superior. First Arizona disagreed and stated its intention to proceed with the sale and that it would not recognize the priority of the Markham lien. Markham filed a lien foreclosure action. First Arizona conducted its trustee sale and obtained the former Troon property for a $3.175 million credit bid. In the Markham foreclosure action, First Arizona obtained summary judgment that its later loan was equitably subrogated to the prior loan, therefore held a first priority, and extinguished the Markham lien. Markham appealed.

The court of appeals agreed that First Arizona was equitably subrogated to the prior deed of trust when the second loan was used in part to pay off the prior loan. That put First Arizona in first priority ahead of Markham’s mechanic’s lien to the extent of the amount of the earlier loan. Disregarding the delay by First Arizona in asserting an equitable subrogation claim, the appellate court still found the trustee’s sale by First Arizona failed to extinguish Markham’s lien. That was because at First American’s trustee sale with respect to the second loan, it had asserted a credit bid that was in excess of the amount it would have been entitled to assert based upon equitable subrogation to the first loan. Its bid exceeded its priority, so Markham should have received the excess portion. The appellate court’s resolution was that Markham’s mechanic’s lien continued to encumber the property.


FAMILY LAW

DAVID C., KIM C. v. ALEXIS S., A.C. - 1 CA-JV 14-0311 - 8/27/2015

A Child (A.C.) was born September 23, 2013, to Biological Mother, who identified the father as unknown on the birth certificate. This was false; she knew Alexis was the Biological Father. Biological Mother signed a consent to adoption and David and Kim (Adoptive Petitioners) began that process. Adoptive Petitioners determined there were no notices of claims of paternity as to Child and filed a petition to adopt (publishing a “John Doe” notice in lieu of service on the unknown father). In the meantime, Biological Father (who knew of the pregnancy) had tracked Biological Mother to Nevada and she refused to give him any information about Child, but falsely stated she had turned over custody to another man who had proved paternity. Biological Father filed a petition to determine paternity and award custody, but listing no identifying information of Child except a birthday of “September 2013.” His paternity petition was served on Biological Mother, but she did not inform Adoptive Petitioners.

On January 6, 2014, Biological Father sought a default of Biological Mother on his petition, but it was continued due to insufficient information about Child. On January 15, 2014, the petition of Adoptive Petitioners was granted. On February 26, 2014, Biological Father learned of the prior John Doe notice by publication regarding the adoption proceedings. He filed a request for information in the adoption proceedings and moved to amend his petition in the paternity proceedings. Paternity testing confirmed he was the father of Child.

Biological Father intervened in the adoption matter and Adoptive Petitioners intervened in the paternity matter. The juvenile court (where the adoption case was pending) took temporary jurisdiction of the paternity case to hear Biological Father’s petition to set aside the January 15, 2014 adoption order. The court ruled for Biological Father.

The court acknowledged that Biological Father had not filed a notice of claim of paternity with the putative fathers registry as required by A.R.S. § 8-106.01. Nevertheless, the court concluded that, because Biological Father had filed a paternity action and timely served Biological Mother while the adoption was pending, he was entitled to notice of the adoption proceedings under A.R.S. § 8-111(5), and that the lack of this statutory notice violated his due process right to seek to parent his child and deprived the court of jurisdiction to issue the adoption order.
10. Adoptive Petitioners appealed.

The court of appeals affirmed, noting another panel of the court had reached a different result and applied different reasoning in Marco C. v. Sean C., 218 Ariz. 216, 181 P.3d 1137 (Ct. App. 2008).
Even though he did not actually know of the John Doe notice until months later, Biological Father complied with the statutory requirements set forth in that notice by filing a paternity action the same day the notice was published and serving Biological Mother two days later, well within the 30-day time limit. He diligently pursued the paternity action, . . . . In short, Biological Father did everything required under § 8-106(G) to assert his parental rights.

Although Adoptive Petitioners were not aware of the paternity suit, it was not Biological Father’s obligation to inform them. See A.R.S. § 8-106(G) (requiring father to file and serve a paternity suit, but making no mention of contacting adoptive petitioners). Biological Mother had actual knowledge of both the paternity suit and the adoption proceedings. . . . Adoptive Petitioners understandably relied on the absence of any filing relating to A.C. in the putative fathers registry, but they could have searched paternity filings and, had they done so in this case, likely would have found Biological Father’s paternity action (naming Biological Mother as the Respondent) filed in the same county as the adoption proceedings. . . .

Adoptive Petitioners acknowledge that Biological Father “took certain actions,” but argue that his failure to file a notice of claim of paternity with Arizona’s putative fathers registry invalidated his efforts to assert his parental rights through a paternity action. We disagree because the putative fathers registry supplements and does not supplant a father’s right to pursue a paternity action.

The putative fathers registry allows “[a] person who is seeking paternity, who wants to receive notice of adoption proceedings and who is the father or claims to be the father of a child” to independently ensure that he will receive notice of adoption proceedings without relying on the biological mother’s statement (or even, as here, outright lies) regarding the child’s paternity. . . . The registry thus supplements the notice provisions of § 8-106 as part of a comprehensive scheme to ensure that biological fathers receive timely notice of potential adoptions.
14-17.

We recognize that in Marco C., a different panel of this court reached a contrary conclusion, holding that registering a notice of claim of paternity one day late rendered a putative father’s consent to his child’s adoption unnecessary under § 8-106.01(E). . . .

We note that the putative father in Marco C. failed to timely serve the paternity action on the mother. Thus, even if he had timely filed with the putative fathers registry, he would have been barred from pursuing the paternity action and establishing paternity. . . . Nevertheless, as explained above, we respectfully disagree with the reasoning of Marco C. insofar as it holds that filing with the putative fathers registry is a necessary precondition in all cases in which a father asserts his parental rights.

20-21. The adoption was set aside.


MEDICAL LIENS

JACKIE ABBOTT et al v. BANNER HEALTH NETWORK et al - CV-15-0013-PR - 5/23/2016

Plaintiffs in this matter are all “Patients” who received medical services related to injuries for which they sued tortfeasors to recover damage awards for their personal injuries. The defendants are “Hospitals” which had provided treatment for which they accepted payment from the Arizona Health Care Cost Containment System (AHCCCS).

Patients obtained settlements with various third party tortfeasors. Patients entered into agreements with Hospitals to have the persons holding the settlement funds pay reduced amounts to the Hospitals in exchange for release of their medical liens. Patients brought this lawsuit to, among other things, declare that federal law prohibited the liens and thus any accord and satisfaction as to the liens. Patients sought a refund of the release amounts paid to the Hospitals.

The superior court granted the motion to dismiss of the Hospitals, enforcing the accord and satisfaction of the lien releases as binding regardless of the validity of the underlying pre-emption argument. The superior court relied on A.R.S. §§ 33-931 and 36-2903.01, authorizing the liens, and framed the issue as whether the Patients failed to state a claim since they had settled the liens in question.

The court of appeals reversed and remanded. That court held that the accord and satisfaction agreements were void as federal law preempts Arizona law with respect to state law allowance of liens. Because the liens themselves are void under federal law, the court of appeals determined that the accord and satisfaction agreements also were unenforceable.

The Arizona Supreme Court accepted review, reversed the court of appeals, and affirmed the determination of the superior court. The supreme court assumed without deciding that federal law applies, but concluded that it was not dispositive on the issue of the validity of the agreements for purposes of an accord and satisfaction. According to the supreme court, the compromise and payment of “balance bill” liens where Hospitals had been paid by AHCCCS does constitute an accord and satisfaction because the liens were legitimately in dispute at the time.


FAMILY LAW

CLARK v. CLARK - 1 CA-CV 15-0068-FC - 3/22/2016

The Clarks divorced in 2012 with a support award for Father to make payments regarding their two children. Father relocated to New York. In 2014 he petitioned for a reduction in his support obligation. The superior court ordered a decreased support payment, assessed Father approximately $20,000 for unpaid arrearages, and awarded Mother fees and costs based on Father having taken unreasonable positions.

Father appealed. The court of appeals affirmed, only publishing the part of the ruling with respect to the fee award.

Fees in family court matters may be available pursuant to Ariz. Rev. Stat. § 25-324 and (with respect to child support modification) Ariz. Rev. Stat. § 25-503. The former statute refers to relative financial resources and reasonableness of positions; the latter states that a court may award fees to the prevailing party.

Father’s position was that, because the proceedings were upon his petition for modification of child support, that Ariz. Rev. Stat. § 25-503 governed, that he was the prevailing party since the support award was reduced, and that the superior court had erred in awarding fees to Mother. The court of appeals treated the statutes as concurrently applicable, rather than Ariz. Rev. Stat. § 25-503 being exclusively applicable. The appellate court also noted the use of the word “may” in the statute. The superior court had the discretion to award fees to the prevailing party or not pursuant to Ariz. Rev. Stat. § 25-503. The superior court also had the authority to determine whether to award fees pursuant to Ariz. Rev. Stat. § 25-324, made findings with respect to the twin requirements of that statute, and no reversible error was found.


FAMILY LAW

BOBROW v. HON. HERROD/BOBROW - 1 CA-SA 15-0280 - 2/4/2016

In entering a divorce decree, the superior court awarded Wife approximately $1.2 million for her interest in a certain residence. The decree directed Husband to make an election whether to pay the amount in a lump sum or pursuant to a 10-year promissory note following an initial payment of approximately one-third of the amount. The decree also made some other monetary awards.

Husband filed a notice of appeal and a motion to set a supersedeas bond. The court set the bond at $1.3 million – the amount based on the residence plus the other monetary awards. Subsequently, the superior court imposed the 10-year payment plan and ordered Husband to make the down payment of approximately $370,000. Husband asked the court to reduce the supersedeas bond. The superior court denied that request and Husband filed a special action petition requesting the court of appeals to reduce the bond amount.

On special action, Husband argued that Ariz. Rev. Stat. § 12-2108 and Ariz. R. Civ. App. P. 7 refer to “damages,” and since amounts awarded by a divorce decree are not damages, the bond amount should be zero. The appellate court accepted review, but rejected that argument and the requested relief, noting that the legislature intended the statute to apply in divorce cases and Husband’s argument would make the supersedeas bond requirements inapplicable in all divorce appeals. ¶¶12, 15. The court held that imposing the bond requirement served the purpose of preserving the status quo and protected against the risk that funds could be dissipated while the appeal was pending. The court also disagreed with Husband’s argument that the bond should be limited to amounts presently actually due, which should not include the full amount of payments that were to be made over a period of 10 years. The appellate court quoted the statutory language that the bond should in “the total amount of damages awarded.” ¶16. “f Husband is successful on appeal, the bond is returned, leaving him in the same position he was in when the appeal began.” ¶17.


BUSINESS/CORPORATE LAW

SUMMERS v. GLOOR, et al. - 1 CA-CV 14-0674 - 2/2/2016

Gloor operates a bakery (The Bread Basket) and Summers operates a fruit and vegetable business. Summers sued Gloor for non-payment of approximately $400,000 in loans and for specific performance of an agreement to convey a 50% partnership interest in the bakery. Gloor denied the partnership agreement, and acknowledged there had been loans, but also alleged the loans had been substantially repaid by labor and bakery products provided in support of Summers’ fruit stands. Gloor asserted various affirmative defenses along with a counterclaim for unjust enrichment. Summers acknowledged receiving labor and bakery products, but denied any agreement that it was in repayment of the loans, and further asserted that the value of such labor and bakery products was less than the value of fruits and vegetables Summers provided to Gloor’s bakery.

The parties agreed that Gloor’s equitable counterclaim would be decided by the court following resolution of a jury trial of Summers’ claims. A special interrogatory was posed to the jury to determine if any verdict included assigning credit to Gloor for bakery products supplied to Summers. The jury verdict was in favor of Summers for $346,854 on the loans, but against Summers on the alleged agreement to convey an interest in the bakery. The special interrogatory was answered in the negative, that the verdict had not been reduced based upon any bakery products provided. The court received additional evidence on the remaining equitable claim and ruled in favor of Gloor, awarding $280,000 for unjust enrichment. On cross-applications for attorney fees, the trial court held Gloor to be the successful party and awarded Gloor fees and costs of $108,456. Summers appealed.

The appellate court did not agree with Summers that the trial court ruling was inconsistent with the jury verdict. The jury was not tasked with deciding the unjust enrichment claim. The jury heard the evidence in the context of Summers’ claims regarding the loans and the agreement to convey an ownership interest in the bakery. In that context, the appellate court determined that the jury could have accepted Summers’ argument that the bakery products received were outweighed by fruits and vegetables received in return, or that even if such products had more value, it had not been agreed to receive them in payment of the loans. The appellate court rejected Summers’ argument that the trial court was required to seek clarification from the jury. Neither party requested clarification. As the trial court was the factfinder on the equitable claim, it was entitled to choose among competing inferences as to the meaning or the jury response to the special interrogatory. ¶20.

The court of appeals acknowledged the law that determining who is the successful party to litigation is within the trial court’s discretion.

Summers asserts the trial court misapplied A.R.S. § 12-341.01 in considering Summers’ rejection of a settlement offer made before Summers filed her complaint and, arguably, before the matter became a “contested action,” for purposes of determining who was the successful party. We need not and therefore do not address this contention because the record reflects: (1) Gloor made a written offer to Summers in December 2013, well after the filing of the complaint, offering to pay Summers $50,000 in full satisfaction of all claims between them; and (2) the net judgment finally obtained against Gloor, $41,602, was more favorable to Gloor than had Summers accepted her offer of settlement.

¶22. The trial court was affirmed and Gloor awarded costs and fees of the appeal.


Business/Corporate Law & Late Fees and Penalties

DOBSON BAY v. LA SONRISA - 1 CA-CV 13-0709 - 1/28/2016

Dobson Bay obtained a $28.6 million loan from Canadian Imperial Bank in 2006. The related promissory note provided for interest only payments with all principal due at maturity in 2009. The note included a late fee provision imposing a 5% additional fee for handling and processing a delinquent payment. Another provision imposed default interest and collection costs in the event of any default.

The maturity date was extended from 2009 to 2012. Negotiations for another extension failed in 2012 and Canadian Imperial issued a notice of default and later assigned the note and deed of trust securing it to La Sonrisa LLC. La Sonrisa sought to foreclose on the collateral by statutory trustee’s sale, asserting an aggregate indebtedness that included a late fee of $1,392,784.90, as well as default interest and other charges.

Dobson obtained new financing and paid La Sonrisa the loan balance, disputing the late fee. La Sonrisa refused to release the deed of trust. Dobson Bay sued for declaratory relief that it was entitled to release of the deed of trust without paying the late fee. On cross-motions for summary judgment, the trial court (Judge Rea) ruled for La Sonrisa that the late fee was enforceable as liquidated damages.

Dobson Bay appealed. The court of appeals agreed with it. Applying a Restatement of Contracts approach, the court examined whether the late charge was compensatory or punitive. The court disagreed with La Sonrisa’s analysis “at a lender sustains a myriad of incalculable harms whenever a borrower defaults, and thus a 5% late-fee is reasonable as a matter of law.” ¶15.

But conventional, fixed-interest rate loans do not expose the lender to the uncertain losses that liquidated damages clauses are intended to address, particularly with regard to a delinquent balloon payment. When a lender makes a conventional loan, the parties negotiate the interest rate, default interest, foreclosure of the collateral, late fees on installment payments, and numerous other conditions and obligations that address what payments will be required to ensure the lender is compensated for any losses associated with a default. Thus, the parties decide up on the “compensatory” damages the lender may recover. Under most circumstances, the imposition of an additional 5% fixed late-fee on a balloon payment as a part of such a loan is strictly punitive in nature.

Id. After consideration of the two factors governing whether a liquidated damages clause is reasonable (“(1) the anticipated or actual loss caused by the breach, and (2) the difficulties of proof of loss,” ¶12), the court of appeals ruled against La Sonrisa.

Both factors cut sharply against La Sonrisa. First, La Sonrisa has presented no evidence that the $1.4 million late fee reasonably approximated the anticipated losses that would have resulted from Dobson Bay’s failure to make the balloon payment in a timely manner generally, much less the actual losses suffered by La Sonrisa. Second, the difficulty of proving loss is not great. As a result of Dobson Bay’s breach, La Sonrisa is entitled to compensation for the losses it incurred, which, according to the promissory note and deed of trust, consist of default interest, attorneys’ fees and related costs, and trustee’s fees. Dobson Bay has challenged whether, on legal grounds, La Sonrisa is entitled to recover all those losses, but that dispute does not alter that the losses are easy to calculate. Applying the factors set forth in Restatement § 356 to these specific circumstances, enforcement of the late-fee provision would serve only punitive purposes rather than compensatory. Therefore, the trial court erred in entering partial summary in favor of La Sonrisa and denying Dobson Bay’s motion for partial summary judgment.

¶21. The court of appeals held the late fee was an unenforceable penalty as a matter of law, vacated the partial summary judgment for La Sonrisa, and directed entry of partial summary judgment in favor of Dobson Bay regarding the liquidated damages issue.


FAMILY LAW

GOODMAN v. FORSEN - 1 CA-CV 14-0844-FC - 1/28/2016

In this child visitation case, the court interpreted Ariz. Rev. Stat. § 25-409. Mother gave birth to a child without marrying the father, whose rights were later severed. Mother began a relationship with another woman, Nicole, and the two of them raised the child for 5 years, then separated. Mother permitted Nicole visitation for about 2 years, then terminated it. Nicole petitioned for visitation, which Mother opposed.

There was a parenting conference in advance of an evidentiary hearing. At that conference, there were statements made about mutual domestic violence between Mother and Nicole and also about arguments between Nicole and her then-partner. During the conference, the child spontaneously announced that Nicole was mean to her current partner, throwing and yelling, but that the child would like to visit Nicole if Nicole and Mother would not fight. There was also a dispute over discipline (spanking) by Nicole.

The family court decided that Nicole was entitled to visitation, concluding that Nicole had a parental relationship and that there was a loving relationship between her and the child. The court did not find the evidence of domestic violence was a basis to preclude the visitation. The family court judge stated that “special weight” had been given to Mother’s opinion on visitation, but found Nicole’s evidence more credible, and awarded visitation conditioned that Nicole’s partner not be present during those visits.

Mother appealed. The court of appeals vacated the family court ruling.

Our interpretation of A.R.S. § 25-409(E) recognizes that the “special weight” requirement demands robust deference to fit parents’ opinions concerning their children’s best interests. “Consistent with the constitutional right to parent, the legislature has provided nonparents with fewer rights than parents.” Egan v. Fridlund-Horne, 221 Ariz. 229, 238, ¶ 31 (App. 2009). Assuming parental fitness, the analysis required under § 25-409 is not a typical balancing test in which the court’s own determination of best interests is controlling -- we interpret “special weight” to mean that the parents’ determination is controlling unless a parental decision clearly and substantially impairs a child’s best interests. Even if arbitrary, the parents’ determination is the primary factor in the analysis, and the burden is on the person seeking visitation to demonstrate that denial of visitation would clearly and substantially impair the child’s interests.

¶13. The appellate court stated that the parent’s opinion did not have to always be upheld. “But on this record, the court’s rejection of Mother’s opinion, where Mother was undisputedly a fit parent, demonstrates that it placed a burden on Mother that the statute does not allow.” ¶15. The appellate court agreed that the family court was entitled to consider other factors and reach an conclusion at odds with that of the parent, but that it must not change the burden as imposed by the statute. “Though the court carefully considered many appropriate factors, it erred by discounting Mother’s opinion. We therefore reverse, and remand to permit the court to reweigh the evidence under the test articulated above. Because we reverse the court’s visitation order as a misapplication of A.R.S. § 25-09(E), we do not address the merits of Mother’s contention that the visitation award included unconstitutional prior restraints.” ¶18.


FAMILY LAW

CV-15-0028-PR DIANE MERRILL v ROBERT KENNETH MERRILL

This case is similar to, and is decided consistently with, another family law case decided earlier this month. Howell v. Howell, No. CV 15-0030 PR (Ariz. Sup. Ct., filed Dec. 2, 2015). Howell involved a post-decree waiver by a divorced spouse of military retirement pay to receive disability benefits. This case involves a post-decree waiver by a divorced spouse of military retirement pay to receive combat-related special compensation.

Husband and Wife were married in 1963 and divorced in 1993. Husband had retired from the Army in 1983 to work in the private sector. At that time and at the time of the decree, Husband had a Veteran’s Administration disability rating of 18.62% (from combat injuries). Wife was awarded one-half of Husband’s military retirement pay (but none of his disability benefits) in the divorce decree.

In 2004, Husband had become unemployable due to his disabilities and his VA disability rating was changed to 100%. Husband thereafter elected to take advantage of the federal law that allowed him to waive a portion of his military retirement pay to instead receive a like amount of tax-free combat-related special compensation. Federal law prohibits treating combat-related special compensation as community property. Wife continued to receive one-half of the monthly military retirement pay, but her share then dropped from $1,116 to $133. Wife petitioned for an award of arrearages in 2010.
The family court awarded Wife $128,574.35 in arrearages plus an indemnity award that Husband monthly pay $1,486.50 from non-exempt sources. Husband appealed. During that appeal, the Arizona Legislature enacted Ariz. Rev. Stat. § 25-318.01 which restricts a court from considering federal disability benefits in making a disposition of property in a divorce. Without deciding the appeal based upon the briefs, the court of appeals granted Husband’s motion based upon then-newly enacted Ariz. Rev. Stat. § 25-318.01 and vacated the family court award to Wife. The supreme court accepted review.

As it did in Howell, the supreme court held that Ariz. Rev. Stat. § 25-318.01 could not be applied to vested rights awarded prior to the effective date of the statute. “Section 25-318.01 cannot be applied to prohibit the family court from entering an indemnification order to compensate a non-military ex-spouse for a reduction in a share of MRP caused by a veteran’s election to receive CRSC benefits when that share was awarded in a decree entered before the statute’s effective date.” ¶17. Since the court of appeals had not addressed the issues raised on the appeal, the supreme court vacated its disposition order and remanded the matter to the court of appeals to proceed to consider the issues raised on appeal.


FAMILY LAW

GILA RIVER, DESTINY O. v. DCS, et al. - 1 CA-JV 15-0178 - 12/8/2015

A child was born and at age 3 months became the subject of Department of Child Safety dependency proceedings. Mother advised that Father was of Indian heritage, but not enrolled in any tribe. DCS placed the child with a non-Indian foster family. Later the case plan was changed from reunification to severance and adoption.

The Gila River Indian Community appeared in the juvenile court proceedings and requested that the placement be changed to be with Father’s cousin as preferred by the Indian Child Welfare Act. Following an evidentiary hearing, the juvenile court denied the request, stating that there was good cause to deviate from the ICWA placement preferences and enumerating them.

The Gila Community appealed. Although the Gila Community had not raised a standard of proof issue in the juvenile court, the appellate court elected not to treat the issue as waived. The court of appeals held that a party seeking deviation from ICWA preferences bears the burden of proving good cause for the deviation by clear and convincing evidence. 17. The appellate court further stated that it was not apparent from the record whether the lower court had applied that heightened burden of proof. The placement order was vacated and remanded for further consideration with application of the heightened standard.


FAMILY LAW

LORENZ v. STATE, et al. - 1 CA-CV 14-0607 - 12/8/2015

Wendy Lorenz is the grandmother of a child who became the subject of a foster home placement. Due to some procedural problems, Wendy and her husband initially were unable to arrange visitation through the Department of Child Safety. Subsequently, Wendy and her husband were out of the county for several months due to employment. In the meantime, DCS invited the foster parents to adopt the child and stated that no family members had come forward. The juvenile court changed the case plan to severance of parental rights and adoption. Wendy and her husband returned to Arizona, intervened, and advised of their interest in adoption. The foster parents and the grandparents both filed petitions for adoption. Following an evidentiary hearing, the court granted the petition of the foster parents. Wendy appealed, but the court of appeals affirmed the juvenile court decision.

Wendy and her husband next sued DCS, alleging deprivation of constitutional rights and negligence. The case was removed to federal district court where the constitutional right claims were dismissed and the remaining negligence count was remanded back to the state court. The negligence count was dismissed in the superior court and appealed to the court of appeals. Wendy and her husband relied upon Ariz. Rev. Stat. §§ 8-103(B), 8-451(B), 8-514(B), and 8-514.03(C). The appellate court held that none of those statutes afforded a private cause of action in favor of the grandparents. Having failed to establish a legal duty owed to them by DCS, the dismissal of the negligence claim was affirmed.


FAMILY LAW

STEIN v. STEIN - 1 CA-CV 14-0748-FC - 12/8/2015

Father and Mother married in 2005 and divorced in 2014, with four minor children. The divorce was tried to determine child support. Father timely requested that the trial court make findings of fact and conclusions of law. Father’s annual gross income is more than $3 million. Although Father received primary custody, sole decision-making authority, and was responsible for 90% of the costs of Mother’s parenting time, the court decided and upward deviation from the Child Support Guidelines was appropriate and awarded Mother $7500 per month as child support. The amount pursuant to the Guidelines would have been $184.24. The trial court did file findings and conclusions, but they did not explain how the court had arrived at the amount of $7500. Father appealed.

The court of appeals stated that the trial court’s explanation in favor of an upward deviation did satisfy Guidelines §20, but did not satisfy rule 82(A), Ariz. R. Fam. Law Proc. The appellate court stated that it was insufficient that a basis for the specific upward adjustment might be inferred from the record; it was necessary for the trial court to set forth at least a “rudimentary arithmetic basis” for the calculation. 11. The support order was vacated and the matter remanded for further proceedings.


TAX LAW

CHEVRON v. ADOR - 1 CA-TX 14-0013 - 12/3/2015

Chevron sold certain oils and greases to Freeport used on equipment for mining operations. Arizona collected sales tax on the transactions. Chevron argued that the sales were exempt pursuant to Ariz. Rev. Stat. §§ 42- 5061(B)(1), (2), (18), and sought a refund of over $320,000 for taxes paid during 2002-06. Chevron argued that those statutory provisions “exempt machinery and equipment used in mining or metallurgical operations and for machinery and equipment used to prevent or reduce pollution arising from such operations.” 3. The Department of Revenue refunded about $8000 regarding the sale of hydraulic fluids, but denied the balance of the refund claim. Following unsuccessful administrative challenges, Chevron filed a complaint in tax court and the parties submitted cross-motions for summary judgment. The superior court ruled in favor of DOR and Chevron appealed.

The court of appeals reversed in favor of Chevron. The court stated: “If the oils and greases qualify as machinery or equipment used directly in Freeport’s mining and metallurgical activities, they are exempt.” 13. Relying principally on the decision in State ex rel. Ariz. Dep’t of Revenue v. Capitol Castings, Inc., 207 Ariz. 445, 88 P.3d 159 (2004), the court of appeals determined that the use made of the lubricants in question satisfied the purposes for which the statutory exemption applied. 17-20. The matter was remanded with directions to enter summary judgment for Chevron. The court also approved an award to Chevron of its costs and fees incurred for the appeal.


LABOR & EMPLOYMENT LAW

BERNDT v. ADOC, et al. - 1 CA-CV 14-0622 - 12/3/2015

Amid allegations of sexual harassment and insubordination, Berndt was fired as a corrections officer. His case went to the Arizona State Personnel Board which determined that the allegations were unfounded, that his conduct was of a less serious category, and the Board ordered his discipline modified to a two-week suspension. The Department of Corrections rejected the Board decision and adhered to its termination decision. Berndt appealed to the superior court which, relying on Ariz. Rev. Stat. § 41-783(E), deferred to the Department as the final decisionmaker, held that the Department did not have to state its reasons for rejecting the Board order, and affirmed the termination.

Berndt appealed to the court of appeals. The appellate court held that Berndt was employed as a law enforcement officer and thus was entitled to the protections of Ariz. Rev. Stat. § 38-1101(K), which had to be read in conjunction with Ariz. Rev. Stat. § 41-783(E). The greater protections of Ariz. Rev. Stat. § 38-1101(K) meant that the “Department could reject the Board’s decision only if it: (1) found the Board’s action was arbitrary and capricious, and (2) provided reasons for its rejection.” 15. The court of appeals determined that the Board did not act arbitrarily or capriciously in reducing the discipline to suspension so the Department had no authority to reject the Board’s order. 19. The superior court was directed to reverse the Department decision and reinstate the Board sanction. Berndt was approved for an award of costs and fees for his appeal.


REAL ESTATE LAW

ALCOMBRACK v. CICCARELLI - 1 CA-CV 13-0148 - 12/3/2015

Ciccarelli’s house was subject to a deed of trust securing a loan in favor of Chase/WaMu. The loan was in default. The lender hired a service to inspect the house, which in turn hired locksmith Alcombrack to change the locks (apparently prior to conducting a trustee’s sale). Alcombrack thought the house was vacant. It was not. Ciccarelli had leased the house to Harrison. Harrison thought Alcombrack was an intruder and shot him.

Alcombrack survived and sued. He sued Ciccarelli. Alcombrack alleged that Ciccarelli “created an unreasonably-dangerous condition by not telling Harrison the house was in foreclosure and that someone might inspect the house ‘and/or change the locks.’” 4. Ciccarelli sought summary judgment on the ground that no duty was owed to Alcombrack. That motion was granted.

The matter proceeded to trial on Alcombrack’s claims against the inspection service that had hired him. Because the trial court had ruled no duty was owed to Alcombrack, the jury was not permitted to assign fault to Ciccarelli. The jury verdict was in favor of Alcombrack for about $849,000, but with the inspection service held 34% at fault. Alconbrack then appealed the summary judgment in favor of Ciccarelli.

The court of appeals affirmed the summary judgment ruling. As Ciccarelli was not in possession, the court stated that there was no landowner-licensee/invitee relationship with Alcombrack. 7. The appellate court rejected Alcombrack’s request to adopt either Restatement (Third) of Torts: Liability for Physical and Emotional Harm § 39 (2010) or Restatement (Second) of Torts § 321 (1965) as the law in Arizona, stating that both were contrary to existing Arizona law. Given that one judge dissented (determining that Ciccarelli created a risk of harm to Alcombrack), review might be accepted by the supreme court which has been very willing to adopt Restatement law.


FAMILY LAW

SANDRA HOWELL v JOHN HOWELL - CV-15-0030-PR - 12/2/2015

Wife and Husband were divorced in 1991. The decree awarded Wife 50% of Husband’s military retirement benefits, payment of which started in 1993. In 2005, Husband received a 20% disability rating from the Veterans’ Administration. As a result, Husband waived a portion of his retirement benefits in favor of disability payments and that caused a reduction in the payments to Wife. In 2013, she filed a petition to enforce the decree.

After an evidentiary hearing, the superior court awarded arrearages to Wife and ordered that Husband assure Wife receiving the full amount of her 50% of his retirement benefits. Husband appealed. In an unpublished decision, the court of appeals affirmed the trial court ruling. The supreme court accepted review and also affirmed the superior court.

The supreme court disagreed with Husband’s federal pre-emption argument based on the Uniformed Services Former Spouses’ Protection Act. Although the court of appeals had held the argument raised untimely and waived, the supreme court ruled against Husband on the merits of the issue. The court held it significant that the Husband’s VA waiver did not occur until after the decree awarding half of the retirement benefits and determined that ordering Husband to reimburse Wife for the reduction did not violate the USFSPA.

Husband also argued that the order violated Ariz. Rev. Stat. § 25-318.01, enacted in 2010, which precludes a court from considering federal disability benefits in making a disposition of property in a divorce, and precludes a court from indemnifying a former spouse based on post-judgment reduction in retirement benefits related to disability benefits. The supreme court again disagreed with Husband.

By its express language, § 25-318.01 applies only to property dispositions made pursuant to §§ 25-318 and -327. Section 25-318 governs the division of property in legal separation or marriage dissolution proceedings, while § 25-327 applies when a party seeks to revoke or modify a previously ordered division of property. But nothing in § 25-318.01 restricts the family court’s ability to enforce a disposition order.

17. The court held that Wife had a vested interest in the retirement benefits upon entry of the decree which pre-dated the enactment of Ariz. Rev. Stat. § 25-318.01. Husband was not entitled to defeat her interest by his post-decree exercise of an election to receive disability payments in reduction of part of his retirement benefits. 22-23.
 


PROBATE & TRUST LAW

MARSH et al. v. MAYER et al. - 1 CA-CV 14-0407 - 11/10/2015

This is another case related to the demise of Mortgages Ltd. Its founder Scott Coles was determined to have unlawfully deprived a group of investors (the “Investors”) of more than $127 million. Following his death in 2008, his family collected more than $40 million from life insurance policies Coles had purchased with proceeds of his unlawful activities. The Investors sued his family members (including a series of limited liability companies and trusts the family had used to receive or hold insurance proceeds); the Investors sought to impose a constructive trust upon the life insurance proceeds.

The Investors’ theory was that Coles’ money came from illegal activities constituting racketeering (RICO) and that the RICO statutes provided a private right of action to recover damages for such activity and that authorized a court to impose a constructive trust upon the insurance proceeds as proceeds of the illegal enterprise. ¶4. The defendants moved to dismiss the complaint. None of them were alleged to have participated in the alleged illegal activities. The defendants argued that Ariz. Rev. Stat. § 13-2314.04(L) of the RICO statutes precluded any constructive trust as they were innocent third parties to the illegal activity and that additionally Ariz. Rev. Stat. § 20-1131(A) barred creditors of the decedent from any constructive trust against the lawful beneficiaries of life insurance proceeds. Neither the superior court nor the court of appeals reached the insurance statute issue, both determining that the complaint should be dismissed based upon the RICO statute.

The court of appeals held that the plain language of Ariz. Rev. Stat. § 13-2314.03(L) barred the constructive trust claim. ¶10. The court rejected the Investors’ argument that imposing a constructive trust did not amount to holding the personally defendants liable. While acknowledging some overlap with another section, the court did not agree that its interpretation of Ariz. Rev. Stat. § 13-2314.04(L) rendered superfluous the bona fide purchaser protections of Ariz. Rev. Stat. § 13-2314.04(D)(6). The court of appeals also affirmed the superior court award of attorneys’ fees to the defendants and awared them their attorneys’ fees on appeal, as well.


COMMERCIAL LITIGATION

SKYDIVE v. HOGUE et al. - 1 CA-CV 14-0084 - 10/22/2015

Hogue started a commercial skydiving business as Skydive Force. Thereafter Hogue’s friend, Mullins, offered to sell his commercial skydiving business, Arizona Skydiving Coolidge. There was then pending a federal trademark lawsuit between Hill’s company, Skydive Arizona, and Mullins about the use of the name Arizona Skydiving Coolidge. Hogue spoke to Hill who agreed to lease airplanes to Hogue’s business and who further stated that he did not care what name Hogue used for his business. Hogue then purchased from Mullins the assets and business of Arizona Skydiving Coolidge, which included the domain name http://www.arizonaskydiving.com. Hogue took over that business and began leasing planes from Hill.

Later, Hill asked Hogue to change his business name and give up the domain name. Hogue did not want to get involved in the dispute between his friends Mullins and Hill. He agreed to change the business name, but not to give up the domain name. After some revisions, a “Settlement Agreement” was signed by Hill on behalf of Skydive Arizona and by Hogue on behalf of Skydive Force. The agreement called for Hogue to change his business name to Coolidge Skydiving and to stop using Arizona Skydiving. With respect to the domain name, the agreement stated that Skydive Force could continue to use it so long as Hogue owned at least 34% equity in the business and was actively involved in its management. Upon the cessation of those conditions, the domain name was to be assigned to Skydive Arizona. When Hogue was later deposed in the ongoing litigation between Mullins and Hill/Arizona Skydiving, Hogue testified that the Settlement Agreement correctly stated his agreement with Hill, except that “Arizona Skydiving” should have read “Arizona Skydiving Coolidge” and “Coolidge Skydiving” should have read “Skydive Coolidge.”

Hogue incorporated Skydive Coolidge in 2005. He used Skydive Coolidge and Skydive Force to operate his business, which included government contracts to train military personnel. Shortly afterwards, Hogue received a letter from Skydive Arizona’s (Hill’s) attorney complaining of an article referring to Hogue’s business as “Arizona Skydiving.” Hogue moved his business from Coolidge to Gila Bend. Apparently taking the position that the Settlement Agreement condition depended upon Hogue’s business operating from its then address in Coolidge, Skydive Arizona’s attorney sent Hogue a letter that he was in breach of the requirement of 34% ownership in the business at that location. After Hogue continued using the domain name, Skydive Arizona sued for specific performance to transfer the domain name.

In the ensuing lawsuit, Skydive Arizona’s motion for summary judgment initially was granted when no response was filed (attributed to Hogue’s counsel withdrawing and him being on active duty). That ruling was set aside when new counsel appeared and Skydive Arizona renewed its motion. The motion was denied on the basis that both parties offered reasonable interpretations of the contract language as to whether Hogue had to operate the business from the Coolidge address.

In the interim, Hogue had incorporated Skydive Phoenix and operated under that name in Maricopa, Arizona. Skydive Arizona moved to amend to add to its complaint that the new business was confusingly similar to Arizona Skydiving. The court permitted the amendment.
Hogue then moved for summary judgment on the basis that the Lanham Act claim by Skydive Arizona was barred by a one year statute of limitations. The superior court disagree with Skydive Arizona’s argument that a three statute applied, agreeing that the limitations period was one year, but nevertheless denied Hogue’s motion and the case was tried to a jury.

At the conclusion of evidence, the court granted Hogue’s motion disposing of a breach of contract claim on the basis that Skydive Arizona had presented no evidence of damage for that claim. The jury found in favor of Hogue on Skydive Arizona’s Lanham Act (trademark) claims. With respect to the specific performance claim (an equitable claim reserved to the court), the trial court ruled in favor of Hogue. Hogue was thereafter awarded costs and attorneys’ fees and Skydive Arizona appealed.

On appeal, Skydive Arizona first challenged the setting aside of the initial grant of summary judgment pursuant to rule 60(c), Ariz. R. Civ. P. Such rulings are subject to abuse of discretion review and the court of appeals did not find any abuse of discretion based on the record made as to the reasons no response had been time filed to the motion.

With respect to a challenge to a jury instruction based upon a one year limitations period for Lanham Act claims, the court of appeals held that the trial court had erred. Agreeing with a prior Ninth Circuit ruling, the court held that such a claim was governed by a three year statute of limitations. Appeals based upon jury instructions must not only show error, but also prejudice, and the court of appeals held that Skydive Arizona did not suffer any prejudice from the error in the jury instruction. Skydive Arizona had been allowed to present evidence outside the one year period. Additionally, the court noted that the time period only impacted damages if the jury found Skydive Arizona had first proved its prima facie case for a Lanham Act violation, which the jury apparently did not find.

Regarding the specific performance claim for transfer of the domain name, the trial court had made a pre-trial ruling that both parties offered reasonable interpretations of language in the Settlement Agreement. The court of appeals did not disagree with the conclusion. Thus, extrinsic evidence to the contract was then considered at trial to determine the parties’ intent. The court of appeals agreed that the evidence offered supported Hogue, rather than Skydive Arizona. Since Hogue thus had not breached the contract, Skydive Arizona was not entitled to specific performance.

Skydive Arizona also challenged the award of costs and fees, arguing that such award should have been limited to contract claims and not included any defense regarding the Lanham Act claims. The court of appeals agreed with the trial court that the other claims were inextricably intertwined with the contract claims and susceptible to an award of fees. In affirming the judgment, the appellate court also approved an award to Hogue for his costs and fees on appeal, as well.


CORPORATE/BUSINESS LAW

JHASS et al. v. AZDFI et al. - 1 CA-CV 13-0546 - 10/20/2015

Hass operated a business negotiating debt settlements. It charged its clients to enroll in, or contract for, its program. There was a monthly professional fee for continuing customer service, a monthly maintenance fee for trust account administration, and a fund the client provided to settle debts. Information provided to Hass of their existing debts and credit card information was used to determine an estimated monthly payment for a debt settlement program premised upon Hass negotiating a reduction in debt obligations. Clients were required to set up escrow accounts with NoteWorld (which also charged them fees), which escrow held the funds provided by the client for repayment of debt and the fees to Hass.

NoteWorld held all of the client funds in a single trust account at a bank, but kept its own specific accounting of individual client balances, which Hass clients could monitor via online access. Hass also had online access and could direct disbursements on behalf of the client which directions NoteWorld treated as if made by the client. Clients themselves did not have that same ability to direct disbursements.

Clients made deposits of funds into the NoteWorld escrow. Some of the Hass-directed disbursements were for its fees (monthly). When it negotiated a proposed debt reduction between a client and a specific creditor, a notice of settlement was created and presented to the client. Unless the client objected within 24 hours, it was deemed approved and the disbursement was made to the creditor.

Consumer complaints about Hass were received by both the Arizona Attorney General and the Department of Financial Institutions (DFI). Clients complained that the program was not clearly explained, Hass personnel were difficult to reach, and creditors did not get paid. Some clients were advised to stop paying creditors and then faced collection actions as a result. Clients who withdrew from the program reported difficulty in obtaining refunds from the accounts.

DFI determined that Hass was engaging in unlicensed activity as a debt management company and issued a cease and desist order. DFI initiated a complaint seeking civil penalties from Hass and its principals. Following a five day hearing, an administrative law judge affirmed the cease and desist order. Hass was determined to be operating a debt management company as described in Ariz. Rev. Stat. § 6-715 and that it did not fall within any of the licensure exemptions of Ariz. Rev. Stat. § 6-702. The ALJ determined that DFI’s proposed fine of $150,000 was reasonable. The Superintendent of DFI adopted the ALJ decision as the final order. Hass appealed. The superior court received briefing and argument and entered a judgment affirming the agency decision. Hass next appealed to the court of appeals.

Hass argued that it operated a debt settlement company and that such was distinct from a debt management company, with only the latter regulated by Arizona statutes. Additionally, an element of being a “debt management company” is being “in the business of receiving money,” and Hass argued that NoteWorld, not Hass, received the client money. The court of appeals held that it would be unreasonable to construe the statute to allow a business to avoid licensure “by splitting its operations into multiple entities, then putting one in charge of receiving money and another in charge of distribution.” ¶34. The court held that Hass’ control over the client money warranted finding that it was receiving money. Similarly, the Hass argument that it did not actually disburse any funds to a creditor was rejected. The purported ability of clients to control their accounts was insignificant. NoteWorld’s stated policy was to disburse if a settlement letter were received, but it had no mechanism to verify that and relied upon what Hass scheduled for disbursement. Finding substantial evidence to support the ALJ finding, the superior court judgment was affirmed.


TAX LAW

SCOTTSDALE/101 et al. v. MARICOPA CO. - 1 CA-TX 14-0003 - 9/29/2015

The operators of two shopping centers, both including movie theater tenants, challenged the tax classifications for the properties. Both of the shopping centers were on state trust land. The shopping center operators challenged the assessor’s classification of the theaters as Class One, rather than Class Nine, properties. Class One included shopping centers, but Class Nine included improvements on government property for “entertainment, artistic or cultural facilities.” Ariz. Rev. Stat. § 42-12009 (A)(1)(b). Class Nine properties are taxed at a lower rate.

Maricopa County’s position was that pursuant to Ariz. Rev. Stat. § 42-11001(1) the properties were valued as shopping centers and for tax classification purposes should also be taxed as shopping centers. The tax court ruled in favor of Maricopa County. The court of appeals disagreed, stating that valuation and classification were related, but different factors. The appellate court held that a mixed-use assessment was appropriate pursuant to Ariz. Rev. Stat. § 42-15010(B). “We note that there appears to be no question that if there were a movie theater on government land adjacent to a shopping center, the movie theater would be taxed as a Class Nine property. We see no reasoned basis for treating a movie theater within a shopping center parcel differently than a theater on an adjacent parcel.” ¶15. The matter was remanded to determine if the particular theaters involved qualified as Class Nine properties.


PROFESSIONAL LIABILITY

GRUBAUGH v. HON. BLOMO/LAWRENCE, et al. - 1 CA-SA 15-0012 - 9/22/2015

Grubaugh was represented by attorney Lawrence in a divorce. Grubaugh sued Lawrence, alleging malpractice with respect to the outcome regarding distribution of certain business assets and resulting tax liability. That distribution had been agreed to in a family court mediation.

In this malpractice suit, Lawrence had moved to have the mediation privilege of Ariz. Rev. Stat. § 12-2238(B) declared waived by the allegations of malpractice. Lawrence desired to defend using communications with Grubaugh during and after the mediation. Grubaugh had accepted the property distribution as a result of the mediation. Alternatively, Grubaugh requested that the court strike from the complaint allegations relating to the mediation. The superior court granted the motion that the mediation privilege was waived, denying the alternative request as moot. Grubaugh’s petition for special action was accepted.

Unlike the attorney-client privilege which originated in the common law before being codified, the mediation privilege is wholly a statutory creation. The court concluded that only such waiver as provided for by the legislature applied. None of the communications referred to by the parties fell within the four exceptions to privilege recognized in Ariz. Rev. Stat. § 12-2238(B). Additionally, the court noted that the mediation privilege was held by both Grubaugh and her former spouse, who was not a party to the malpractice action, and who could not be argued to have waived the privilege.

Finding that the mediation privilege was not waived, the appellate court considered the alternative argument Lawrence had made in the superior court. In that regard, the court agreed with Lawrence and remanded with directions to strike from the complaint any allegations dependent on such privileged communications. “A privilege should not be invoked in a way that unfairly prevents one party from defending against a claim of another. . . . Striking from the complaint any claim founded upon confidential communications during the mediation process is the logical and necessary consequence of applying the plain language of this statutory privilege.” ¶19.


EMPLOYMENT LAW

WOZNIAK v. BALLET AZ/TRAVELERS - 1 CA-IC 14-0022 - 9/24/2015

Wozniak works as a dancer with Ballet Arizona. He injured his shoulder lifting another dancer and sought workers’ compensation. The insurance carrier maintained he should be considered a seasonal employee in determining his average monthly wage (divide total annual earnings by 12 months, rather than use wage earned during 30 days preceding injury). The Industrial Commission administrative law judge agreed with the insurance carrier and determined Wozniak’s award based upon the lower amount as a seasonal employee. The court of appeals reversed, determining that the carrier had not supported that determination with its evidence and that the contract with Wozniak required his continuing availability, and restricted his ability to undertake other work, beyond the duration of the performing season.


FAMILY LAW

K.D. v. HON. HOFFMAN/DCS - 1 CA-SA 15-0186 - 9/24/2015

Dependency and termination of parental rights proceedings were pending in juvenile court with respect to the two children of a couple. The birth years of the children were 2001 and 2004. Through counsel, the older child requested to testify at the multi-day adjudication hearing. Two mental health professionals opined that such participation would be adverse to that child’s best interests. Counsel for the child did not present contrary evidence. The trial judge ruled against allowing the testimony (leaving open the possibility of such testimony at another hearing later in the year). The request was renewed and again denied the next day. Jurisdiction was accepted of a special action petition on behalf of the child. The court of appeals held that the child did not have an absolute right to testify in the adjudication. The court further held that the juvenile court judge was entitled to base the decision on whether to permit the child’s participation based upon the best interests of the child.


SECURITIES LAW

SHOREY et al. v. AZCC - 1 CA-CV 14-0471 - 9/17/2015

Shorey operated Westcap, a corporation installing solar panels. To help raise $1 million capital for Westcap, Shorey hired Litchfield Enterprises as a consultant. Westcap and Litchfield then hired Intuition Capital to solicit foreign investors for $1 million of dividend paying, convertible preferred stock in Westcap.

None of the foregoing parties were registered to sell securities in Arizona. The agreement with Intuition (a Spanish company) provided for it to receive 65% of all the investment money it raised. Litchfield had originally contracted to receive 10% of all investment money as its consultant fee, but lowered it to 7.5%. The result was that only 27.5% of all investment money received would be available to Westcap and from which it would have to pay the preferred return promised.
Intuition began soliciting investors in March 2010. By August, $388,570 had been obtained from 24 (foreign) investors and $281,714 of that paid over to Intuition and Litchfield. (That left $106,856 to pay other expenses and generate whatever was the preferred return promised on the $388,570 investment.) By the end of that month, the securities sold were converted to shares in a Nevada corporation and thereafter the investment offering was based there.

The Arizona Corporation Commission, Securities Division took action against Westcap and Shorey in March 2011, alleging sale of unregistered securities, by unregistered dealers, and involving fraud. Those administrative proceedings concluded in March 2013 with Commission ruling against Westcap and Shorey and ordering them to offer rescission of the entire $388,570 plus pay $10,000 in administrative penalties. Westcap and Shorey appealed.

Westcap and Shorey acquiesced to the determination that they sold unregistered securities and that neither was registered to sell securities from Arizona. They argued that the statutes did not apply to the Westcap shares because neither of them actually sold the securities, the sales were to foreign investors and did not occur within Arizona, and the sales were not fraudulent. Westcap and Shorey also argued that the Arizona statutes were pre-empted by federal securities law regulating sales outside the United States and that the imposition of the state law was an unconstitutional burden on interstate commerce. They were unsuccessful. The superior court affirmed the Commission ruling and the court of appeals affirmed the superior court.

While Intuition sought out the investors for Westcap, the court stated that only Westcap could close such a transaction, so the sales were held to have been made by Westcap in Arizona. Westcap and Shorey argued there was no fraud because the offering memoranda disclosed that commissions or finders’ fees would be paid. Conceding that specific disclosure of the amount of commissions or finders’ fees is not mandated, the court held that the omission here could have been misleading and supported the Commission determination that disclosure that 72.5% of invested funds would be diverted to such fees “would have been a substantial factor in a reasonable buyer’s decision to invest.” ¶21. Moreover, the offering memorandum stated that 10% of the offering was to be set aside for expenses, which an investor could reasonably believe including commissions or finders’ fees.

The federal pre-emption argument was disposed of by reference to federal law recognizing the validity of state “blue sky” laws. The court found no conflict between federal and state registration requirements – a party could comply with both. The Commerce Clause argument also was rejected, the court of appeals noting that: “The Supreme Court has repeatedly upheld the constitutionality of blue-sky laws against Commerce Clause challenges, finding the state’s purpose in enacting such legislation legitimate and the burden incidental.” ¶34. The court held that the Arizona statutes did not improperly interfere with interstate or foreign commerce.


MEDICAL MALPRACTICE

JAYNES v. MCCONNELL - 1 CA-CV 13-0651 - 9/15/2015

A physical examination disclosed that Jaynes had a possible rectal wall cyst, first identified by Dr. Goldblatt and then confirmed by Dr. McConnell. Because Jaynes suffered from Ehlers-Danlos syndrome that would complicate any surgical treatment and recovery, Dr. McConnell recommended a repeat ultrasound if the surgery were postponed. Jaynes did not immediately have the surgery and another ultrasound was performed 3 months later. Dr. McConnell determined from the second ultrasound that the observed mass was relatively unchanged. Neither doctor scheduled a followup visit for Jaynes.

Jaynes had additional symptoms and sought treatment 3 years later. That resulted in a diagnosis of incurable Stage IV rectal cancer. Jaynes sued Dr. Godblatt and Dr. McConnell. Following an 8-day trial, a jury awarded Jaynes $3.7 million damages, allocating no fault to Dr. McConnell, 25% fault to Jaynes, and 75% fault to Dr. Goldblatt. A non-final judgment in favor of Dr. McConnell was entered January 22, 2013. Although not explained in the opinion, presumably there then remained post-trial motion practice pending as between Jaynes and Dr. Goldblatt. The opinion also does not explain why a stipulation dismissing Dr. Goldblatt was filed April 9, 2013, but presumably a settlement was reached between Jaynes and Goldblatt conditioned upon dismissal without entry of judgment on the jury verdict.

Jaynes then filed a rule 59 motion for new trial directed to the verdict in favor of Dr. McConnell. The motion challenged the exclusion of certain testimony sought by Jaynes from McConnell’s expert (on personal practices) and that the jury verdict was contrary to the evidence admitted. The trial court denied the motion as untimely, having been filed more than 15 days after the January 22 judgment and alternatively denied it on the merits. Jaynes appealed.

Regarding the timeliness, the court of appeals agreed with Jaynes. A non-final judgment such as the one entered January 22 is interlocutory and susceptible to being modified by the court at any time. Although a motion for new trial may be filed at any time, the deadline for such a motion pursuant to rule 59 is measured only from a final, appealable judgment. “Because it was not a final judgment, the time to file a motion for new trial under Rule 59 did not begin to run upon entry of the ruling. Instead, the time limit was triggered on April 9, 2013, when Goldblatt was formally dismissed from the case and the judgment in favor of McConnell became final as a result.” 12.

The court of appeals also agreed with Jaynes with respect to the exclusion of the expert testimony. Contrary to Dr. McConnell’s interpretation that the mass appeared relatively unchanged in the second ultrasound, there was expert testimony that the character of the lesion was noticeably different. McConnell never discussed that with Dr. Goldblatt. McConnell’s expert, Dr. Campbell, had given deposition testimony that it was his personal practice to follow up with the referring physician when significant changes were observed by ultrasound. Dr. Campbell would not agree with a statement that the standard of care required that follow up, but an objection was sustained to his affirmative answer that such was different than his personal practice and the jury was instructed to disregard the response as not the standard of care. Holding that the exclusion was in error, the court of appeals stated that “an expert’s testimony as to his or her personal practices may be relevant . . . for determining the applicable standard of care.” 18. The court further held that the excluded evidence was not harmless as it was probative both of a breach of the standard of care and with respect to proximate cause – that McConnell may have “contributed to Jaynes’s injuries if she did not accurately report the results” to Dr. Goldblatt. 22. The superior court was reversed and the matter remanded with directions to grant the new trial.


MEDICAL MALPRACTICE

NEWMAN v. SELECT - 1 CA-CV 13-0665 - 9/1/2015

Newman was rendered a quadriplegic from an automobile accident was transferred from another hospital for treatment at Select Specialty Hospital in Scottsdale. Newman had a wound on his sacrum which he alleged was not properly treated and became a Stage III pressure sore. He was then transferred to another hospital at which he alleged he received proper treatment, but that the wound then took 6 months to heal, but remains painful and re-opens easily requiring him to relocate from wheelchair to bed to relieve pressure every 4-6 hours.

Newman sued Select Specialty alleging a violation of the Adult Protective Services Act and seeking compensatory and punitive damages. At trial, the judge granted judgment as a matter of law for the hospital on the issue of punitive damages. The jury awarded Newman $250,000 compensatory damages. Under the version of Ariz. Rev. Stat. § 46-455(H)(4) in effect when his claim accrued, there was a provision for an award of attorneys’ fees, but that provision had been eliminated from the version of the statute in effect at the time of trial. The trial court agreed with Newman that the former version of the statute applied and awarded fees, but in approximately one-third of the amount Newman requested (also limiting costs to taxable costs and not all of the expenses Newman sought).

Both parties appealed. Newman appealed the removal of the punitive damage issue from the jury’s consideration, the reduction in the requested attorneys’ fee award, and the limitation on costs awarded. Select Specialty appealed from the fee award, arguing that no right to attorney fees could accrue until there was a liability verdict, so that the statute in effect at that time should govern, and it did not provide for such a fee award. After first disposing of a jurisdictional challenge to the hospital’s appeal as premature (applying the Barassi v. Mattison exception where only a ministerial entry of a formal order remains), the court of appeals reversed on the directed verdict removing punitive damages, but affirmed as to the fee and cost rulings.

Newman argued that the hospital continued a course of treatment that its personnel knew could severely exacerbate his wound and that was sufficient to let the jury decide whether the hospital personnel consciously pursued a course of conduct knowing that such conduct created a substantial risk of significant harm for him. The court of appeals agreed that the jury should have decided if the hospital acted with the requisite “evil mind” and was more than merely negligent.

Newman contends the Hospital’s nurses and employees had been ordered to reposition Newman, clean his wound, and administer medication, and they understood the importance of these precautions and the risk of improper care of pressure sores, and yet they failed to follow these orders. . . .

Newman presented evidence that the Hospital’s nurses were aware of Newman’s pressure sore and of the required courses of treatment for that wound. The Hospital’s policies and procedures manual required that Newman be assessed, repositioned, and cleaned several times each day. Newman’s physician also prescribed a topical medication to be administered to Newman’s pressure sore twice each day. Moreover, Hospital staff testified that they were aware of the required treatment for Newman’s sore and were aware that failure to uphold the treatment standards risked severely exacerbating Newman’s condition.

Despite this knowledge, the Hospital continued to pursue a course of conduct that could severely exacerbate Newman’s wounds. For twelve days, the wound was not assessed as required. For eight days, the Hospital failed to administer the medication prescribed to treat Newman’s existing wound...

Based on this evidence, the superior court erred by granting judgment as a matter of law on this issue. . . . The evidence is sufficient to permit a jury to determine that the Hospital knowingly pursued a dangerous course of conduct. Accordingly, the jury should have been allowed to determine whether the Hospital acted with an “evil mind.” ...

With respect to the attorneys’ fee issue, the appellate court stated that the right to fees is a substantive right so the change in law could not retroactively eliminate it unless the legislative enactment had specifically expressed an intent to apply retroactively, which it did not. The court rejected the hospital argument that the right to fees did not vest until the jury returned a verdict and held instead that it vested when Newman filed his complaint. Unremarkably, the appellate court found no abuse of discretion in the amount awarded as fees. The trial had rejected the combination hourly records and estimated time and rates proposed by Newman’s counsel in favor of an award based upon his contingent fee agreement. . With respect to costs, the court found nothing within Ariz. Rev. Stat. § 46-455(H)(4) indicating the legislature intended to deviate from the meaning of costs as taxable costs as identified in Ariz. Rev. Stat. § 12-332. The trial court was affirmed in eliminating the other expenses Newman sought as part of the cost award.


FAMILY LAW

DAVID C., KIM C. v. ALEXIS S., A.C. - 1 CA-JV 14-0311 - 8/27/2015

A Child (A.C.) was born September 23, 2013, to Biological Mother, who identified the father as unknown on the birth certificate. This was false; she knew Alexis was the Biological Father. Biological Mother signed a consent to adoption and David and Kim (Adoptive Petitioners) began that process. Adoptive Petitioners determined there were no notices of claims of paternity as to Child and filed a petition to adopt (publishing a “John Doe” notice in lieu of service on the unknown father). In the meantime, Biological Father (who knew of the pregnancy) had tracked Biological Mother to Nevada and she refused to give him any information about Child, but falsely stated she had turned over custody to another man who had proved paternity. Biological Father filed a petition to determine paternity and award custody, but listing no identifying information of Child except a birthday of “September 2013.” His paternity petition was served on Biological Mother, but she did not inform Adoptive Petitioners.

On January 6, 2014, Biological Father sought a default of Biological Mother on his petition, but it was continued due to insufficient information about Child. On January 15, 2014, the petition of Adoptive Petitioners was granted. On February 26, 2014, Biological Father learned of the prior John Doe notice by publication regarding the adoption proceedings. He filed a request for information in the adoption proceedings and moved to amend his petition in the paternity proceedings. Paternity testing confirmed he was the father of Child.

Biological Father intervened in the adoption matter and Adoptive Petitioners intervened in the paternity matter. The juvenile court (where the adoption case was pending) took temporary jurisdiction of the paternity case to hear Biological Father’s petition to set aside the January 15, 2014 adoption order. The court ruled for Biological Father.

The court acknowledged that Biological Father had not filed a notice of claim of paternity with the putative fathers registry as required by A.R.S. § 8-106.01. Nevertheless, the court concluded that, because Biological Father had filed a paternity action and timely served Biological Mother while the adoption was pending, he was entitled to notice of the adoption proceedings under A.R.S. § 8-111(5), and that the lack of this statutory notice violated his due process right to seek to parent his child and deprived the court of jurisdiction to issue the adoption order.

¶10. Adoptive Petitioners appealed.

The court of appeals affirmed, noting another panel of the court had reached a different result and applied different reasoning in Marco C. v. Sean C., 218 Ariz. 216, 181 P.3d 1137 (Ct. App. 2008).

Even though he did not actually know of the John Doe notice until months later, Biological Father complied with the statutory requirements set forth in that notice by filing a paternity action the same day the notice was published and serving Biological Mother two days later, well within the 30-day time limit. He diligently pursued the paternity action, . . . . In short, Biological Father did everything required under § 8-106(G) to assert his parental rights.

Although Adoptive Petitioners were not aware of the paternity suit, it was not Biological Father’s obligation to inform them. See A.R.S. § 8-106(G) (requiring father to file and serve a paternity suit, but making no mention of contacting adoptive petitioners). Biological Mother had actual knowledge of both the paternity suit and the adoption proceedings. . . . Adoptive Petitioners understandably relied on the absence of any filing relating to A.C. in the putative fathers registry, but they could have searched paternity filings and, had they done so in this case, likely would have found Biological Father’s paternity action (naming Biological Mother as the Respondent) filed in the same county as the adoption proceedings. . . .

Adoptive Petitioners acknowledge that Biological Father “took certain actions,” but argue that his failure to file a notice of claim of paternity with Arizona’s putative fathers registry invalidated his efforts to assert his parental rights through a paternity action. We disagree because the putative fathers registry supplements and does not supplant a father’s right to pursue a paternity action.

The putative fathers registry allows “[a] person who is seeking paternity, who wants to receive notice of adoption proceedings and who is the father or claims to be the father of a child” to independently ensure that he will receive notice of adoption proceedings without relying on the biological mother’s statement (or even, as here, outright lies) regarding the child’s paternity. . . . The registry thus supplements the notice provisions of § 8-106 as part of a comprehensive scheme to ensure that biological fathers receive timely notice of potential adoptions.

¶¶14-17.
We recognize that in Marco C., a different panel of this court reached a contrary conclusion, holding that registering a notice of claim of paternity one day late rendered a putative father’s consent to his child’s adoption unnecessary under § 8-106.01(E). . . .

We note that the putative father in Marco C. failed to timely serve the paternity action on the mother. Thus, even if he had timely filed with the putative fathers registry, he would have been barred from pursuing the paternity action and establishing paternity. . . . Nevertheless, as explained above, we respectfully disagree with the reasoning of Marco C. insofar as it holds that filing with the putative fathers registry is a necessary precondition in all cases in which a father asserts his parental rights.
¶¶20-21. The adoption was set aside.
 


FAMILY LAW

CAMASURA v. CAMASURA - 1 CA-CV 14-0309-FC - 8/27/2015

Brendan (Husband) and Kristin (Wife) were married and a petition for dissolution was filed in October 2012. Although the trial court signed a minute entry on March 12, 2014, dissolving the marriage, that order did not address the pending issues of decision-making and parenting time with respect to their children, nor whether to award attorney fees. Wife was directed to submit a formal decree by March 24 with an application for attorney fees. Husband filed a notice of appeal on April 4, 2014, although no formal decree had been signed. On April 16, the trial court issued a minute entry stating that the March 12 order was not intended to be final for purposes of appeal and further stating that the trial court did not consider that it had been divested of jurisdiction by the notice of appeal. On May 1, 2014, the trial court signed a decree and awarded attorney fees to Wife. Husband did not then file another notice of appeal, nor file anything purporting to amend the prior notice of appeal.

The court of appeals had the parties submit supplemental briefs addressing jurisdiction, then dismissed Husband’s appeal, holding that his April 4 notice of appeal was premature and did not invoke appellate jurisdiction. The March 12, signed minute entry was not a final, appealable judgment because the trial court had not resolved all issues and it did not include rule 78(B) finality language (the Family Law Procedure equivalent to Ariz. R. Civ. R. 54(b)). Hence, the notice of appeal was premature. Although Ariz. R. Civ. App. P. 9 (now rule 9(c), but in 2014 was rule 9(b)(2)(B)) has language about a notice of appeal filed after a trial court announces a decision, but prior to entry of the resulting judgment, becoming effective and being treated as filed when that subsequent judgment is entered, the court of appeals said that did not save Husband here. Interpreting the Arizona rule consistently with its analogous federal rule, the court said that such a premature notice of appeal is saved only when the non-final decision identified did nevertheless dispose of all issues and so matched the subsequently entered final judgment. Since the March 12 minute entry did not dispose of all issues, it did not qualify for rule 9 treatment. The appellate court said that Husband also was not saved by the rule adopted in Barassi v. Mattison, 130 Ariz. 311, 636 P.2d 89 (1981). The rule announced in that case also depended upon there being a final decision (that is, all issues decided), so entry of the formal judgment was but a ministerial act. Since decision-making and parenting time and attorney fee issues had remained unresolved at the time of the signed, March 12 minute entry, it was not accurate that only a ministerial entry of the formal order remained, and Barassi did not apply. Husband’s appeal was dismissed for lack of jurisdiction (and it would now be too late to timely file a notice of app.


MEDICAL MALPRACTICE

PRESTON et al. v. AMADEI - 1 CA-CV 14-0222 - 8/27/2015

Preston was injured in an automobile accident and treated at Kachina Health. She had pre-existing cardiac issues. While at Kachina Health (over a month after the accident), Preston had chest pain and other symptoms, was treated with nitroglycerin, and her symptoms soon abated, but then she died a few hours later. According to an autopsy, she died of congestive heart failure.

Almost two years later, Preston’s children sued Dr. Amadei (primary care doctor at Kachina Health) alleging his negligence caused Preston’s death. Plaintiffs identified Dr. Lapan (board certified in internal medicine and cardiology) as their standard of care expert. Dr. Amadei is board certified in internal medicine.

Amadei filed a motion for summary judgment on various grounds, including the argument that Lapan practices only in the area of cardiology and so was not qualified as a standard of care expert under Ariz. Rev. Stat. § 12-2604 to give an opinion with respect to internal medicine. The trial court granted the motion, denied plaintiffs’ request for additional time to disclose a different expert, and dismissed the case. Preston’s children appealed. Amadei cross-appealed the denial of his causation argument.

The court of appeals held that Ariz. Rev. Stat. § 12-2604(A) had two requirements to be met in this matter. Lapan was board certified in the same field as Amadei, internal medicine, so that one requirement was satisfied. The statute also required that over the course of the year at issue, the expert devote a majority of his or her professional time in active practice of the same specialty. Ariz. Rev. Stat. § 12-2604(A)(2)(a). Lapan’s practice was almost exclusively cardiology, a subspecialty the court held was distinct from internal medicine. ¶13. The appellate court found no error in disqualifying Lapan as an expert. ¶14. Because plaintiffs had timely disclosed Lapan’s affidavit and Amadei did not challenge his qualifications until filing the motion for summary judgment, after deposing Lapan (without raising the issue) and after the discovery deadline, the court of appeals further held that to be consistent with Ariz. Rev. Stat. § 12-2603, the trial court should have afforded plaintiffs additional time to substitute a different standard of care expert and abused her discretion by denying that request. ¶19.

We affirm the trial court’s rulings disqualifying Dr. Lapan as a standard of care expert witness, granting Dr. Amadei’s motion in limine, imposing sanctions for the disclosure violation [regarding autopsy testimony], and denying Dr. Amadei’s motion for summary judgment on the alternative basis that Plaintiffs’ causation theory was too speculative and their expert’s proffered testimony failed to satisfy Rule 702(b). We reverse, however, the court’s denial of Plaintiffs’ request to substitute a standard of care expert witness and remand for proceedings consistent with this decision.
¶38.


 

CONSTRUCTION LAW

 

FIDELITY v. CENTERPOINT - 1 CA-CV 12-0721 - 8/27/2015

More in the Mortgages Ltd. saga. Mortgages Ltd. loaned money for Centerpoint, a high-rise residential condominium project in Tempe. Part of the loan proceeds paid off a prior loan of Freemont and part was used for construction. The loan was secured by a deed of trust and there was a title policy issued by the predecessor of Fidelity Title in the amount of $165,200,000.
Mortgages Ltd. became the debtor in bankruptcy reorganization proceedings. The deed of trust interests were transferred to entities CPI and CPII and some individual interest holders, who collectively acted as ML Investors. As a result of their trustee’s sale, ML Investors obtained title to Centerpoint for an $8 million credit bid.

CPI and CPII (without the individual investors) purchased an adjacent parking lot for $875,000, also with a title policy in that amount from Fidelity Title. CPI and CPII also obtained a $20 million loan from Universal-SCP, secured by their assets, and apparently to continue development of Centerpoint (although the opinion is unclear on that). Commonwealth Title issued a $5 million lender’s title policy to Universal-SCP. Commonwealth Title also issued another $5 million lender’s title policy to VRCP, applicable to both a deed of trust on Centerpoint and the parking lot (although the opinion is unclear how part of that loan was for purchase of the parking lot).

Construction of Centerpoint had begun in December 2005. The Mortgages, Ltd. bankruptcy was filed around June 2008. The Center point deed of trust sale occurred in April 2010. Mechanics’ liens had been filed starting in April 2008 and there were dozens of lien foreclosure claims pending by October 2008, which lienholders claimed priority over the Mortgage’s, Ltd. (and hence ML Investors) interest.
ML Investors tendered defense of the mechanics’ lien claims to Fidelity Title. In September 2009, Fidelity Title accepted the defense subject to a reservation of rights. Through the legal counsel thus provided, ML Investors asserted that it was equitably subrogated to the Freeman loan priority, which was superior to the mechanics’ liens. A motion for summary judgment for ML Investors based on that theory was denied in September 2010. In December 2010, Fidelity Title accepted the defense with a reservation of rights on behalf of CPI and CPII, and Commonwealth Title accepted the defense subject to a reservation of rights on behalf of Universal-SCP and VRCP.

In the meantime, ML Investors had been unable to complete an attempted sale of Centerpoint, at least in part because Fidelity Title would not insure priority of the prospective buyer over the pending mechanics’ liens. Also, after its summary judgment motion was denied, the mechanics’ lien claimants refused any settlement involving an assignment of claims against the title insurers and insisted on only a cash settlement.

ML Investors disclosed to Fidelity Title that they were seeking a USAA v. Morris-type settlement agreement with the mechanics’ lien claimants – that would assign to the lien claimants the insured’s rights under the title policy, but subject to the insurer’s right to contest coverage. In an effort to avoid certain coverage arguments Fidelity Title might make and a potential merger of title issue, a new entity was created: Centerpoint Mechanic Lien Claims, LLC (or CMLC), which was wholly controlled by CPII.

As part of a global agreement (although not including Fidelity Title), the prospective buyer completed the purchase of Centerpoint for $30 million. CMLC purchased the mechanics’ liens for $13.65 million, then subordinated that interest to that of the buyer. Universal-SCP and VRCP also subordinated their interests to that of the buyer. ML Investors waived a portion of its seller’s proceeds to create the funding for CMLC’s purchase of the liens, waived the proceeds of the parking lot sale, and set aside a fund as a reserve for title insurance claims. The global agreement also included a stipulated judgment against ML Investors and in favor of CMLC (as then the holder of the mechanic lien claims) in the amount of $38 million and a declaration that the liens had priority over the interests of ML Investors. CMLC (which is controlled by CPII) would then accept an assignment of the rights of ML Investors against Fidelity Title and would pursue the title insurance claims against Fidelity Title, agreeing not to execute on the $38 million judgment against ML Investors.

Fidelity Title was not happy with this. Fidelity Title and Commonwealth Title both intervened to challenge the settlement. After a five-day hearing, the trial court held the settlement was valid, the amount reasonable, and that Fidelity Title had proper notice. Fidelity Title appealed.

In this case, we address whether a title insurance company is liable under United Services Automobile Ass’n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987), for damages agreed to by its insureds in a settlement agreement resolving third-party mechanics’ lien claims against the insureds’ interest in a real estate development. Under Morris, when an insurer agrees to defend its insured against a third-party liability claim, but reserves the right to challenge coverage under the insured’s policy, the insured may independently settle with the third-party claimant without violating the insured’s duty of cooperation under the insurance contract; this settlement may assign to the claimant the insured’s rights against the insurer, subject to the insurer’s retained right to contest coverage.

Here, the settlement agreement was not between the insureds and the third-party mechanics’ lien claimants, but was rather an agreement between the insureds and an entity they controlled that had purchased the mechanics’ lien claims. Moreover, the settlement agreement was for an amount significantly greater than the amount paid to purchase the mechanics’ lien claims. Accordingly, and for reasons discussed below, we conclude that the settlement agreement between the insureds and the entity that purchased the mechanics’ lien claims was not a compliant Morris agreement, and we accordingly reverse the superior court’s ruling that the amount of the insurer’s liability (if it loses the yet to be litigated coverage dispute) is the negotiated settlement amount.

¶¶1-2. The foregoing rendered moot a cross-appeal by CMLC and ML Investors and caused the reinstatement of separate intentional interference with contract claims asserted by Fidelity Title in a consolidated matter. ¶¶37, 39.


CREDITORS’ RIGHTS

CECILIA M LEWIS et vir v RAY C DEBORD et ux - CV-14-0293-PR

In 2003, the Lewises obtained a default judgment (approximately $38,000) against MacKean and Foust which they recorded in Pima County in 2006 and renewed in 2008. They did not include the separate information sheet specified by ARS § 33-967(A) (although they did record such a statement in 2013). MacKean purchased the Pima County real property in 2008 and then transferred it to Sonomex LLC. The Debords purchased that same property in 2012 (for about $160,000).
The Lewises then initiated a judicial foreclosure action in 2012, naming MacKean, Sonomex, and the Debords as defendants. The Debords moved for summary judgment based upon the absence of the statutorily required information sheet (A.R.S. § 33-961(C) & A.R.S. § 33-967(A)). The Lewises argued that the failure to attach an information sheet affected only lien priority, not validity, and thereafter they amended their recording to attach an information statement. The trial court adopted the Debords’ position, declared the lien invalid, and granted summary judgment to the Debords.
The Arizona Court of Appeals affirmed, but on different grounds. Lewis v. DeBord, 236 Ariz. 57, 335 P.3d 1136 (Ct. App. 2014). The court of appeals held that judgment liens were creatures of statute; there had to be compliance with the statutory requirements. The legislature had added the information sheet requirement in 1996. Interpreting A.R.S. § 33-967(D), the court of appeals agreed that the effect of omitting the information sheet went to priority, but disagreed that there was any distinction between competing lienholders and subsequent purchasers in that regard. Because the Debords acquired their interest in 2012 and the Lewises did not provide the information sheet until 2013, “the Debords’ interest in the property has priority over the Lewises’ judgment lien.”

The Arizona Supreme Court accepted the petition for review, vacated the court of appeals opinion, and reversed the superior court. The supreme court held that it was “undisputed that the Debords had constructive notice of the certified judgment the Lewises recorded in compliance with § 33-961(A).” (supreme court opinion). According to the court, “a subsequent purchaser with notice takes subject to an existing judgment lien” even if the judgment creditor failed to file a judgment information sheet. Rather than a dispute among creditors about priority, this was a dispute involving a subsequent purchaser. Accordingly, the Lewises’ failure to file an information statement did not preclude them from executing against the property and the Debord’s interest was subject to that lien. The judgment creditor’s failure to record an information statement did not negate constructive notice that the subsequent purchaser had of the recorded judgment.


FAMILY LAW

SHEETS v. HON. MEAD/REYNOLDS - 1 CA-SA 15-0042 - 8/25/2015

Sheets and Reynolds were in a same-sex relationship from 2000 to around 2010. During that time they determined to adopt a child. Since it was not then possible for them to marry, they agreed Sheets would be the adoptive parent and they would then both raise the child together. The adoption was completed in 2010, but their relationship ended. Reynolds maintained a relationship with the child until 2014 when Sheets stopped permitting it. Reynolds petitioned for equal time visitation, citing Ariz. Rev. Stat. § 25-409(C)(2). The court granted visitation and after Sheets’ motion for new trial was denied, Sheets filed a petition for special action which the court of appeals accepted (appeal being deemed inadequate due to impairment of parental rights and the ruling’s imposition of uncertainty as to living arrangements).

The court of appeals held that completion of the adoption changed the legal status of the child to that of being born in wedlock (Ariz. Rev. Stat. § 8-117(A)), so the superior court then was without authority to award visitation pursuant to Ariz. Rev. Stat. § 25-409(C)(2) which permits an award of visitation to a non-parent only if the child is “born out of wedlock.” The court of appeals acknowledged the possible unintended results.

For example, divorced parents of a biological child have superior rights if they marry before their child was born rather than after birth, even though in both circumstances the child experienced the failure of the parents’ marriage. And rights of divorced biological parents who sought dissolution around the time of their child’s birth will depend on whether the dissolution was pending or concluded by the time of the birth, though in both circumstances the child was born into a failed marriage.

¶17. But stated that was the legislative choice made by the statute and a matter for the legislature to resolve if a different result was preferred. The visitation ruling was overturned.


PREMISES LIABILITY

RITCHIE v. COSTELLO et al. -1 CA-CV 14-0185 - 8/25/2015

Nichol planned to participate in the Cottonwood Airfest, an annual hot air balloon event at the Cottonwood Municipal Airport (an uncontrolled airport). Ritchie and Nichol decided that Ritchie would fly his powered paraglider during the event to take photographs of Nichol’s balloon. Ritchie was not registered to participate in Airfest. Airfest representatives required Ritchie to relocate his launch area away from the hot air balloons.

Nichol launched his balloon and Ritchie launched his paraglider. About 30 minutes later and about a quarter mile from the airport, Ritchie collided with another balloon (not Nichol). From about 1500 feet, the balloon and the paraglider both crashed, causing injuries.

Suits by injured parties against Ritchie included negligence claims by Ritchie against the Cottonwood Municipal Airport (and the City of Cottonwood). The trial court granted summary judgment to Cottonwood that it owed no duty to Ritchie.

Assuming for purposes of the decision that Ritchie was a business invitee of the airport, the court determined that Ritchie would be owed a duty of care only when he was taking off or landing, or within the airspace of the airport itself. He was not owed any duty once he was airborne and outside the geographical boundaries of the airport. “[H]e ceased to be an invitee after successfully getting into the air and moving away from the airport.” ¶12. “After Ritchie successfully left the airport, he was no longer an invitee; as such, the Cottonwood Airport did not have a duty to warn him of the obvious – that there were many hot air balloons in the sky floating in the currents of wind and he had to be careful to avoid the risk of colliding with any of them.” ¶13. Summary judgment was affirmed.


FAMILY LAW

VINCENT v. NELSON - 1 CA-CV 14-0541-FC - 8/20/2015

At issue was A.R.S. § 25-408(A)(2) (requiring approving of other parent or court to relocate children more than 100 miles) and whether the statutory radius is measured from the original location at the time of the decree or from each succeeding relocation address. During a resolution management conference, so prior to the decree, Mother disclosed her intent to move from Phoenix to Payson or Heber for economic and quality of life reasons. By the time of trial in 2009, Mother had chosen Payson as it was less than 100 miles from Mother’s Phoenix address and she had arranged for a job and apartment there. Although the trial judge acknowledged that relocation on the record, it was not mentioned in the decree. Mother did not actually move to Payson until after the decree.

Mother moved several times over the next 4 years (including to Mesa, Heber, and Lakeside). In 2013, Father filed a modification petition which included an objection to disallow Mother’s relocation of the children to Lakeside. Following an evidentiary hearing, the trial judge held that the move from Phoenix to Payson had been allowed by the then-trial judge (why such permission would be needed if less than 100 miles not explained) , that Lakeside was less than 100 miles from Payson, and so A.R.S. § 25-408(A)(2) was not invoked. Father appealed.

The particular statute applies when both parents are Arizona residents and are entitled to joint decisionmaking or parenting time. A.R.S. § 25-408(A)(2) provides that at least 45 days advance notice is required to relocate children “more than one hundred miles within the state.” A.R.S. § 25-408(D) states that the foregoing does not apply if the relocation was pursuant to “a court order for a written agreement of the” parents.

The court of appeals affirmed the trial judge decision. Interpreting Thompson v. Thompson, 217 Ariz. 524, 176 P.3d 722 (Ct. App. 2008), the court held that the 100 mile restriction of A.R.S. § 25-408(A)(2) did not apply to relocations permitted pursuant to A.R.S. § 25-408(D). “When subsection (D) renders subsection (A) inapplicable, the miles of the court-authorized relocation are exempt from future calculations under subsection (A).” ¶11. “When, as here, subsection [D] exempts a move from subsection [A], the miles of the exempted move should not be included within subsection [A]’s 100 mile condition.” ¶13 (citation omitted). “Accordingly, under A.R.S. § 25-408 and Thompson, the family court correctly determined that the mileage from Phoenix to Payson is exempted from future calculations under § 25-408. In essence, the ‘starting point’ for application of. § 25-408(A)(2) in the future became Mother’s address in Payson.” ¶15. (In footnote 5, the court noted that it was not addressing serial, non-court approved relocations, individually of less than 100 miles, but aggregating more than 100 miles.)


REAL ESTATE LAW

HUB v. MARICOPA/ADOR - 1 CA-TX 14-0005 - 8/20/2015

The City of Phoenix owned certain property which made it exempt from taxation pursuant to Ariz. Const. art. 9, §2(1) and by statute. Hub Properties purchased that property in March 2011. The Maricopa Assessor then included it as taxable property for tax year 2011 and property taxes were assessed. Hub sued. Its theory was that the property was owned by the City during the assessment period for tax year 2011, on the tax lien date, and for 2 months of tax year 2011, and so should be exempt for that entire tax year. The tax court disagreed and the court of appeals affirmed.

The opinion contains little analysis of why the aforementioned result is required by the statutes, as opposed to it simply being the presumed logical conclusion coupled with Hub’s failure to point to statutory language compelling the result it sought. “The tax court correctly noted the logical extension of Hub’s position that ‘taxable status is fixed on the valuation date’ is that if the State had purchased the Property from a private party in March 2011, the State could be required to pay property taxes until the next valuation period.” ¶9. “Moreover, we find Hub has failed to meet its burden of showing it was entitled to a property tax exemption for tax year 2011 and cannot point to a statutory provision that explicitly grants such an exemption.” ¶11. “Although the Property was tax exempt while the City owned it in 2011, the exemption was lifted when Hub purchased the Property in March.” Id.


ENERGY AND UTILITY LAW

RUCO v. ACC - 1 CA-CC 13-0002 - 8/18/2015

Arizona Water Company is a utility regulated by the Arizona Corporation Commission (ACC). Arizona Water made certain infrastructure improvements to portions of its distribution system. Rather than a part of an overall regular rate change process, Arizona Water sought a surcharge for its Eastern Group and Northern Group customers and the ACC adopted a system improvement benefits (SIB) mechanism to collect those capital expenditures (including a return on equity (ROE)) over a 5 year period. Following hearings, the ACC determined an amount for ROE and approved a surcharge via an SIB mechanism. The Residential Utility Consumer Office (RUCO) had participated in the proceedings and appealed the ACC determination. The court of appeals upheld the ACC hearing as having employed a reasonable procedure determining the ROE (¶¶53-54), but agreed with RUCO that the SIB surcharges in between regular rate proceedings circumvented constitutional requirements applicable to the ACC. ¶¶49-50.


ESTATES AND TRUSTS

8/18/2015 - 1 CA-SA 15-0167 - HOAG et al. v. HON. FRENCH/WELLS

Wells Fargo Bank had a $2.5 million judgment against Hoag. Hoag had previously created three trusts in Arizona which held certain stock shares previously belonging to Hoag. During garnishment proceedings by Wells Fargo seeking records for the Hoag trusts, Hoag met in Florida with the president of a Bahamian corporation, signed documents resigning as trustee and designating the Bahamian corporation as the substitute trustee, and transferred administration of the trust assets. Thereafter the Bahamian corporation administered the trusts from the Bahamas, although its monthly distributions were sent to Arizona to pay taxes and insurance on Hoag’s residence, spousal maintenance to his ex-wife, and other monetary distributions to Hoag directly. The Bahamian corporation refused to provide the requested discovery.

Wells Fargo filed a new lawsuit alleging the transfer of the trust was a fraudulent concealment. The Bahamian corporation moved to dismiss for lack of personal jurisdiction, which motion the trial court denied. Upon a petition for special action, the court of appeals accepted jurisdiction and granted relief, directing dismissal of the complaint for lack of personal jurisdiction.

While a trustee consents to personal jurisdiction by accepting trusteeship of a trust with its principal place of administration in the jurisdiction, that did not subject this Bahamian corporation to jurisdiction in Arizona. The court of appeals acknowledged that the subject trusts had been administered in Arizona prior to Hoag’s resignation as trustee, but held that when the transfer here occurred, the principal place of administration was changed from Arizona to the Bahamas. The fact that trust distributions were sent to Arizona did not make the place of administration Arizona, rather than the Bahamas. Finding the constitutionally required minimum contacts for personal jurisdiction lacking, the court of appeals held that the motion to dismiss for lack of personal jurisdiction should be granted.


BUSINESS/CORPORATE LAW

RADER v. GREENBERG - 6/23/2015 - 1 CA-CV 14-0299

Mortgages Ltd. had hired the Greenberg Traurig firm to prepare private offering memoranda for use in soliciting investors. Rader (and other plaintiffs) had invested in reliance on such POM between March 2006 and June 2008. Following the death of its principal, Coles, Mortgages Ltd. became a debtor in bankruptcy. Rader entered into a tolling agreement with Greenberg Traurig expiring December 15, 2010, while engaged in litigation with the estate of Coles.

On May 11, 2010, various investors filed a class action (the Facciola Action) against Greenberg Traurig in the federal district court in Phoenix. Although a settlement was reached in the Facciola Action, Rader (and these other plaintiffs) opted out of that settlement and on august 21, 2012, filed this state court action. The state court granted Greenberg Traurig’s motion to dismiss the state court action as time-barred.

The claims Rader had made were barred by various statutes of limitation unless additionally extended/tolled by the period when Rader was a member of the Facciola putative class. The court of appeals discussed the bases for intra-jurisdictional (involving impact of related class action in same court jurisdiction) and cross-jurisdictional tolling (where class action in another jurisdiction). The court stated that intra-jurisdictional jurisdictional tolling (which was not applicable to this matter as class action was in federal court jurisdiction) had not already been adopted by Albano v. Shea Homes Ltd. P’ship, 227 Ariz. 121, 254 P.3d 360 (2011) (court had not answered that question). The court noted that none of the foreign jurisdiction cross-jurisdictional tolling cases had involved a case where the class was certified, but the claimant opted out, rather than a situation where certification had been denied. There were federal cases where certification was granted and tolling was denied. Additionally, in enacting the savings statute, Ariz. Rev. Stat. § 12-504, the Arizona legislature had adopted a form of cross-jurisdictional tolling by its reference to an action timely filed in another jurisdiction and then re-filed in Arizona, so the court of appeals was not inclined to judicially extend cross-jurisdictional tolling. The dismissal was affirmed.


HEALTHCARE LAW

UNITED, et al. v. MIHS - 6/23/2015 - 1 CA-CV 14-0027 - 1 CA-CV 14-0421

United Behavioral Health (UBH) administers health plans. Including Medicare and ERISA plans. Aurora Healthcare and Maricopa Integrated Health are mental healthcare providers. Aurora and Maricopa each entered into Facility Agreements with UBH which contained arbitration clauses (any disputes/binding arbitration).

With respect to certain healthplan members, Aurora and Maricopa had obtained pre-authorization from UBH for inpatient care. When authorization was sought for an extended period, UBH denied coverage. Aurora and Maricopa continued to provide services and sought to arbitrate the UBH denial. UBH refused to arbitrate. In response to separate actions to compel arbitration, UBH moved for a stay on grounds the claims were not arbitrable. The motion to stay was granted in the Aurora case and denied in the Maricopa case. Both decisions were appealed and consolidated in the court of appeals.

UBH cannot be compelled to arbitrate the Providers’ [Aurora and Maricopa] Medicare coverage claims. We conclude that Congress intended Medicare’s administrative procedure to provide the exclusive remedy for resolving Medicare coverage claims, and that this procedure overrides the FAA’s [Federal Arbitration Act] presumption favoring arbitration.

However, because the record is not clear as to whether Aurora has standing to assert its ERISA coverage claims, we do not address the arbitrability of Aurora’s ERISA claims. We therefore vacate the trial court’s order compelling arbitration of Aurora’s ERISA claims, and remand for further proceedings consistent with this opinion.
¶¶2-3.

Congress has enacted a specific procedure for resolving Medicare coverage disputes such that compelling arbitration of these claims under the FAA would be in direct conflict with the Medicare statutes. Therefore, as to the claims involving Medicare coverage, we affirm the trial court’s order staying arbitration in UBH v. Aurora, and reverse the order compelling arbitration in UBH v. MIHS.
However, because the record is unclear as to whether Aurora received a valid assignment of the members’ ERISA claims, we vacate the trial court’s order compelling arbitration in UBH v. Aurora, and remand for further proceedings consistent with this opinion.
¶¶39-40.


REAL ESTATE LAW

AZ BANK v. JAMES R. BARRONS, et al. - 5/28/2015 - 1 CA-CV 13-0096

The court of appeals approved lenders imposing on guarantors a waiver of the protections of Ariz. Rev. Stat. § 33-814(G) which otherwise would preclude an action for a deficiency following foreclosure by trustee’s sale pursuant to a qualifying residential deed of trust. TDJ purchased for development several vacant lots with financing from Arizona Bank. The loan (and a subsequent construction loan) was secured by a blanket deed of trust on the lots and unconditional guaranties by several persons and entities. The guaranties expressly waived any protections under the anti-deficiency statutes. Following defaults on the loans, Arizona Bank foreclosed via trustee’s sales, obtaining title to the properties with its credit bid of less than the full amount owed, and leaving a deficiency of several hundred thousand dollars.

The bank sued on the guaranties for the deficiency. On cross-motions for summary judgment, the trial court denied summary judgment to the guarantors, who argued that Ariz. Rev. Stat. § 33-814(G) applied to guarantors, as well as borrowers, could not be waived, and thus barred the deficiency claim because the secured property was the type of residential property protected by the statute. Instead, the trial court agreed with the bank that the statutory protection could be waived by guarantors, was knowingly and voluntarily waived in the subject guaranties, and that the bank was entitled to summary judgment for the deficiency (based on fair market value). The guarantors appealed.

The court of appeals acknowledged the decisions in BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, 236 Ariz. 363, 340 P.3d 10171 (2015), CSA 13-101 Loop, LLC v. Loop 101, LLC, 236 Ariz. 410, 341 P.3d 452 (2014), and Parkway Bank & Trust Co. v. Zivkovic, 232 Ariz. 286, 304 P.3d 1109 (Ct. App. 2013). The court distinguished the fair market value protection of Ariz. Rev. Stat. § 33-814(A) which specifically references guarantors, as well as borrowers. There is no specific reference to guarantors in Ariz. Rev. Stat. § 33-814(G). Holding that guarantors were not intended by the legislature to be protected by the statute, the court stated that precluding guarantors “from waiving anti-deficiency protections would be inconsistent with the basic purpose of a guaranty,” because a guarantor could never be liable with respect to property qualifying for protection under Ariz. Rev. Stat. § 33-814(G). 15. Instead, the court held that freedom of contract permitted guarantors to waive the statutory protection, that the guaranties at issue demonstrated expressly bargained-for waiver, and summary judgment was properly granted for the bank.


PROBATE LAW

IN RE AUGUSTA GANONI - 5/28/2015 - 1 CA-CV 14-0240

Ganoni had established a 2000 revocable trust (the “Trust”) which held title to a house in which she resided. Ganoni initially was settlor and trustee of the Trust. In 2003 she signed a beneficiary deed as trustee, directing that the house would transfer to her attorney, Sorrell, upon her death. In 2011 Ganoni resigned as trustee and Sorrell was appointed in her place. In 2012 she amended and restated the Trust, identifying Gaarde as trustee, rather than Sorrell. The 2012 Trust also directed that the house would remain in the Trust and Sorrell would receive $10,000 instead. She died that year.

In 2013 Sorrell filed a petition for formal probate, sought appointment as personal representative, and requested the court to transfer the house to him based upon the 2003 beneficiary deed. Gaarde objected and filed a petition of her own. Sorrell and Gaarde filed cross-motions for summary judgment. The trial court granted judgment for Gaarde, held that the house was a Trust asset, and that it could not be conveyed pursuant to a beneficiary deed. Ariz. Rev. Stat. § 33-405. The trial court also awarded attorneys’ fees in favor of Gaarde. Sorrell appealed.

The court of appeals held that Ariz. Rev. Stat. § 33-405 only permits a natural person (not a trust) to execute a beneficiary deed based on the statutory references to “death,” “person,” and “lifetime.” 9. Accordingly, in her capacity as trustee of the Trust owner of the house, Ganoni could not execute an effective beneficiary deed. The court also rejected Sorrell’s argument to reform the deed based upon mutual mistake. The court of appeals did agree with Sorrell that the award of attorneys’ fees was not warranted pursuant to Ariz. Rev. Stat. § 12-1103 and reversed that part of the summary judgment ruling.


PROPERTY TAX LAW

GENERAL MOTORS v. MARICOPA COUNTY - 5/28/2015 - 1 CA-TX 13-0004

General Motors operated a motor vehicle research property on approximately 3200 acres in Mesa, Arizona. Pursuant to a 2006 ruling on a tax valuation challenge, the value of the property was reduced to slightly more than $89 million for the 2007 tax year. Around the same time, GM sold the property to DMB for $265 million pursuant to a sale-leaseback agreement by which GM leased the land through 2009. The sale-leaseback agreement permitted DMB to seek zoning adjustments and take other actions in anticipation of developing the land. Maricopa County then set the property’s value at almost $188 million for tax year 2008. GM and DMB joined in a challenge.

GM and DMB argued that the jury-determined value of $89 million applied for the 2008 tax year pursuant to Ariz. Rev. Stat. § 42-16002(B). There was also an issue regarding the failure to the second half 2010 taxes until after the delinquency date and whether that precluded the challenge. The tax court ruled for GM and DMB and Maricopa County appealed.

While the challenge was to the 2008 taxes, relying on Ariz. Rev. Stat. § 42-11004, the County argued that the failure to timely pay the 2010 taxes prevented the tax court from having authority to rule on the 2008 valuation appeal. The court of appeals disagreed, holding that the statutory reference to testing “the validity or amount of tax” did not apply to a valuation appeal. 11. The court held the applicable statute was Ariz. Rev. Stat. § 42-16210, which “does not have any effect on property owners’ ongoing obligation to timely pay property taxes.” 14. Thus, the tax court refusal to dismiss the challenge was affirmed.

The challenge of GM and DMB was that Ariz. Rev. Stat. § 42-16002(B), the “rollover statute,” required use in 2008 of the same valuation established for 2007. The County relied upon the exception in the statute for “new construction, a structural change or a change of use on the property.” The County argued that the sale-leaseback to GM and the intent by DMB to develop the property constituted a change of use. The court of appeals held that the statute should be interpreted to require a changed use to “be a physical, objectively verifiable or demonstrable use or activity on the property itself, not just a change in ownership or of purpose, plan, or intent.” 1. “Construing ‘use’ as a physical, objectively verifiable use or activity ensures that the relevant use remains tied to occurrences on the property itself, rather than to the owner’s subjective purpose or plan.” 20. Although there was a change in ownership, and although the purpose for which the new owner planned to use the property apparently changed, the actual use had not yet changed so the rollover statute applied to require the County to continue using the $89 million 2007 valuation. Summary judgment was affirmed and an award of attorneys’ fees against the County approved for GM and DMB.


CREDITOR’S RIGHTS

FLOOD v. PALOMA et al. - 5/26/2015 - 1 CA-CV 13-0750

A lawsuit was brought by farmers for damages from a 1993 flood at the Gillespie Dam on the Gila River. After a jury had found liability, but before any damage award, the owners of the dam executed a ”Damron” agreement with the farmers. Pursuant to the agreement, there was an award of a monetary amount ($14.75 million), but with the agreement that there would be no execution in excess of $3.3 million, except to the extent recoverable from another pending suit regarding the flooding by the owners of the dam against the Flood Control District of Maricopa County. The latter suit resulted in a ruling that the flood control district was liable for the entire $14.75 million. There were many issues addressed in an appeal from that ruling, including issues concerning an offer of judgment, attorney fees, and the calculation of the pre-judgment interest rate. That prior appeal is reported at Flood Control District of Maricopa County v. Paloma Investment Ltd. Partnership, 230 Ariz. 29, 279 P.3d 1191 (Ct. App. 2012), and resulted in a remand on various issues, including the calculation of prejudgment interest.

The trial court determined that the 10% statutory interest rate applied, rather than the adjusted rate of the more recent statutory amendment. The trial court also ruled on how interim judgment payments were to be allocated to the balance owed on the amended judgment. This second appeal followed.

One issue first addressed was whether the payments on the judgment by the flood control district amounted to acquiescence to the judgment, mooting the appeal. The court of appeals did not agree that the payments mooted the appeal. “ecause the District's voluntary satisfaction of the judgment was to avoid the consequences of failing to comply with the court's order and the additional accrual of interest on the judgment, it cannot be said to have benefited from satisfying the judgment.” ¶14.

The next issue was the interest rate. At the time the amended judgment was entered in November 2009, the statutory rate remained 10% per annum. The statutory amendment that would have lowered the rate to 4.25% did not become effective until July 2011. Ariz. Rev. Stat. § 44-1201(B). While the session law enacting the amendment specified that it was to apply to any judgment entered after its effective date, language specifying that it was not to apply to judgments entered before its effective date does not appear in the amended statute. The flood control district argued that the plain language of the statute required its application to the interest on any judgment, so the effect should be to apply a 10% rate for the period pre-July 2011, and a 4.25% rate from and after the July 2011 effective date. The court of appeals disagreed and held that the 2011 amendment to the statute applied only to judgments entered on or after its effective date.

The final issue concerned how interim payments were allocated between principal and interest. The court acknowledged the general rule that a debtor is entitled in making a payment to direct how the debtor wants it to be applied, but that rule also includes that when the debtor fails to make such a direction, the creditor is entitled to make the application however the creditor chooses. To this rule, the court of appeals added that courts apply it only to voluntary payments by the debtor. In this matter, the court had already determined that the flood control district payments were considered involuntary. Applying what the court said was the “United States Rule,” the court of appeals said the application of involuntary payments is “first to unpaid interest due and thereafter to the principal debt.” ¶26. That was the method applied by the superior court which was affirmed.


TAX LAW

STRAWBERRY v. GILA COUNTY - 5/26/2015 -1 CA-TX 14-0004

For tax years 2008-11, Strawberry LLC failed to pay real property taxes on land it owned in Gila County. The Gila County Treasurer sold the tax liens to CCC&S.

In 2013, pursuant to Ariz. Rev. Stat. §42-18351(A), Strawberry LLC applied for removal of the tax liens on the basis that the assessment was upon the incorrect premise of final subdivision approval, which had not occurred. Strawberry LLC initially filed a complaint pursuant to Ariz. Rev. Stat. §42-18352(E), but then redeemed the tax lien certificates and amended its complaint.

The trial court granted the county’s motion to dismiss on the ground that Strawberry LLC had no right to maintain an action pursuant to Ariz. Rev. Stat. §42-18352(E) because it had not timely paid taxes pursuant to Ariz. Rev. Stat. §42-11004 and §42-16210. The court of appeals reversed, holding that “Section 42-18352 is a specific statute that establishes an exception to §42-11004, and §42-16210 is inapplicable.” ¶8. The matter was remanded with directions that Strawberry LLC was entitled to maintain its lawsuit.


LABOR & EMPLOYMENT LAW

MERKENS v. FEDERAL - 5/21/2015 - 1 CA-CV 13-0510

As a laboratory researcher at Senestech, Merkens was exposed to the toxin vinyl cyclohexene diepoxide, for which she made a workers’ compensation claim and received benefits. After months of treatment without improvement, the carrier, Federal Insurance, scheduled Merkens for an independent medical examination. She ended up with three IMEs (one questioned whether any injury had occurred from the exposure to the toxin, another determined there was chronic airway disease but wanted more testing, and the third found no pulmonary or respiratory disease and recommended mental health examination).

Federal filed a notice of claim status that there was no permanent disability and terminated temporary compensation and medical expense payments. Merkens did not administratively challenge the Federal decision before the Industrial Commission, but instead sued Federal for breach of contract and bad faith in the termination of her benefits. Holding that once a worker claims workers’ compensation benefits, jurisdiction to determine the right to and any amount of benefits is exclusively with the Industrial Commission, the court of appeals determined that Merkel could not pursue a bad faith denial of benefits without obtaining a ruling from the Industrial Commission. Because Merkel did not challenge before the Industrial Commission Federal’s decision to terminate benefits, she was precluded from maintaining an action for bad faith denial of benefits. Summary judgment for Federal was affirmed.


BANKRUPTCY/CREDITORS’ RIGHTS LAW

SPQR v. ROBERTSON - 5/12/2015 - 1 CA-CV 14-0341

While she was married to Michael Weck, a judgment was entered in 2003 against the marital community of Andrea Robertson and Michael Weck, in favor of SPQR Ventures, for $240,000 plus costs and fees. After she married Bradley Robertson in 2009, SPQR sought to enforce the judgment against the marital community of Andrea and Bradley Robertson “to the extent of the value of that spouse’s contributions to the marital community.” Ariz. Rev. Stat. Ann. § 25-515(B). Andrea Robertson, however, was not employed outside the home (although she previously had been), and SPQR argued that the community income nevertheless should be subject to collection based upon a quantifiable, although non-financial, value of the child-rearing of their 5 children and homemaking contribution to the marital community.

On cross-motions for summary judgment, the superior court ruled in favor of the Robertsons and against SPQR. The court of appeals affirmed. Although acknowledging the statutory language and the cases interpreting it to prevent avoidance of pre-existing financial obligations using the voluntary act of a subsequent marriage, the court limited the reach of the statute to the debtor spouse’s financial contributions to the community. “None of these cases permit a recovery against the income of the non-debtor spouse for the ‘value’ of the debtor’s nonfinancial services to the community.” ¶10. The court of appeals also agreed with the superior court that money Bradley Robertson transferred to Andrea Robertson’s bank account in amounts below the statutory minimum for garnishment could not be fraudulent transfers since Bradley’s money was not subject to garnishment on the SPQR judgment anyway. ¶13.


PROFESSIONAL LIABILITY

APRIL ABIGAIL GUERRA v. STATE OF ARIZONA et al - 5/8/2015 - CV-14-0144-PR

There was a single car accident, killing 1 of the 5 passengers in the car. The investigating Department of Public Safety officers initially believed the deceased passenger was the teenage daughter of Mr. and Mrs. Guerra who were informed that she had died. It was later determined that there had been a misidentification and it was a different passenger who had died. The Guerras sued DPS (and its director and the officers) for negligence, negligent training, and intentional infliction of emotional distress. The trial court granted summary judgment for the defendants. The court of appeals reversed in part, holding that by performing next of kin notifications, DPS assumed a duty by a voluntary undertaking, and that summary judgment should not have been granted on that claim. 234 Ariz. 482, 323 P.3d 765 (Ct. App. 2014).

The State’s petition for review was granted by the supreme court as to the following issues:

Next-of-kin (“NOK”) notifications often occur in time-sensitive and tragic circumstances, when law-enforcement officers strive to identify crash or crime victims. Relying on information provided by hospital personnel following a rollover accident with multiple victims, Department of Public Safety (“DPS”) officers made an NOK notification, informing the Guerras that their daughter, April, had died in the crash. Six days later, the Guerras learned that their daughter had been misidentified; although severely injured, she had survived. Her friend was the one who had actually died. The specter of tort liability stemming from communicating investigative findings to concerned family members under such circumstances raises several issues meriting this Courts’ review:

1. Morton and Vasquez held that law-enforcement agencies have no legal duty in investigating and identifying deceased individuals. The court here held that there is such a duty; it arises when law enforcement assumes the duty to make an NOK notification. Can Morton and Vasquez be legitimately distinguished on this basis?

2. Arizona has adopted § 323 of the Second Restatement of Torts to determine the limits of liability for a defendant’s voluntary undertaking. It would not impose liability here. Although the court said that it did not rely on § 323, it based its holding on cases that relied on § 323 or its principles, and it identifies no legal basis for the duty that it established. Did the court err in establishing a new duty?

3. In reaching its decision, the court dismissed public-policy concerns, ignoring the fact that its ruling will have a chilling effect on socially desirable communications. Did the court fail to adequately consider the adverse public-policy implications of its holding?

With two justices dissenting, the supreme court vacated ¶¶ 15–28 of the court of appeals’ opinion and reinstated the Guerras’ negligence claim.

The supreme court agreed with the State’s argument that there was no duty arising from Restatement § 323 because next-of-kin notifications “are neither intended nor necessary to protect the recipients from physical harm to their persons or their things.” ¶10. The supreme court held such a determination also was consistent “with cases holding that officers do not owe a duty to victims or their families by undertaking to investigate a crime or accident.” ¶13. The court held that the Guerra’s claim for negligently informing them that their daughter had died was akin to a complaint that they had negligently investigated the identity of the deceased victim, which was not actionable. ¶16. The court declined to adopt Restatement (Third) of Torts: Liability for Physical and Emotional Harm § 47 (2012), because it had not been argued by any of the parties. ¶25. The superior court grant of summary judgment for the State was affirmed.


PREMISES LIABILITY

LEE v. M&H, WAL-MART - 4/21/2015 - 1 CA-CV 13-0257

Lee was injured on the construction site for a Sam’s Club (Wal-Mart) while working for independent contractor Able Body, which supplied employees for general contractor M&H. Lee had been injured in a fall resulting from his stepping on fiberboard that collapsed, rather than using an available scissor lift, in an effort to clean the tops of some tall freezer units. On cross-motions, the trial court granted summary judgment for Wal-Mart that it was not liable for injuries to an employee of an independent contractor. There was a jury trial on issues between Lee and M&H, resulting in a verdict in favor of M&H. On appeal, the court of appeals identified as the issues:

(1) whether Lee, as an employee of an independent contractor, could properly assert a vicarious liability negligence claim against Wal-Mart;
(2) whether Lee presented evidence creating a material factual dispute as to whether Wal-Mart retained some control over his work and was therefore directly negligent; and
(3) whether the lent employee doctrine relieves M&H from liability because Lee elected to pursue a workers’ compensation award for his injuries.
¶2. Lee appealed and M&H cross-appealed. The judgment was affirmed.

Lee argued that Wal-Mart had a non-delegable duty to keep its premises safe for business invitees pursuant to Restatement (Second) of Torts § 422. The court of appeals disagreed with Lee’s argument that the decision in Ft. Lowell-NSS Ltd. P’ship v. Kelly, 166 Ariz. 96, 800 P.2d 962 (1990), had impliedly overruled the decision in Welker v. Kennecott, 1 Ariz. App. 395, 403 P.2d 330 (1965). The court of appeals held that the general rule in Arizona continued to be “that a landowner is not liable for injuries suffered by an employee of an independent contractor performing work on the property.” ¶20. The appellate court also disagreed that the contract between Wal-Mart and M&H amounted to retained control within the meaning of Restatement (Second) of Torts § 414. ¶¶24-26.

M&H had prevailed in the superior court that, as Lee was an employee lent by Able Body to M&H and Lee had not opted out of the workmen’s compensation system, M&H was entitled to the statutory bar limiting Lee to his workmen’s compensation benefits and precluding a damages suit against M&H for the workplace injury. Applying the test for whether a lent employee qualifies as the employee of a special employer (there is an express or implied contract of hire, the work done essentially is of the special employer and the special employer controls the details of the work), the court of appeals held the record supported all elements. ¶¶32, 34-35. Because it affirmed on this issue, the appellate court did not address a cross-appeal issue on vicarious liability.


FAMILY LAW - Valuation of professional practice and post-petition distributions

SCHICKNER v. SCHICKNER - 4/16/2015 - 1 CA-CV 13-0513

Renna (Wife) and Daniel (Husband) Schickner were married in 1998. They had 2 minor children when their divorce petition was filed in June 2010. Husband had ownership interests (50% and 20%, respectively) in Western Medical Eye Center (WME) and Physicians Surgery Center (PSC).

At trial, valuation of WME and PSC were contested issues. As to WME, Husband’s experts assigned values ranging from $475,000 to $830,000. As to PSC, Husband’s experts gave values from $490,000 to $580,000. In contrast, Wife’s expert valued Husband’s interest in WME at $1,617,000 and his interest in PSC at $1,052,000. The trial court found that the value of the WME interest was $602,000 and the value of the PSC interest was $536,000. With respect to Husband’s earnings/distributions between the date of the petition and the decree, the trial court held that all post-filing distributions were Husband’s separate property. After post-trial motions were denied, Wife appealed.

Among other things, Wife challenged the trial court application of a minority discount in valuing the business interests. The appellate court stated that “no Arizona case bars a court from applying a minority share discount when valuing minority interests in a domestic relations case.” ¶16. (Arguably, the court of appeals ignored Mitchell v. Mitchell, 152 Ariz. 317, 320, 732 P.2d 208, 211 (1987), which for divorce purposes treated valuation as if a silent partner were withdrawing from a business, not as if the interest were being sold, which would seem to preclude minority discounting.) Instead, the court of appeals left minority interest discounting to be determined by trial courts on an ad hoc basis. ¶17. Nevertheless, it found the valuation made the trial court unsupported by the record made as to WME, but supported as to PSC. ¶¶18-20.

The appeal also challenged the distributions to Husband from the two businesses in excess of his contractual salary. The appellate court agreed with Wife that the trial court had erred. The court of appeals held that Husband’s post-petition contractual salary was separate, but it was Husband’s burden to prove the separate nature of any business distributions to him in excess of that salary. “Any distributions Husband received in excess of [the] reasonable amount of compensation are attributable to the community as profits derived from existing community assets and subject to equitable division.” ¶30.

The matter was remanded to re-evaluate WME (but not PSC) and to redetermine whether Husband’s salary was reasonable compensation or whether some portion of the WME and PSC distributions should be considered compensation for his labor, rather than distributions from a community asset. Wife was approved to be awarded a portion of her attorneys’ fees on appeal.


CONSTRUCTION LAW - Residential Contractor’s Recovery Fund claim

PINNAMANENI V. REGISTRAR OF CONTRACTORS - 4/9/2015 - 1 CA-CV 14-0006

Dr. Pinnamaneni had a home designed to be built for his family. It was to be built on land owned by his Family Trust. He used his wholly owned company, Pioneer LLC, as his agent to contract for the construction. Pioneer contracted with the Contractor (Untouchables, Inc.) for the home.

Pinnamaneni was dissatisfied with Contractor and filed a Complaint with the Registrar of Contractors. On the line to identify the “homeowner,” he put his own name; on another line to designate a company name, he listed “Pioneer.” According to Pinnamaneni, he spoke to some at the Registrar’s office who confirmed he could or should complete the complaint form that way. Later, he submitted a supplement for additional damages, signing on behalf of Pioneer.

Following a hearing, an Administrative Law Judge issued a decision in favor of Pioneer, which was adopted by the Registrar. Contractor declared bankruptcy. Pinnamaneni then applied to recover from the Residental Contractor’s Recovery Fund, jointly making the claim on behalf of behalf of himself, his Family Trust, and Pioneer. The Registrar denied that claim, holding that the claimants did not meet the requirements of Arizona Revised Statutes § 32-1131.3. According to the Registrar, only Pioneer had filed the administrative complaint, and the Registrar further held that Pinnamaneni himself lacked privity with Contractor, as the contract had been signed on behalf of Pioneer, not Pinnamaneni. The appeal to the superior court resulted in an affirmance of the Registrar and Pinnamaneni further appealed to the Arizona Court of Appeals, which reversed.

The appellate court construed Ariz. Rev. Stat. § 32-1131.3 to have three requirements to be a “person injured” and entitled to recovery from the fund: (1) the claimant had to be an owner of the land; (2) the claimant also had to occupy or intend to occupy the residence, and (3) the claimant had to be damaged by the failure of the contractor. Because the Family Trust was a revocable trust, the court of appeals held that Pinnamaneni was equivalent for purposes of meeting the first statutory requirement and that his family intended to occupy the home satisfied the second requirement. The appellate court disapproved of the contractual privity requirement imposed by the Registrar and superior court, holding that the language which had supported that was no longer in the amended version of the statute. Although not directly explained in the context of the third requirement, apparently this was dispositive of it, as well. The court of appeals also noted that the statute did not specifically require that a fund claimant be identical with a party to the administrative complaint. The matter was remanded with directions that Pinnamaneni did qualify as a “person injured” under the statute.

 


PERSONAL INJURY/INSURANCE DEFENSE

KATELIN NEWMAN v. CORNERSTONE NATIONAL INSURANCE CO - CV-14-0121 - 318/2015

Although vacating the opinion of the Arizona Court of Appeals to substitute the analysis of its own opinion, the Arizona Supreme Court reached the same conclusion as the trial court and the intermediate appellate court with respect to underinsured motorist (“UIM”) coverage and the requirement of an “offer” to make such coverage available. The underlying lawsuit was brought by Newman was seriously injured in an auto accident. The cost of her treatment exceeded the policy limits of both that of the other party to the accident and her own insurance. Newman sought UIM benefits from her insurer, Cornerstone, which denied the claim because Newman had signed a UIM waiver when purchasing her policy.

Newman filed a complaint against Cornerstone. Both sides moved for summary judgment. Newman argued to comply with A.R.S. § 20-259.01, the insurer must “make available” and “offer” UIM coverage and that such offer must providing definite terms, including a premium price. The form Cornerstone provided did not include a premium quote for UIM coverage. Cornerstone argued that Ballesteros v. American Standard Ins. Co., 226 Ariz. 345, 248 P.3d 193 (2011), does not require an insurer's UIM offer to list any premium.

The trial court agreed with Cornerstone and granted it summary judgment. The court of appeals affirmed, holding that a premium quote was not required for a valid offer (and hence waiver) of UIM coverage. Newman’s petition for review was accepted by the Arizona Supreme Court.

The supreme court addressed the meaning of the term “offer” in Arizona Revised Statutes § 20-259.01(B). Newman argued that the offer of uninsured motorist and UIM coverage Cornerstone made was deficient for failure to include a premium price.

Here, Cornerstone’s UM/UIM selection form brought the availability of coverage to Newman’s attention. It informed her that she had “a right to purchase both Uninsured Motorist coverage and Underinsured Motorist coverage” in an amount up to her policy’s liability limit. If Newman had elected to receive UM/UIM coverage on Cornerstone’s form and initialed the box captioned “Accept,” a reasonable person in her position would understand that Cornerstone was bound to provide the coverage regardless of whether a premium price was included. Cornerstone’s offer of UIM coverage satisfied A.R.S. § 20-259.01’s requirements.

Although the cost might be useful information in encouraging insureds to purchase coverage and helping them to decide whether to buy, § 20-259.01 does not require this information. We have previously refused to add requirements to this statute and again decline to do so. Ballesteros, 226 Ariz. at 349 ¶ 17, 248 P.3d at 197; Tallent, 185 Ariz. at 268, 915 P.2d at 667. Nothing precluded Newman from asking how much UIM coverage would cost before she chose to forego it, and nothing suggests that insurers would refuse to provide the price information if requested.

Summary judgment for the insurer was affirmed.


TAX LAW

EUROPE v. ADOR - 1 CA-TX 13-0002 CCI - 3/12/2015

The Arizona Department of Revenue audited CCCI Europa and decided that software it sold to Phoenix Newspapers, Inc. for production of the print edition of The Arizona Republic should be subject to transaction privilege tax. CCI challenged ADOR, arguing that its software qualified for the exemption of Arizona Revised Statutes § 42-5061(B)(1) regarding machinery or equipment directly used directly in manufacturing. The court of appeals affirmed the superior grant of summary judgment in favor of CCI holding that because the software was used as part of the manufacturing process to produce the printed paper, the proceeds of the software licensing agreement qualified as statutorily exempt.


FAMILY LAW

PICCOLI v. O'DONNELL - 1 CA-CV 13-0554 - 2/26/2015

Frank and Katie were married in 1990 and still-pending divorce proceedings (in Missouri) in had been initiated in 2008. Frank had established a number of trusts (with his lawyer-sister as Trustee), some the day before his marriage, and some afterwards. Frank’s Trustee filed declaratory actions in Maricopa County, Arizona to establish that Katie had no marital interests in any trust assets.

Katie hired the Mariscal Weeks law firm to represent her in Arizona. After a trial, Katie prevailed in Arizona with a determination that she did have a marital interest in the trust assets. When Frank and his Trustee appealed, Mariscal Weeks was withdrawing as Katie’s attorneys. (The appeal by Frank and the Trustee was unsuccessful. As between Katie and Mariscal Weeks, apparently there was a fee dispute which resulted in an arbitration and an award in favor of Mariscal Weeks against Katie for fees in the amount of $163,642.37 – which was separate from some additional, contingent component.)

Mariscal Weeks then filed its own complaint against Katie, Frank, and the Trustee, requesting a declaratory judgment that its arbitration award could be satisfied from marital assets (as such were to be determined in the pending Missouri divorce). Summary judgment was granted in favor of Mariscal Weeks. Frank and his Trustee appealed.

The court of appeals affirmed. The court found that there was a justiciable controversy (denying an argument that the ruling was an improper advisory opinion). The court also disagreed that the Arizona judgment constituted a collateral attack of the earlier Arizona probate ruling or the Missouri divorce proceedings. The appellate court held that the earlier suit by Katie, which had established that the marital estate had been defrauded by Frank, was on behalf of the marital estate, so it was proper to determine that the attorneys fees incurred had been on behalf of the marital estate, and thus properly chargeable against marital assets in the Missouri divorce.


FAMILY LAW

MILINOVICH v. WOMACK - 1 CA-CV 12-0657 - 2/26/2015

Mother gave birth to a child in 2004 and established paternity of Father in 2007, at which time Father (a professional athlete) agreed to child support of $2,901 per month, based on monthly gross income of $166,667. In July 2010, Father sought to modify the child support amount. He had retired as an athlete and some of his assumptions about the duration of income from certain retirement accounts were no longer correct. His petition stated his monthly income as $4,959 and he requested support be reduced to $551.16 per month. Mother agreed to an adjustment, but argued that his monthly income should be determined to be $42,000 and his monthly support reduced to $2,300. After an evidentiary hearing, the trial court agreed more closely with Mother’s accounting. Father appealed.

Father had established short-term and long-term retirement accounts. The short-term account was based upon monthly withdrawals of $20,000 lasting until 2015, when the long-term account was to be used for the balance of his life. Father, however, had been withdrawing about $40,000 per month, most of which was principal. For support modification purposes, Father had counted as income only the interest earned on the funds in the short-term account and not the additional funds he was withdrawing from principal. Construing Arizona Revised Statutes § 25-320 and Arizona Child Support Guidelines § 5(A), the appellate court stated that the court is to look at the actual money that is available for expenditure and to determine the combined funds that would have been spent on the child if the parents and child were still living together.

It is undisputed that Father’s voluntary drawdown of the principal in his short-term account was part of his larger retirement strategy for investing the funds he received as deferred compensation from one of his previous employers. . . . Based on Father’s own testimony, his monthly draw from the short-term account depends on his monthly expenses, which on the average are $40,000. Father did not present any evidence, or even suggest, that the child’s standard of living would have been lower if Father and Mother and the child were residing together. . . . To the contrary, the record reflects that in such a living arrangement, the child’s standard of living would be substantially higher.

The court of appeals held that the principal withdrawn fell within the broad definition of gross income and was properly considered in setting his support amount. The court disagreed that the principal withdrawal should be treated as capital gain or a one-time exchange.

Application of the principal withdrawals resulted in the combined income exceeding the presumptive limit of $20,000 per month and invoked the consideration of whether to make an upward adjustment. Father argued that the trial court had erred by making an upward adjustment. The court of appeals review of the record, though, was that the trial court had used a calculation that, notwithstanding the combined incomes exceeding the presumptive limit, had then reduced the total to the presumptive limit of $20,000, but the trial court had assigned percentages (90% for Father) based upon the actual, relative gross income amounts. No error was found and the award was affirmed.


PRODUCT LIABILITY

WATTS v. MEDICIS - 1 CA-CV 13-0358 - 1/29/2015

Watts brought a product liability claim (including for punitive damages) against Medicis Pharmaceutical alleging injuries incurred (autoimmune disease) from using the medication Solodyn. Medicis filed a motion to dismiss for failure to state a claim which was granted, following which a motion for new trial was denied, and a notice of appeal filed.

The appellate court first addressed two matters of appellate procedure. The court disagreed with Medicis that a rule 59 motion for new trial was ineffective to toll the time for appeal from a grant of a motion to dismiss. The court also disagreed with Medicis that the language of the notice of appeal limited review jurisdiction to the denial of the motion for new trial and did not include the underlying grant of the motion to dismiss. The court leniently construed the language of the notice to include the dismissal ruling and found there was no confusion or prejudice to Medicis.

With respect to the underlying ruling dismissing the product liability claim, the court of appeals determined that the medication was merchandise within the scope of the Arizona Consumer Fraud Act and that Watts had adequately pled the elements of a private cause of action pursuant to that statute. With respect to Watts’ common law claim, the superior court had applied the “learned intermediary doctrine” which shields a drug manufacturer from a duty to warn if it has adequately informed a physician intermediary who is presumed responsible for the determination to prescribe a medication and provide any warning to the consumer. The court of appeals agreed with Watts that the doctrine did not have continuing viability in light of Arizona’s adoption of the Uniform Contribution Among Tortfeasors Act, and instead comparative fault principles should apply in determining any degree of fault to be allocated between a prescribing physician and the drug manufacturer. Because her underlying tort claims were reinstated, the punitive damage claim was restored, too.


ANTI-DEFICIENCY

BMO HARRIS BANK v. WILDWOOD CREEK RANCH LLC et al - CV-14-0101-PR - 1/23/2015

The Arizona Supreme Court vacated the opinion in BMO Harris Bank N.A. v. Wildwood Creek Ranch, LLC, 234 Ariz. 100, 317 P.3d 641 (Ct. App. 2014). In 2006, Wildwood obtained a loan from M&I Bank (succeeded by BMO Harris) for $296,000. It was personally guaranteed by Rudgear. The loan was secured by a first position deed of trust on unimproved land. Construction was planned, but never occurred. In 2009, the loan was renewed and extended to 2011, when it went into default. BMO Harris foreclosed on the still-vacant land and then sued Rudgear for a deficiency. Relying on M & I Marshall & Ilsley Bank v. Mueller, 228 Ariz. 478, 268 P.3d 1135 (Ct. App. 2011), the trial court granted summary judgment for Rudgear who had supplied an affidavit that the vacant property had been intended to be improved and used as a single family residence. BMO Harris appealed. The court of appeals acknowledged Mueller, but did not explain how it was distinguished. The court of appeals merely held that unimproved, vacant land could not be a dwelling and remanded with directions to enter partial summary judgment for BMO Harris.

The supreme court reached the same result, vacating the court of appeals opinion in this case and overruling Mueller to the extent it applied the anti-deficiency protections based on intent, before there was a completed structure. The supreme court held that the statute affords protection with respect to collateral property that is both (1) a dwelling and (2) utilized for a single one-family or single two-family home. 12-13. “A structure is a ‘dwelling’ if it is suitable for residential purposes and a person resides in the structure, or the structure is intended for such use.” 15. Intent to eventually use a property for a dwelling is not equivalent to actually utilizing it as a dwelling. “Vacant property is not being utilized for a dwelling even if the borrower intends someday to construct and occupy a home there.” 17. “For purposes of § 33-814(G), a residential structure may qualify as a ‘dwelling’ before it is occupied, see supra 15, but trust property is not being ‘utilized for’ a dwelling until a residential structure is completed.” 18. Since no dwelling had ever been constructed on their property, the Rudgears were not entitled to any statutory protection and the trial court was directed to enter partial summary judgment in favor of BMO Harris.


CONSTRUCTION LAW

MARCO CRANE v. MASARYK et al. - 1 CA-CV 13-0467 - 12/30/2014

Masaryk bought a residential lot in Paradise Valley in 2003. In 2006 she contracted with Mendelsohn to construct a house on the lot. Mendelsohn subcontracted to Marco Crane for certain structural steel work. Marco timely served a preliminary 20-day notice on Masaryk and Mendelsohn.

In 2008, Masaryk halted construction. Marco was unpaid and recorded a mechanic’s lien. Marco sued Masaryk and Mendelsohn. In 2009, Masaryk recorded a lien transfer bond to discharge the lien from the lot. In 2010, Masaryk transferred title to her wholly owned limited liability company, LSM, and construction of the home was completed. Masaryk occupied the home in 2010.

Pursuant to its amended complaint, Marco Crane sought payment of its lien from the transfer bond. Masaryk moved for summary judgment, relying upon Arizona Revised Statutes § 33-1002(A)(2) which precludes liens from attaching to “the dwelling of a person who became an owner-occupant prior to the construction, . . . except by a person having executed in writing a contract directly with the owner-occupant.” Marco Crane filed a cross-motion, arguing that it was entitled to summary judgment that Masaryk could not qualify as an owner-occupant because she transferred title to LSM and did not intend to live there.

The trial court summary judgment in favor of Marco Crane was reversed on appeal. The court of appeals held that Marco Crane was not entitled to summary judgment because Masaryk did satisfy the statutory requirements to be an owner-occupant when the lien was recorded, but the appellate court only remanded for further proceedings in the trial court without directions to enter judgment for Masaryk.

The court of appeals stated that Masaryk was an owner-occupant when the lien was recorded.

First, before Marco commenced its work, Masaryk owned the property personally, obtaining legal title in 2003. Second, Masaryk recorded title to the property with the Maricopa County Recorder that same year. Finally, Masaryk intended to reside in the house for at least 30 days following the completion of Marco’s work, as evidenced by the fact that she she actually moved into the house approximately one month after it was completed and lived there for over one year.

¶12. (In footnote 2, the court avoided the issue of where the transfer to LSM changed that status, but nevertheless distinguished the transfer: “Marco never sold the house to others; rather, she merely changed the form in which she owned the house.” That seems to ignore the legal separateness of the entity.)


PUBLIC RIGHT TO ACCESS

KPNX v. HON. STEPHENS/STATE - 1 CA-SA 14-0213 - 12/16/2014

In the sentencing phase of the Jodi Arias murder trial, the superior court judge ruled that the proceedings would be closed to the public to permit the testimony of a witness (that later disclosure revealed was Arias herself). Various members of the press objected. The trial judge initially analyzed the relevant issue of whether closing the proceeding to the public presented a clear and present danger to the defendant’s right to a fair trial and an impartial jury and concluded that completely closing the proceedings was unnecessary and that it was sufficient to require the public to view the proceedings during the witness’ (Arias’) testimony from monitors in a different courtroom. Thereafter Arias announced she would not testify because she felt she was exposing herself to danger based on death threats she was receiving. The trial judge then stated her concern that Arias was being manipulative was outweighed by concern that Arias would be found to have not voluntarily waived her right to present mitigation evidence, and closed the proceeding. In the special action that followed, the court of appeals upheld the public’s constitutional right of access to observe court proceedings (although characterizing its resolution as based on interpreting the criminal rule without reaching the constitutional issue grounds) and determined that the “clear and present danger” to the defendant’s right to a fair trial had not been shown. The appellate court held that the alternative of excluding the public from the trial courtroom, but allowing viewing those proceedings from a different courtroom was a correct resolution.


EDUCATION FUNDING

CRAVEN et al. v. HUPPENTHAL et al. - 1 CA-CV 13-0485 - 11/18/2014

Craven sued the Superintendent of Public Instruction and others for declaratory and injunctive relief that Arizona’s statutory funding scheme for charter schools unconstitutionally caused “gross disparities between public charter schools and other district public schools” because of alleged funding sources available to district schools that were not available to charter schools. The appellate court upheld the trial court summary judgment against Craven, holding that there was no disparate treatment of Arizona schoolchildren and noting that students are able to choose to attend either type of school.


WRONGFUL DEATH

ROBERT FLEMING v. STATE OF ARIZONA, AZ. DEPT. OF PUBLIC SAFETY, GALLIVAN - 2 CA-CV 2013-0162 - 10/31/2014

Faith Mascolino went out drinking at several establishments. She pronounced herself “okay to drive” when dropped off at her car and was stopped at 1:15am by two DPS officers who saw her drifting across the lanes of the freeway. She was arrested for DUI, placed in the back of the patrol car, and a call was made for a family member to retrieve her car.

While the call was being made for someone to retrieve the car, a vehicle driven by Robert Gallivan approached diagonally at a high rate of speed. The DPS officers jumped over a guardrail to avoid being hit. Gallivan’s car struck the patrol car, killing Mascolino.

Fleming, as conservator for the minor children of Mascolino, brought a wrongful death action against DPS and Gallivan. Over objection, the jury was instructed on qualified immunity. The jury verdict allocated fault: 75% Gallivan; 25% Mascolino; 0% DPS.

Fleming appealed, arguing the jury should not have been instructed as to the qualified immunity of Ariz. Rev. Stat. § 12-820.02(A)(7), because Mascolino was not a driver at the time of her death and her death could not be attributable to her DUI. The court of appeals construed the statute as not requiring that the “driver” be limited to the injured person. The court also disagreed with the argument that no reasonable jury could find Mascolino’s injury attributable to her DUI. The jury verdict was affirmed.


RULE 77

FISHER v. EDGERTON - 1 CA-CV 13-0428 - 9/30/2014

Following a 3 car accident, plaintiff sued Fisher and Edgerton who had been driving behind the plaintiff. In compulsory arbitration proceedings, the arbitrator awarded plaintiff $29,653.70 in damages and determined Fisher to be 100% at fault. Only Fisher appealed to superior court, as a result of which there was a four-day jury trial, awarding plaintiff $20,000, but again finding Fisher 100% at fault.

Edgerton sought and award of costs and fees against Fisher pursuant to Ariz. R. Civ. P. 54(g) and 77(f). The trial court awarded Edgerton approximately $16,000, comprised of awards for costs and fees. Fisher appealed.

Fisher argued that she obtained a result at least 23% better as provided by the rule upon comparison of the reduction from $29,653.70 to $20,000.00. With respect to Edgerton, though, the arbitrator had determined Edgerton was not liable, during the jury trial Fisher had argued that Edgerton was liable, and the result was again a jury determination that Edgerton was not liable. So Fisher did not obtain any better result as to Edgerton. The appellate court disagreed that rule 77 exempted an appealing defendant from having to pay a successful co-defendant’s expenses after unsuccessfully trying to shift liability to that co-defendant and affirmed the trial court award.


RULE 77

GRANVILLE v. HOWARD - 1 CA-CV 13-0370 - 9/30/2014

Granville’s truck was struck by Howard’s car and Granville sued for injuries/damages. Pursuant to compulsory arbitration, Granville was awarded $4,745.05 damages, $1163.90 costs, and $810.50 in sanctions. Howard appealed to superior court for trial de novo. After a jury trial, Granville was awarded an aggregate of $17,885.00. That was reversed on Granville’s appeal and there was a second trial. That trial resulted in an award to Granville, but for only $918.50 in damages, to which was added $5,950.65 taxable costs, $5,027.25 in sanctions, $2,750 for expert witness fees, and $72,000 as attorney fees, for a total of $86,646.40. Upon Howard’s appeal, the court of appeals held that the $72,000 fee award was unreasonable, vacated it, and remanded for reconsideration of the fees. The appellate court described some factors trial courts should consider when awarding fees pursuant to Ariz. R. Civ. P. 77(f).


CORPORATE LAW

GRIES et al. v. PLAZA et al. - 1 CA-CV 13-0091 - 9/9/2014

Gries and Harper, through entities each controlled, formed and owned Plaza as shareholders in 1984. Their shareholder agreement had a “shotgun” provision permitting either to buy out the interest of the other. Gries retired in 2000 with another agreement (arguably between Gries and Plaza), pursuant to which Gries continued to receive 10% of net profits and Harper managed Plaza and received the balance of 90% of profits.

In 2011, Gries sued Plaza and Harper to declare his retirement agreement a statutory shareholder agreement (so subject to a 10-year expiration), for damages for breach of fiduciary duties by Harper, for judicial dissolution of Plaza, and other relief. After a fair market valuation hearing, the trial court held that the retirement agreement was a shareholder agreement which had expired and the court set values for the Plaza stock ($157,000) and Gries’ damages claim ($200,000). Gries, however, then sought to invoke the shotgun provision and buy Harper’s stock in Plaza for $1.5 million. Harper then planned on acquiring full control of Plaza by paying Gries the $157,000 and asked the court to reject application of the shotgun provision invoking mandatory “shall” language in the statutes regarding involuntary corporate dissolution. The trial court ruled that it was entitled to make an equitable determination to allow the exercise of the shotgun provision for purchase in lieu of corporate dissolution. Harper then elected to exercise her right under the provision to buy, instead of sell, for the price offered by Gries, so she ended up buying for $1.5 million what she had hoped to purchase for $157,000.

On appeal, the court of appeals disagreed with the trial court that the retirement agreement constituted a shareholder agreement, holding it instead to be an employment agreement. Regarding the party maneuvering on the shotgun provision versus the statutory dissolution, the appellate court held that the “shall” was directory (permissive), rather than mandatory, and that, if it found it equitable to do so, the trial court could halt the corporate dissolution proceedings in favor of allowing the parties to exercise a purchase in lieu of dissolution pursuant to their previously agreed contractual procedure. Although upon somewhat different reasoning, the trial court result was affirmed.


ATTORNEY FEES

ABEL CUELLAR v. MEGAN G. VETTOREL - 2 CA-CV 2014-0005 - 08/18/2014

Plaintiff Cuellar sued defendant Vettorel for injuries from an automobile accident. Vettorel made an offer of judgment for $10,000, inclusive of costs and fees, and contingent on satisfaction of all liens attached by operation of law. Cuellar did not accept.

After trial, a jury awarded Cuellar $41,300, but finding him 90% at fault. Cuellar received a judgment for $5,310.90, which included $1,180.90 of costs. Over Cuellar’s objection, the trial court awarded Vettoral rule 68 sanctions of $25,631.06 for double costs and expert fees post-dating the offer of judgment.

Cuellar argued that, at the time of the offer of judgment, there were medical liens aggregating $6,936.84, plus his taxable court costs of $1,180.90, such that the actual value of the offer was $1,882.26, and thus less than awarded after trial. The court of appeals did not agree that medical liens could be removed from an offer of judgment to determine value. The sanction award was affirmed.


FAMILY LAW

ROBERTO F. v. DCS, et al. - 1 CA-JV 13-0209 - 8/14/2014

The juvenile court terminated the parental rights of Father and he appealed that ruling. While that appeal was pending, the juvenile court granted a petition for adoption, in a separate action, in favor of the foster parents of Father’s child. Father’s appeal was successful and the termination order was vacated. Father moved to set aside the adoption order, but the trial court denied the motion, resulting in another appeal. The court of appeals vacated the denial and vacated the adoption order. The court held that rule 103(F) of the Arizona Rules of Procedure for Juvenile Court precluded the juvenile court from entering the adoption order during the pendency of Father’s appeal of the order terminating his parental rights. A concurring opinion agreed with the result, but not the interpretation of rule 103(F).


FAMILY LAW

BEATIE v. BEATIE - 1 CA-CV 13-0209 - 8/13/2014

Thomas was born a female, but underwent sex reassignment surgery to become a male. An amended birth certificate was obtained from the State of Hawaii recognizing Thomas as a male. Thomas and Nancy married in Hawaii. Nancy was unable to have children. Prior to completion of genital surgery, Thomas remained able to bear children. The couple had 3 children, Thomas by childbirth and Nancy by adopting them.

By 2010 Thomas and Nancy had relocated to Arizona with their children. In 2012, Thomas filed a petition for separation, then later dissolution of marriage. The family court ruled that it did not have subject matter jurisdiction to grant a dissolution, holding that the marriage was between two women (or rather that the parties failed to prove that Thomas was male at the time of the marriage license) and that Arizona did not recognize same-sex marriage.

The court of appeals reversed. It held that, regardless of Arizona’s laws, the State of Hawaii had recognized Thomas as a male by the amended birth certificate. The marriage had been lawfully entered into in Hawaii and was not void under Arizona law, so the family court had subject matter jurisdiction to enter a decree of dissolution.


INSURANCE BAD FAITH

ARELLANO v. PRIMERICA, et al. - 1 CA-CV 13-0011 - 8/12/2014

Mrs. Arellano met with a Primerica insurance agent to get life insurance for her husband, Martin. Martin, who had poor English skills, completed an application and medical questionnaire with the agent’s assistance. The agent took a mouth swab for testing, accepted a premium payment, and said Martin qualified for $100,000 of life insurance.

Mrs. Arellano told the agent she was having second thoughts about the policy because of the premium payments. Another agent (Donald) met with Mrs. Arellano and told her he could increase the coverage to $150,000 for a slightly higher premium, to which she agreed, and paid him the additional amount. Mrs. Arellano said she understood the policy was immediately in effect. Donald did not provide her with any copy of any different or revised application nor ask her to sign another one, although he did prepare one. Donald submitted both applications.

Primerica required an underwriting medical interview upon determining Martin’s age was incorrect on the second application and that he had a history of hypertension. Primerica’s testing vendor contacted Martin to arrange for the interview and collection of specimens to determine whether he would qualify for the policy. Martin responded that his wife “already got one for me” – “at another company.” The vendor ended the call then issued an alert to Donald’s office (where Donald no longer worked) that Martin cancelled his application. There was no other contact by Primerica.

Martin died a few months later. Mrs. Arellano submitted a claim, which Primerica denied. Mrs. Arellano sued. After a mistrial, a second trial resulted in a jury verdict for Mrs. Arellano against Primerica for damages, including punitive damages, but offsetting part of the award for comparative fault (there were breach of contract, forgery, promissory estoppel, negligence, and bad faith claims). The jury also awarded damages to Mrs. Arellano against the insurance agency (including Donald). All parties appealed or cross-appealed.

Part of the opinion addresses the admissibility of certain applications based on A.R.S. § 20-1108 (which states that an application is not admissible unless a true copy was made part of the policy when issued). Primerica unsuccessfully argued that the statute did not apply because no policy was ever issued. The court of appeals upheld the trial court exclusion.

Part of Mrs. Arellano’s recovery was for a claim of forgery (apparently based upon someone allegedly signing and/or initialing some documents on behalf of Mrs. Arellano or Martin). The court of appeals held that there is no tort of forgery recognized in Arizona and set aside that part of the jury award.

Finally, Primerica alleged that the punitive award ($1,117,572) violated due process, particularly in light of the separate bad faith award of $82,000. After considering (1) degree of reprehensibility, (2) disparity between actual harm and the punitive award, and (3) the difference between the punitive award and authorized civil penalties in comparable cases, the court of appeals agreed that the punitive award was constitutionally improper and ordered the case remanded with directions to reduce the punitive award to $328,000.

Mrs. Arellano had cross-appealed for pre-judgment interest on unliquidated damages based on rule 68, Arizona Rules of Civil Procedure. Before trial, she had served an offer of judgment for $150,000 plus attorney fees of $15,000, which Primerica had declined. The court of appeals held that rule 68(g) applied and obligated Primerica to pay pre-judgment interest on all unliquidated damages. The court further held that bad faith damages are in all instances unliquidated until determined by the jury. The appellate court held that the trial court had erred in not awarding such pre-judgment interest.


FAMILY LAW

LAMBERTUS v. HON. PORTER/DAY-STRANGE - 1 CA-SA 14-0085 - 8/12/2014

This opinion is in a special action from a visitation ruling in favor of a paternal grandparent. Father is in prison. Mother brought a paternity action in which the paternal grandparent (Grandmother) intervened and filed a petition for visitation, which the trial court granted in the form of a temporary order for visitation. (Mother and Grandmother were each subject to court-ordered testing for, respectively, drugs and alcohol use.)

Mother sought special action review. The temporary order had followed an evidentiary hearing. Mother argued to the court of appeals that the trial court lacked subject matter jurisdiction to grant relief to Grandmother. (As it has done recently in another case, the court of appeals made a distinction between subject matter jurisdiction and a source of legal authority for judicial action.) The court of appeals concluded that the trial court did have legal authority to pursuant to A.R.S. §§ 25-404(A) and 25-409(C) to determine whether Grandmother was entitled to visitation. Although special action jurisdiction was accepted, relief was denied. One judge included a dissenting opinion, concluding that the cited statutes did not authorize a temporary visitation order.


FAMILY LAW

IN RE THE MARRIAGE OF THORN - 2 CA-CV 2014-0022 - 07/17/2014

Susan (Wife) and Stuart (Husband) were married in 1992 with a prenuptial agreement. A petition for divorce was filed in 2011 and the decree entered in 2013. Husband appealed with respect to the property division of the decree.

The decree was entered April 25 and Husband filed a timely notice of appeal on May 10. Rather than appeal the decree in general and all rulings it made final, Husband’s notice of appeal identified five specific rulings. On May 30 (35 days after the decree), Husband filed an amended notice of appeal identifying an additional ruling.

The court of appeals disagreed with Husband that the amended notice of appeal related back to the initial notice. As to that sixth issue, the court held that it had no jurisdiction and dismissed that part of the appeal.

The remaining issues related mostly to approximately $1 million in stocks and bonds. Husband argued that Wife had made a gift of them to him during marriage. The evidence was that Wife had signed a transfer document, but that Husband also had prepared another document allowing her to repossess the transferred securities if she had “buyer’s remorse.” 12. When Wife had left the marital residence, she did request a return of the securities. Wife claimed in the divorce that the transfer had been made under duress. Whether under duress or not, the trial court determined that no gift had been made. A gift requires “donative intent, delivery and a vesting of irrevocable title upon such delivery,” 14. Since Wife had the power to demand return, no irrevocable title was delivered and the court of appeals affirmed the determination that no gift had been made.

Husband also argued that the family court lacked authority to order him to return the stocks and bonds. The court of appeals discussed a difference between subject matter jurisdiction and the authority of a court. There was subject matter jurisdiction to divide the marital property. The court disagreed with Husband that the trial court had ordered a money judgment against him in relation to the order to return the securities (which order had been to pay their value to the extent Husband was unable to return the securities themselves). Distinguishing Weaver v. Weaver, 131 Ariz. 586, 643 P.2d 499 (1982), from Proffit v. Proffit, 105 Ariz. 222, 462 P.2d 391 (1969), the court of appeals held that, where one spouse possesses the separate property of the other spouse, the trial court had the authority to direct a return of such separate property. The appellate court avoided the issue as to the alternative part of the order for payment in the event of inability to return the actual property because the record indicated the disputed securities were held in an escrow and thus were available for return. 21-22.

Husband also had challenged a ruling with respect to equalizing the award based upon the marital residence, in recognition of unequal contributions for that property, which was held in joint tenancy. Judicial estoppel was held applicable to bar husband’s argument. Although the parties had disagreements over the value for certain contributions, the trial court had adopted Husband’s classifications of different contributions, as to which Husband on appeal argued he had made errors he wanted to correct. The court of appeals held that would be unfair to Wife and rejected Husband’s argument. 33-34.


CRIMINAL LAW

1 CA-CV 13-0305 - SAVORD v. MORTON - 7/24/2014

Savord is the Mother and Morton is the Father of a Child as to whom they have joint custody and decision-making authority. Mother filed a petition alleging that the Step-Brother of Child had sexually abused Child and that Father had failed to report it. Although her petition lacked any specific allegations of harassment or intimidation by Father, Mother obtained an order of protection prohibiting both Father and Step-Brother from any contact with Child and limiting Father’s contact with Mother. Contemporaneously, the court issued a Notice to Sheriff of Positive Brady Indicator which precluded Father from possessing any firearms and required him to surrender any he had.

Father requested a hearing. Following the hearing, the court held there was insufficient evidence of the alleged sexual abuse, but reasonable cause to believe aggressive behavior had occurred between Child and Step-Brother, and that Father was aware of it. The court continued in effect the order of protection.

Father appealed. The court of appeals vacated the protective order for lack of evidence and ordered it quashed.

Although an order of protection is reviewed upon an abuse of discretion standard, the court acknowledged that it carries a serious array of consequences. ¶11. Mother’s petition had failed to allege any predicate offense that Ariz. Rev. Stat. § 13-3601 requires to justify an order of protection. None of the statements made by Mother (failure to report alleged abuse) enumerated any such listed offense. Notwithstanding the failure of her petition to identify any listed offense, Mother was allowed to testify at the trial court hearing, over Father’s objection, to her subjective feeling of being harassed or intimidated. The court of appeals also held that an order implicating a person’s constitutional right to possess firearms required a determination that there was a credible threat to the physical safety of a specifically designated person, which was lacking in the record made.


FAMILY LAW

1 CA-SA 14-0058 - DCS v. HON. BEENE/OSANNA B. et al. - 7/24/2014

This decision in a special action arose from proceedings by the Arizona Department of Child Safety (DCS) to terminate the parental rights of Angel B. and Osanna B. (Parents). Parents, relying upon their due process rights, wanted to call their children as witnesses to cross-examine them about hearsay statements which had been admitted in evidence. DES was denied a protective order to preclude that testimony and sought appellate review.

The court of appeals accepted special action review and vacated the trial court ruling for further proceedings. The court held that termination of parental rights proceedings were civil in nature and did not invoke Sixth Amendment Confrontation Clause concerns. The court also noted the flexibility with which courts analyze what satisfies due process in the civil context and held that consideration of the best interests of the child was an appropriate factor for the trial court to weigh in deciding whether the children should be called as witnesses in the proceeding. The court noted an exception to the hearsay rule adopted with respect to out-of-court statements of children in abuse and neglect cases.

On remand, unless the parties’ positions change, DCS will have the burden to show good cause for a protective order precluding the children from being called as witnesses. . . . DCS will then need to make an offer of proof describing the statements attributed to the children that it seeks to offer and show a reasonable likelihood that those statements would be admitted in evidence at trial. . . . If DCS makes such a showing, Parents will then have the burden to show that they will be denied due process if they are not allowed to call their children as witnesses to confront and cross-examine them about the statements contained in the offer of proof that may be admitted in evidence, with the parties having an opportunity to be heard on the applicable factors outlined above, including whether it would be in the best interests of the children to be called as witnesses. . . . Finally, if Parents meet their burden to make such a showing, the superior court may then properly consider alternatives to traditional testimony in open court.
¶20.


 

CORPORATE LAW

1 CA-CV 13-0266 - CAFE VALLEY v. NAVIDI - 7/24/2014

Ariz. Rev. Stat. §10-1601 requires a corporation to keep certain records, including its articles and bylaws, minutes of meetings, a record of shareholders, and “appropriate accounting records.” Ariz. Rev. Stat. §10-1602(A) generally entitles a shareholder to inspection and copying of the records described in §10-1601(E) (essentially articles, bylaws, and minutes) upon 5 days demand. Ariz. Rev. Stat. §10-1602(B) entitles a shareholder to inspect and copy a broader array of documents (including accounting records and financial statements), but imposes a burden that the shareholder meet the requirements of Ariz. Rev. Stat. §10-1602(C), which is that the demand be made for a proper purpose, that both the records desired and the purpose be described with reasonable particularity in the demand, and that the records sought relate to that stated purpose.

Café Valley and Upper Crust Bakery are competitors. Navidi is a shareholder in Café Valley (less than 1%) and is also the president/CEO of Upper Crust.

Navidi made a request to see records of Café Valley. Café Valley responded that it would permit inspection of the records described by Ariz. Rev. Stat. §10-1602(A) (essentially articles, bylaws, and minutes), but denied that Navidi had met the requirements for inspection of the documents described by Ariz. Rev. Stat. §10-1602(B) (the financial statements and accounting documents).

Ariz. Rev. Stat. §10-1604 allows a shareholder denied access to corporate records to sue for a court order to permit inspection. Café Valley did not wait to see whether Navidi would file such an action. Instead, Café Valley filed a complaint for a declaratory judgment to prevent inspection. Navidi moved to dismiss, arguing that Café Valley did not have a right to prevent inspection and could not rely upon the declaratory judgment statute to circumvent Ariz. Rev. Stat. §10-1602. The trial court granted the motion. The court of appeals reversed.

The court of appeals held that Ariz. Rev. Stat. §10-1604 did not prohibit a corporation from seeking a judicial determination of its rights via a declaratory action. The court further determined that the existing controversy was justiciable under the declaratory statutes (even though there had been subsequent demands for documents altering the issues on inspection).


CONSTITUTIONAL LAW

1 CA-CV 14-0272 - GALLARDO et al. v. STATE OF ARIZONA et al. - 7/23/2014

A statute providing for an additional board member for community college districts for counties of at least 3 million people was challenged as an unconstitutional “special” law because it could only apply to Maricopa County. Ariz. Const. art. IV, pt.2, § 19(11) precludes a “local or special law” enacted with respect to the “conduct of elections.” The “special” law prohibition is construed to preclude a statute that unreasonably discriminates in favor of a class by granting a special privilege or immunity. The 3-part test is: (1) whether the law is rationally related to a legitimate government objective, (2) whether the classification legitimately includes all members of the relevant class, and (3) whether the class is “elastic” and allows members to move in and out of the class.

Reversing the trial court, the court of appeals held that this law failed the “elasticity” test. While conceding it was theoretically possible for additional counties to satisfy the population requirement, the test requires some probability, not mere theoretical satisfaction. Expert testimony provided to the trial court indicated that Pima and Pinal, the next largest counties following Maricopa, were not projected to possibly reach a population of 3 million until the 22nd Century and the remaining counties were expected to take at least 500 years to reach that population. The court held that the possibility of additional counties being included in the class was merely theoretical and that the statute failed the test for constitutionality. The statute was held to be an impermissible “special” law.


CONTRACT LAW

1 CA-CV 13-0216 - WILKS v. MANOBIANCO, et al. - 7/22/2014

Wilks had State Farm auto insurance procured through the Manobianco Agency. It included uninsured motorist (UM) and underinsured motorist (UIM) coverage. Wilks switched insurers, still obtaining a policy with UM/UIM coverage. In 2004 she asked Manobianco to switch her back to State Farm, alleging that she asked for the “same insurance.” Wilks signed numerous documents provided by Manobianco, one of which was an Arizona Department of Insurance-approved form marked to select UM, but not UIM, coverage.

Wilks was in an auto accident, made a claim, and was rejected by State Farm for UIM coverage. State Farm relied upon the signed form. Wilks sued Manobianco. The trial court granted summary judgment in favor of Manobianco, rejecting Wilks’ statement that she signed the form without looking at it in reliance upon her request that the agency provide her with the “same insurance.” The court of appeals reversed.

The court of appeals held that Wilks presented a material question of fact whether Manobianco had breached an applicable standard of care by failing to procure the “same insurance” coverage. It was held to be a fact question for resolution at trial whether Wilks’ failure to read the form was reasonable and whether it amounted to contributory negligence. Her failure was held to “not bar the Wilkses’ professional negligence claim as a matter of law.” 9.

Manobianco did not get the benefit of Ariz. Rev. Stat. § 20-259.01(B). The court held that applied to insurers, and so protected State Farm’s reliance on the form, but did not protect agents. 15-20. A specially concurring opinion criticized the majority for reaching that issue, stating it was unnecessary.


ENVIRONMENTAL LAW

1 CA-CV 13-0420 - STATE v. ARNETT - 7/22/2014

The Arizona Department of Environmental Quality (“ADEQ”) sought remediation from Arnett with respect to a leaking underground storage tank (“LUST”). Arnett owned the land where the LUST was located and the “Yellow Cab” company to which he leased the land and which used the LUST. Between 1988 and 1993, various events occurred, leading up to a consent order between ADEQ and Yellow Cab including specific actions the latter was to take pursuant to a schedule. Yellow Cab did not comply and eventually was the subject of bankruptcy proceedings.

In 2010, ADEQ sued Arnett, as the owner of the land, for the cost of remediation and civil penalties. Arnett was unsuccessful in asserting res judicata (based upon earlier proceedings against Yellow Cab, without including him) because the court determined he had misrepresented to ADEQ that the Yellow Cab entity owned the land, rather than him personally. Arnett appealed on that and other issues.

The court of appeals affirmed the judgment against Arnett. The Restatement (Second) of Judgments §26, comment j (1982) recognizes an exception to application of res judicata based upon misrepresentation. ADEQ was held entitled to rely upon the self-reporting information of Yellow Cab, provided by Arnett, that it was the owner of the LUST. Acknowledging that no statute of limitations applies to the sort of enforcement proceedings here, the court of appeals rejected Arnett’s laches argument as counter to the public’s interest in safe water. The court also rejected Arnett’s jury demand, holding that the statutory enforcement proceedings at issue did not exist at common law prior to statehood and so did not entitle him to a trial by jury.


FAMILY LAW

CV-13-0169-PR - ALEXANDER v HON. ABRAMS/ADES - 7/14/2014

The court held that a judge must independently make a decision with respect to the propriety of reunification with the family of a dependent child removed from the family by the Department of Economic Services. The judge may not delegate making that evaluation of the child’s best interest to DES personnel. This is consistent with other decisions that judicial duties may not be delegated to experts, such as deciding child custody and assessing the need for a mental health commitment. See Graville v. Dodge, 197 Ariz. 591, 26, 5 P.3d 925, 933 (Ct. App. 2000); DePasquale v. Superior Court, 181 Ariz. 333, 336, 890 P.2d 628, 631 (Ct. App. 1995); In re Mental Health Case No. MH 94-00592, 182 Ariz. 440, 447, 897 P.2d 742, 749 (Ct. App. 1985).


FAMILY LAW

1 CA-CV 13-0330 - SMITH v. SMITH - 6/24/2014

In August 2003, Ms. Smith (Mother) filed a petition to divorce Mr. Smith (Father), seeking spousal maintenance of $4K per month. Father signed to accept service, but did not answer the petition. Mother obtained a default decree in 2004, after filing an affidavit representing that Father was mailed the application for default. The decree ordered $3500 per month maintenance.

In 2010, Mother sought a contempt order, stating Father was not paying maintenance. The parties agreed Father had made maintenance payments, but disagreed as to how much and for how long. Mother sought $80K in arrears.

Father countered by seeking relief from the decree, arguing he had never been served the application for default. After a January 2011 evidentiary hearing, the court found Father had not been properly served the application for default. The court ordered the maintenance award terminated as void, rather than based upon the changed circumstances Father had urged (petition deemed moot) and Mother’s petition for contempt was denied. An order was signed pursuant to rule 81, Rules of Family Law Procedure, entered by the clerk, and no party appealed.

In January 2012, Father filed a new petition asking for an order that Mother reimburse him for all of the maintenance paid pursuant to the now-declared void order. That motion was denied and Father appealed.

The court of appeals held that the superior court erroneously relied upon rule 29 in holding that Father had waived any right to recover the maintenance paid. The court held that rule 35 applied to the motion, not rule 29. Nevertheless, considering rule 29, the court of appeals held that it did not support a finding of waiver. The court of appeals remanded for further consideration (so Father may or may not be getting a reimbursement order).

 


REAL ESTATE/ CONTRACT LAW

1 CA-CV 12-0766 - FOCUS POINT/KANTOR v. JOHNSON/OAK ACRES - 6/19/2014

Johnson, the trustee of Oak Acres Trust, hired Focus Point to sell certain commercial property in Apache Junction. A listing agreement was signed (for 6 months) and later a revised listing agreement (for 1 year) was signed. Johnson denied having read the revised agreement before signing; Kantor, of Focus Point, said the revisions were discussed regardless of whether the document was read.

Johnson entered into a lease. Although Johnson did not advise Focus Point, it learned of the lease and sent an invoice for a $2,720 commission, following which Johnson cancelled the listing agreement. The listing agreement contained a liquidated damages clause, resulting in Focus Point demanding $140,000.

A summary judgment motion eliminated part of the counts and the matter was scheduled for trial on breach of contract and fraud. Just before trial, Johnson (who had been personally named as a defendant, in addition to being trustee) and Oak Acres filed a motion to dismiss upon learning that Kantor (the licensed broker for Focus Point) had by then voluntarily surrendered his real estate license, was operating with a provisional license at the time of the services with Oak Acres, and had incurred a DUI conviction which would have been grounds to have revoked his provisional license, had it been disclosed at the time. The motion was denied. The jury found in favor of Focus Point and awarded compensatory and punitive damages (but the judge vacated the punitive award) resulting in judgment against Johnson and Oak Acres for $140,000, plus interest, costs, and attorneys’ fees. Johnson and Oak Acres appealed.

On the issue of Kantor’s provisional license, whether it would have been suspended or revoked had the DUI been timely disclosed was irrelevant. He was licensed at the time of the services.

Johnson/Oak Acres had appealed the denial of its motion for summary judgment claiming that Kantor had breached a fiduciary duty with respect to the revised listing agreement. The court of appeals confirmed the general rule that denial of summary judgment is not reviewable following a trial. It also pointed out the evidence at trial that Kantor had explained the revised terms to Johnson, offered to discussed them, and that Johnson had a copy of the document signed. The appellate court also noted that the jury was properly instructed on fiduciary duty, so no error was found.

The court of appeals did reverse, however, on the judgment against Johnson personally. Although Johnson had signed the listing agreement without specifically designating that it was in a representative capacity, the appellate court held that the evidence reasonably only indicated the signature was in such representative capacity. The listing agreement was stated to be with the “owner,” provided only one place for any signature for that party, and only Oak Acres, and not Johnson individually, was the owner, who did not sign a second time as if in any other capacity.


ADMINISTRATIVE LAW

1 CA-CV 13-0582 - M-11 v. GOMMARD/DOT - 6/12/2014

The underlying basis for why the Arizona Department of Transportation was deciding a title question is not explained in the opinion, but perhaps it was a foreclosure on a title lien. In any event, ADOT administratively extinguished a mobile home title in the name of M-11 LP and instead established Gommard as the titleholder. The opinion addresses dismissal of M-11’s effort to appeal the administrative decision and the opinion notes without explanation that Gommard did not participate in the appeal.

Pursuant to A.R.S. § 12-904, such an administrative appeal was required to be filed within 40 days of the mailing of the decision by ADOT (35 days from service, plus 5 from mailing, when service by mail, per that same statute). The ADOT decision was mailed June 20, resulting in a July 30 appeal deadline. Timeliness is a matter of subject matter jurisdiction of the superior court to review the administrative decision.

M-11 submitted its complaint seeking judicial review ADOT’s administrative decision by mail, rather than hand delivery. It was mailed July 18, but the superior court clerk showed it as filed August 7 – too late. The court granted ADOT’s motion to dismiss, denied a rule 60 motion by M-11, and M-11 appealed. The court of appeals vacated and remanded for further consideration of the rule 60 motion.

M-11 argued the mail delivery rule (deposit in mail presumes delivery to recipient) should apply. The court of appeals declined to state whether that rule should apply to the clerk of the court, but rejected it nonetheless as only going to “whether” something was received, rather than “when.”

M-11 also had sought relief pursuant to Arizona Rule of Civil Procedure 60(a) on the ground that there was clerical error – that is, that the clerk had received the appeal complaint before the deadline and the August 7 entry was erroneous. The superior court denied that relief based upon its determination that making such a determination would amount to changing the statutory requirement for establishing its jurisdiction to consider the appeal and granting itself jurisdiction, which it could not do.

The court of appeals disagreed with the superior court’s rule 60 analysis, stating that a court always has jurisdiction to determine its jurisdiction and that included the ability to engage in factfinding to determine if a clerical error existed in the record. M-11 had offered evidence that the copy of its complaint mailed on July 18 had been received by ADOT on July 20 and that the clerk’s record showed a document from Gommard, which stated it was mailed October 22, was shown as filed December 5 on the clerk’s record. Noting that human error may occur, the court of appeals remanded for the superior court to further consider the rule 60(a) motion and determine whether an error occurred and correcting it, if it so determined (in which case jurisdiction for the appeal would exist).


CRIMINAL LAW

CR-13-0244-PR STATE OF ARIZONA v MARTIN DAVID SALAZAR-MERCADO

In this appeal in a criminal case, the convictions and sentences were affirmed in a sexual molestation prosecution. Part of the court of appeals decision was ordered de-published. The focus in the supreme court was on an issue pursuant to rule 702(d), Arizona Rules of Evidence, since the amendment to conform with the federal rule, where the Daubert opinion has applied to expert testimony.

In the trial court, an expert had been allowed to testify about Child Sexual Abuse Accommodation Syndrome, which purportedly explains behaviors commonly exhibited by sexually abused children – including delayed reporting and inconsistency in some details when abuse is reported. The supreme court upheld the trial court admission of the testimony pursuant to rule 702(d), although the expert was both a “cold” expert (her testimony was only for purposes of educating the jury about the existence of the aforementioned syndrome) and a “blind” expert (she had no knowledge about the specific victims invovled in the case and offered no opinions about them). The supreme court did not hold that such evidence must be admitted, but agreed with the trial court that rule 702(d) did not bar its admission. “A court may admit such testimony if it satisfies Rule 702(a)–(c).” 11.


TRUST AND ESTATE PLANNING

5/16/2014 - IN RE INDENTURE OF TRUST DATED JANUARY 13, 1964 - 2 CA-CV 2013-0117 - (Weinstein Trust)

Milton, Steven, and Carrie were beneficiaries of a trust established by their grandparents in 1964. The Trust contained a spendthrift clause to protect the beneficiaries against assignments or creditor claims. In 2000, Milton assigned his interest to his siblings (Steven and Carrie) in trust for the benefit of their children. This was part of an arrangement, though, whereby Milton still received another $75,000 from the Trust over a 3-year period. The remaining grandparent-trustor died in 2010.

In 2012, Milton filed a petition to avoid his 2000 assignment as in violation of the spendthrift provision and to surcharge the Trust for payments not received. Milton also argued that he had re-inherited an interest when his grandfather died. The trial court granted summary judgment for the siblings, finding the assignment valid, that Milton did not re-inherit any interest in the Trust, and awarding the siblings their attorney fees. Milton appealed. The siblings cross-appealed because the trial court had not awarded 100% of their requested fees. The court of appeals affirmed.

The court of appeals agreed with Milton that his 2000 assignment, even though it was to his co-beneficiary siblings, was contrary to the spendthrift provision. The court said the clause was not limited to third-party creditors, but was a prohibition on any alienability. The acceptance of the $75,000 did not change that nor amount to a ratification. The court of appeals did hold, though, that laches properly barred Milton’s claim. Milton delayed 12 years from the 2000 assignment until the challenging petition in 2012. During that time various trust management decisions were made and implemented, the trustor/trustee died (becoming unavailable as a witness), the Trust was terminated, and its corpus distributed. Since Milton was barred from challenging the assignment, he had no standing to seek an accounting of Trust payments and distributions, so summary judgment was proper.

With respect to fees, the court held the award subject to an abuse of discretion standard, and the cross-appellants failed to show any such abuse. The trial court was not bound to award all amounts not specifically challenged by the losing party. The trial court indicated its opinion that too much time had been spent on the motion for summary judgment and reply. The siblings were awarded their attorneys’ fees incurred in the appeal.


INSURANCE DEFENSE

5/20/2014 - 1 CA-CV 13-0407 - BEAVER v. AMERICAN FAMILY

While riding her motorcycle, Sally Beaver was injured by another driver’s negligence. The other driver’s insurer paid her its policy limits, but that amount was insufficient to compensate for Beaver’s injuries. Because she was living with her father at the time of the accident, Beaver made an underinsured motorist (“UIM”) claim under his policy. The father’s policy, however, did not insure her motorcycle. The father’s policy definition of insured did not include Beaver under the applicable circumstances. Reversing the trial court ruling in favor of Beaver, the court of appeals held that Arizona’s Uninsured/Underinsured Motorist Act did not prohibit the father’s insurer from denying UIM coverage to a family member who lives with the named insured and who otherwise would be entitled to such coverage, but for her ownership of a motor vehicle.


FAMILY LAW

5/8/2014 - 1 CA-CV 13-0150 - PEACE v. PEACE

Husband and Wife were divorced and Wife received primary custody of their children. Husband, however, was the designated representative to receive certain Social Security benefits on behalf of the children.

When Wife filed a post-decree petition with respect to various matters, she included a request to hold Husband in contempt, alleging that he had misappropriated Social Security benefits he had received on behalf of the children. After a hearing, the trail court agreed and held Husband in contempt. He appealed (which is not appealable, but court elected to convert and treat as a special action).

Although acknowledging there was contrary law in other states, the court of appeals agreed with Husband that the federal government had pre-empted the field with respect to regulating the handling and disposition of the Social Security benefits. The contempt order was vacated.


BUSINESS LAW

5/8/2014 - 1 CA-CV 12-0878 - KORWIN v. PHOENIX

The City of Phoenix sells advertising space on its buses and bus stops. TrainMeAz, a non-profit providing gun training and supplies, had a proffered ad rejected by the City and sued, arguing that its First Amendment rights were violated. The court of appeals reversed the trial court ruling in favor of the City and directed that summary judgment be entered in favor of TrainMeAz.

TrainMeAz’s proposed advertisement was a long statement in favor of gun rights and extolling Arizona as a place where such rights were recognized. No one argued that the City rejected the ad based upon its pro-gun rights message. The City maintained that it refused the advertisement because it did not limit itself to a proposed commercial transaction and did not adequately display such transaction.

The court of appeals rejected an argument that the City standards used for evaluating whether to accept an ad were unconstitutional on their face. For such a facial challenge, the court stated that the challenger had to show the law vague in the vast majority of its applications, that vagueness permeated the standard. The court held that such challenge failed where, as here, the challenger merely showed some inconsistency regarding some previously accepted ads, but not that advertisers were unable to understand the meaning of the standards.

Moving on to an “as applied” challenge, the court of appeals found in favor of the challenger and against the City. The City standards required that a “commercial transaction be proposed and must be adequately displayed.” Based on a change that had been made to the standards that appeared to eliminate a requirement that the ad be “limited to” the commercial transaction, the court held that an that included a proposed commercial transaction, and adequately displayed that transaction, need not be limited to such transaction, and the City could not reject the ad because it also included non-commercial content.


ADMINISTRATIVE LAW

05/07/2014 - MUNGER CHADWICK v. FARWEST DEVELOPMENT AND CONSTRUCTION OF THE SOUTHWEST, LLC, et al - 2 CA-CV 2013-0113

Law firm Munger Chadwick sued Farwest, presumably its former client, and obtained an award of damages. The trial court also approved an award to Munger Chadwick for its legal fees, although it had been represented in the matter by attorneys of the Munger Chadwick firm.

The court of appeals first addressed a jurisdictional argument, challenging whether a rule 59 motion directed at the fee award should have been treated as a non-appeal time extending motion for reconsideration. The court rejected that argument, finding that rule 59 was an appropriate device and that the motion’s reference to rule 59 and a ground allowed by that rule was sufficient to invoke the appeal tolling feature of the rule.

The court of appeals reversed the trial court as to the fee award. Consistent with existing Arizona law that an attorney representing himself or herself has no attorney-client relationship and cannot be entitled to a fee award, the court applied the rule to a law firm utilizing its own lawyer personnel.


FAMILY LAW

5/6/2014 1 CA-CV 13-0302 MICHAELSON v. GARR

Michaelson obtained an order of protection against Garr. Garr later requested and received a hearing. The superior court ruled that the order of protection continue in effect. Garr appealed.

The court of appeals reviewed under an abuse of discretion standard. Garr argued that there was no evidence of domestic abuse. Michaelson had argued that there was harassment, but had not put on evidence of abuse. The court of appeals noted the evidence of harassing texts, calls to Michaelson’s employer, and messages sent to Michaelson’s daughter. The court found that the evidence provided a basis to believe there was a credible threat to Michaelson’s safety, warranting the inclusion in the order of a prohibition on Garr possessing a firearm. The superior court was affirmed.


PERSONAL INJURY

5/6/2014 1 CA-CV 12-0826 GUERRA v. STATE, et al.

One of 5 passengers died in a single car accident. Initially the Department of Public Safety officers believed the deceased passenger was the teenage daughter of Mr. and Mrs. Guerra who were informed she had died. Later the misidentification was discovered. The Guerras sued DPS (and its director and the officers) for negligence, negligent training, and intentional infliction of emotional distress. The trial court granted summary judgment for the defendants. The court of appeals reversed in part.
The court of appeals affirmed as to the negligent training and intentional infliction counts. The Guerras had not shown that there was any particular training that the officers failed to receive that they should have received. The court also held that there was no evidence to show that the officers had acted in a manner that was extreme and outrageous, rather than merely relying in good faith on information received from a nurse.

As to negligence, however, the court held that DPS assumed a duty by undertaking to perform next of kin notifications with respect to automobile accidents. DPS officers were provided training with respect to next of kin notifications. The court held that was separate from the investigative function (not a public safety act) the officers performed. Concluding that such notifications were for the benefit of the surviving family members of a deceased, the court held that a duty of reasonable care applied. As there was a duty, the trial court was held to have improperly granted summary judgment on that count.


CONTRACT LAW

JOHN MUNIC ENTERPRISES, INC. v. LAOS - 2 CA-CV 2013-0108 - 05/06/2014

In 2009 Munic loaned money to Laos, secured by ranch land. The loan was not repaid, at which time Munic also learned that Laos had misrepresented the value of the security. Munic sued for breach of contract and fraud and was awarded over $1 million for unpaid principal, interest, and attorney fees, but no punitive damages.

A year later Laos learned that Munic also sued his attorney in connection with their transaction and that Munic had received some sum by confidential settlement. Laos filed a rule 60(c)(5) motion for relief from judgment, arguing that the settlement amount should be disclosed and credit applied to the judgment against Laos. The trial court denied the motion. The court of appeals affirmed.

The court of appeals held that the trial court erred in concluding that the Uniform Contribution Among Tortfeasors Act applied. Since Munic’s damage award was primarily in contract, and UCATA applies to tort cases, it had no application. The court of appeals also held the collateral source rule did not assist Laos. Analogizing the hiring of a lawyer for the transaction to the purchase of an insurance policy, the court determined that Laos was not entitled to the benefit of Munic’s contract with the lawyer to reduce the liability of Laos. Without determining that there actually was any duplicative recovery by Munic, the court held that public policy favored Munic retaining such benefit, as he had paid for it by hiring the lawyer, rather than giving Laos, the breaching or tortfeasing party, the benefit of it. The court also viewed the professional negligence as a separate wrong from the fraud/breach by Laos. The denial of offset was affirmed.

 


ATTORNEY CLIENT PRIVILEGE

CV-13-0268-PR EMPIRE WEST TITLE v. HON. TALAMANTE/DOS LAND HOLDINGS

In 2006, Jemmett offered to buy some land in Mesa. A quit claim deed was found that appeared to abandon an easement that was needed to develop a portion of the land as Jemmett intended. Empire West Title Agency told Jemmett that the deed did not affect title. The sellers told him that the deed was a forgery.

Jemmett decided not to buy. Instead, Dos Land Holdings became the buyer. The company’s law firm (same lawyer as for Jemmett) sent closing instructions to Empire West, requesting that the legal description of the easement would be attached to the conveyance deed. Empire West executed the closing instructions letter and closed escrow.

Dos Land Holdings paid an additional premium to Fidelity Title to obtain an access-to-the-easement endorsement. Notwithstanding that, the resulting property description did not include the easement. Dos Land Holdings sued Fidelity and Empire West for breach of contract.

During the litigation, Empire West argued that Dos Land Holdings should disclose attorney-client communication relevant to Dos Land Holdings‟s position that it had a reasonable expectation that its title policy covered the easement. The trial court disagreed with Empire West. The Arizona Court of Appeals did not.

According to the court of appeals (in an unpublished decision), Dos Land Holdings impliedly put its attorney-client communications at issue by alleging that Dos Land Holdings “relied on the Closing Instructions Description and reasonably believed that it was represented in all documents used at the closing based upon Empire’s agreement to accept and comply therewith.” Upon petitioning to the supreme court for review, Dos Land Holdings argued that Dos Land Holdings never asserted a claim or defense that necessarily involved attorney--received information, and that what it relied on was Empire West’s representations that the company would insure existence of the easement.

Discussing State Farm Mutual Automobile Insurance Co. v. Lee, 199 Ariz. 52, 13 P.3d 1169 (2000), the supreme court (¶14) held that:

In contrast to State Farm’s defense against the bad faith claims in Lee, the breach of contract claim in this case does not depend on DOS’s mental state or subjective knowledge. And, unlike State Farm, DOS has not affirmatively put those matters at issue. It simply alleged that Empire breached the parties’ contract by failing to comply with the CIL’s terms. Although DOS’s knowledge of the alleged title defect might be material to Empire’s defense, DOS has done nothing to inject that issue into the litigation. Merely pleading a claim, as we noted in Lee, does not waive the attorney–client privilege.

The court further (¶17) stated:

Unlike State Farm, DOS has not “‘thrust [its] lack of knowledge into the litigation’” as a basis for its claim, while at the same time asserting the privilege so as to frustrate discovery of what it actually knew. . . . Rather, DOS is attempting to use the privilege purely as a shield, consistent with its intended purpose.

The supreme court held that the court of appeals had erred by concluding that Dos Land Holdings had impliedly waived the attorney-client privilege and remanded the matter.


PREMISES LIABILITY

5/1/2014 - 1 CA-CV 13-0166 - BARKHURST v. KINGSMEN

The Kingsmen sponsor Andy Devine Rodeo Days in Kingman each year. Many community businesses also participate in activities for tourists and others who come to town for the rodeo.

In 2009, Trenton Barkhurst attended an event at the Dambar Steakhouse. Over 2 hours after that event had ended, he was assaulted in the parking lot by two drunken patrons. A member of the Kingsmen had been in attendance earlier as a judge for the event.

Barkhurst was seriously injured and included the Kingsmen as a defendant when he sued. The trial court granted summary judgment, holding that there was no duty of care owed on the part of the Kingsmen with respect to the Dambar event. The court of appeals affirmed, distinguishing Hernandez v. Arizona Board of Regents, Markowitz v. Arizona Parks Board, and Rudolph v. Arizona B.A.S.S. Federation.

The Kingsmen did sponsor or control the Dambar event. The Kingsmen member who participated as a judge, did so in his individual capacity. The sponsorship of Rodeo Days did not create any special relationship between the Kingsmen and Barkhurst. The court held that public policy did not favor extending any duty in this case.

As a matter of public policy, imposing a duty on a group which is not a social host but merely a promoter of events, such as here, would chill socially desirable conduct when the group is not controlling, organizing or supervising a specific event held by third parties. In essence, any city, town or organization that promoted or sponsored celebrations such as for the Fourth of July would have a duty to protect persons attending events controlled by local businesses holding related events simply because the businesses were sponsors of the celebration. Similarly, towns or organizers of major professional or national collegiate sporting events in which local businesses became sponsors would have a duty to protect persons attending related events held by those businesses from underage attendees served liquor by the businesses even if the city or organizer of the umbrella event had no control over the serving of liquor. Such a duty would chill the ability of the municipalities or promoters to hold general holiday celebrations or a national sporting event. Nor would such a duty advance the policy objectives behind restrictions imposed on serving alcohol to intoxicated or underage patrons, which are sufficiently addressed by dram shop liability imposed on tavern owners and other licensees.

¶20 .


ADMINISTRATIVE LAW

5/1/2014 - 1 CA-CV 13-0244 - PENDERGAST v. ASRS

Pendergast was a teacher who had taught in Arizona for a number of years, moved to Minnesota and taught for several years, then returned to Arizona and continued as a teacher. As a participant in the Arizona State Retirement System, she sought to use a feature that allowed participants to “buy” credits for years of service, namely the approximately 9 years she had taught in Minnesota, so that she could count those years towards her eligibility and benefits for retirement.

That public service credit purchase program had existed in various forms throughout the years and had been modified from limiting a purchase to no more than 5 years, to making it unlimited, then again capping it at 5 years. Pendergast argued that precluding her from purchasing the approximately 9 years of credits was an unconstitutional taking of her contract benefit.

After Pendergast was denied the purchase, she appealed the decision administratively. When that was unsuccessful, she brought an action in the superior court for review of the administrative decision. The superior court agreed with her. The Arizona State Retirement System appealed. The court of appeals affirmed.

The appellate court held that Arizona follows the contract theory of retirement benefits and that purchasing credited service qualified as a public retirement system benefit under the Pension Clause of the constitutional amendment resulting from Proposition 100 in 1998. When the legislature statutorily changed the program for purchasing credits (capping it at 5 years), the court held that it had diminished or impaired a benefit which it was not entitled to do with respect to any participant who became a member before that statute took effect. Pendergast was held entitled to purchase the approximately 9 years of credited service.


ADMINISTRATIVE LAW

4/29/2014 - 1 CA-SA 13-0250 - MASHNI v. FOSTER

Sunnyslope LP built and operated an apartment complex for low to median income tenants pursuant to a federal program. Such projects generate substantial tax credits which attract investors to provide the financing for the projects, but also have long-term requirements to be met to preserve availability of those tax credits.

Sunnyslope LP defaulted on the senior loan, resulting in that lender filing an action for appointment of a receiver to operate the apartments. Mashni was appointed receiver. He began leasing out units at market rates which jeopardized receipt of the low income tax credits for the project investors.

Before the date for a trustee’s sale scheduled by the receiver, Sunnyslope LP filed a bankruptcy petition. Operation of the apartment complex by Mashni then continued under the direction of the bankruptcy court which directed that he comply with the restrictions imposed for maintenance of the tax credits.

Upon the conclusion of the bankruptcy administration, Mashni obtained a stay lift to permit him to move in the state court proceedings for discharge of the receivership, payment of his expenses, and exoneration of his bond. Sunnyslope LP objected in the receivership proceedings and filed a third party complaint against Mashni for injury caused by violating the tax credit restrictions. While the superior court dismissed the third party complaint, it allowed a claim, discovery, and a hearing in connection with the bond exoneration for Sunnyslope LP to seek relief for its claim. Mashni asserted immunity.

The superior court denied Mashni’s immunity motion, holding that there was sufficient evidence for a prima facie claim against the receiver. The superior court than allowed Sunnyslope LP to file a new third party complaint. Mashni appealed.

The court of appeals reversed. A court appointed receiver is a ministerial officer of the court who acts under its authority and does not have a fiduciary duty to promote or protect the interest of any specific party. The receiver’s duties are those expressed in the order of appointment and the receiver is entitled to absolute judicial immunity when acting within the scope of such order. The court of appeals observed that the superior court had never found that Mashni acted outside the authority of the appointment order; unless and until there was such a finding, Mashni was entitled to immunity from suit.

The court’s order permitting the damage action against Mashni to proceed was not based upon a finding
that he had exceeded his powers under the order of appointment, but rather on the theory that a receiver can face liability if actions taken pursuant to the order cause a “material detriment” to any “interested party.” We accept jurisdiction and grant relief. We hold that a court appointed receiver is immune from suit unless the appointing court finds that the receiver has acted outside the scope of the order of appointment. We further hold that the court cannot charge a receiver with a fiduciary duty to maximize economic benefit for adverse parties simultaneously. Finally, we hold that a party aggrieved by a receiver’s actions must promptly inform the court and seek its intervention before bringing an action for damages.
¶2.


TRIBAL LAW

4/29/2014 - 1 CA-CV 12-0629 - STATE BAR v. LANG

Lang, a law school graduate, was admitted to practice before the Tribal Court of the San Carlos Apache tribe, but not admitted by any state bar in the United States, and in particular, not admitted to practice law by the Arizona Supreme Court. Notwithstanding the foregoing, Lang represented several people with respect to legal matters outside of the San Carlos Apache Tribal Court, using stationery identifying himself as a lawyer and using an address that was not on the reservation. Lang denied that he was engaged in the unauthorized practice of law and did not comply with State Bar notices that he cease the activities the Bar identified as unauthorized practice.

The Arizona State Bar filed an action for injunctive relief to prevent Lang’s unauthorized practice of law. After 2 of 5 counts of the complaint were dismissed, upon motion for summary judgment the superior court granted an injunction from which Lang appealed.

Each count referred to a different client of Lang. With respect to those clients, Lang’s correspondence showed him identifying himself as an “attorney” and using an off-reservation Arizona address and telephone number. Some items did state that he was not licensed by any state Bar, but still represented that he was permitted to practice in federal jurisdictions and in state court proceedings with permission of the court. The Arizona Supreme Court held Lang to be engaged in the unauthorized practice of law because he implied that he was permitted to practice law in the state and engaged in legal services beyond those which his limited admission allowed. The injunction was affirmed.

Consistent with Ariz. R. Sup. Ct. 31(a)(2)(B)(2), the injunction does not prohibit Lang from referring to his law degree, education, or tribal court admission so long as the reference does not reasonably imply that he is admitted to practice law in Arizona. This limitation is constitutional. See Bates v. State Bar of Ariz., 433 U.S. 350, 383-84 (1977). Further, the requirement that Lang expressly disclaim admission in Arizona in his letterhead and advertising material is reasonably tailored to prevent client confusion while still recognizing Lang’s actual qualifications. We also reject Lang’s contention that the injunction should anticipate his future admission to other tribal courts. Should Lang actually become admitted in additional jurisdictions, he may at that time ask the superior court to modify the injunction.
 


FAMILY LAW

4/22/2014 - 1 CA-CV 12-0798 - CHANG v. SIU

This is a family law case, but the matter on appellate review involves the contractual scope of an agreement to arbitrate.

Chang (Wife) and Siu (Husband) agreed as part of their divorce proceedings to arbitrate their dispute concerning separate property and community property. Husband had numerous stock accounts prior to marriage. After marriage, he allowed those holdings to be transferred into accounts containing community funds.

As part of the divorce, Husband and Wife signed an agreement to binding arbitration, waiving the right to trial before judge and jury, but with the discovery rules and rules of evidence to apply and stating it preserved the right to appeal to the Arizona Court of Appeals. The superior court judge entered an order pursuant to their stipulation.

They hired a former judge as their arbitrator, eventually conducting a nine-day trial before the arbitrator. The arbitrator issued a 34-page ruling, finding all of the brokerage account holdings to be community property and ordering them divided equally between Wife and Husband.

The superior court entered an order confirming the arbitration award and incorporated the arbitrator’s ruling into its decree and judgment. Husband filed an appeal.

The court of appeals acknowledged that there was an issue whether parties may contract for private adjudication, yet still preserve jurisdiction for an appellate court to substantively review the resulting ruling. Although the opinion suggests that such would not be permitted (parties may not create jurisdiction by contract), the court avoided reaching that issue because it held that the arbitration agreement did not purport to create any jurisdiction, but only to preserve (not waive) whatever appellate jurisdiction existed. The court of appeals rejected Husband’s argument that it could review the record on the merits of the parties’ underlying positions. Instead, the court held that all that was preserved was the limited review of any superior court order confirming an arbitration award – whether the ruling was within the scope of the issues committed to arbitration and whether the superior court committed any error in confirming the award. With that limited basis for review, the decree and incorporation of the arbitrator award was affirmed.


FAMILY LAW

4/17/2014 - 1 CA-CV 12-0765 NATALE v. NATALE

With respect to jurisdiction for appeal while some issues remain pending in family court matters, Division One of the Arizona Court of Appeals in the Natale v. Natale opinion disagrees with the opinion of another panel of Division One in REECK v. MENDOZA, 1 CA-CV 12-0158 and instead agrees with and follows the rulings of Division Two in In re Kassa , CV20120114 and another panel of Division One in GHADIMI v. SORAYA, 1 CA-CV 10-0824. Unless the Arizona Supreme Court takes jurisdiction on this issue, all of these opinions remain valid.

Husband and Wife were divorced in 2011. In 2012, Wife filed a petition for contempt, alleging non-compliance with orders related to division of property. She also requested an award of attorneys’ fees.

In a signed minute entry dated August 9 (designated a formal order pursuant to rule 81, Arizona Rules of Family Law Procedure, but not containing certification of finality language pursuant to rule 78(b)), the court resolved various issues, but stated that attorneys’ fees would be resolved separately. There followed an August 24 judgment for attorneys’ fees for certain post-trial proceedings and a separate September 17, 2012 judgment for additional attorneys’ fees related to the enforcement proceedings.

Husband filed a notice of appeal on September 24. Wife challenged jurisdiction for the appeal with respect to the August 9 ruling (under any interpretation the appeal was timely as to the other two rulings). The court of appeals agreed with the opinions in Ghadimi and Kassa that “a family court ruling is not final and appealable until all of the claims pending before the court have been resolved or a Family Rule 78(B) certification of finality is included.” 5.


FAMILY LAW

4/17/2014 - CV-13-0279-PR - IN RE THE MARRIAGE OF: BOLLERMANN v. NOWLIS

The Arizona Supreme Court granted review in this case, recognizing the statewide issue relevancy due to potentially conflicting opinions in Reeck v. Mendoza, In re Marriage of Kassa, and Ghadimi v. Soraya. While not overruling Reeck (which the court said correctly recognized that some family court decisions take effect upon entry), the court generally embraced the view of Ghadimi and Kassa by analogy between family court rule 78(B) and civil rule 54(b).

Wife and Husband divorced in 2006. There were multiple post-decree petitions pending in 2009. The trial court entered an order November 1, 2011 resolving all issues set forth in the parties’ pre-trial statement other than an issue concerning reimbursement of certain expenses and any request for an award of fees. On September 12, 2012 the trial court resolved the reimbursement of expenses issues and denied an award of fees. Wife filed a notice of appeal from the November 1, 2011 and September 12, 2012 rulings. Division One of the Arizona Court of Appeals dismissed the appeal as to the November 1, 2011 ruling, relying upon Reeck.

The supreme court vacated the court of appeals’ ruling and remanded to consider the appeal as to the November 1, 2011 ruling. The court held that “[A]bsent Rule 78(B) language determining there is no just reason for delay and directing entry of final judgment, a judgment that does not dispose of a request for attorneys’ fees is not final for purposes of appeal.” 8.

Finally, we seek to quell the concern voiced in Reeck that the rule we adopt today might allow parties to delay appeals, and thereby postpone finality of important family court orders, by declining to apply for attorneys’ fees. The family rules lack a counterpart to Civil Rule 54(g), which generally requires a motion for attorneys’ fees to be filed within twenty days of the clerk’s mailing of a decision on the merits. Nonetheless, family courts can avoid unwarranted delay by requiring parties to submit fee applications within a defined time period, see, e.g., Ghadimi, 230 Ariz. at 622 ¶ 2, 285 P.3d at 970, or by including Rule 78(B) language in rulings on the merits. A party who wishes to appeal, or to commence the running of time for the other party to appeal, should ask the court to follow one or both of these approaches.
12.


EMINENT DOMAIN

4/17/2014 - CV-13-0181-PR CITY OF PHOENIX v. JOHN E. GARRETSON

The Arizona Supreme Court vacated the Arizona Court of Appeals decision in City of Phoenix v. Garrison, 232 Ariz. 115, 302 P.3d 640 (Ct. App. 2013), but as had done the court of appeals, the supreme court reversed the trial court grant of summary judgment and remanded for the trial court to determine “whether Garretson’s complete loss of access to Jefferson Street decreased the fair market value of his property.” 33.

Garretson owns property on Jefferson Street in Phoenix impacted by the light rail train. Its construction blocked 2 exits onto Jefferson used by his commercial parking lot, although he still had other ingress/egress for the property and a non-circuitous route to access Jefferson. The trial court granted the City’s motion for summary judgment that there was no damage.

The issue in this case is whether a property owner may be entitled to compensation if the government, in the exercise of its police power, eliminates the owner’s established access to an abutting roadway. We hold that under those circumstances an owner may claim compensable damage to private property within the meaning of Article 2, Section 17 of the Arizona Constitution, even if other streets provide access to the property.

1. Governmental police powers, however, are not unlimited, and their exercise does not automatically preclude compensation. When an alteration destroys or substantially impairs a preexisting right of access, the affected landowner may be entitled to compensation, even though the alteration is permissible as an exercise of the police power. . . .
. . .
Consistent with the Kansas court’s distinction [in City of Wichita v. McDonald’s Corp., 971 P.2d 1189 (Kan. 1999)], we conclude that this case involves Garretson’s right of access, not merely a police-power regulation of traffic flow, as the City argues. The City completely eliminated Garretson’s preexisting access to Jefferson Street, leaving him with no means of ingress or egress to that street or any replacement roadway in that location. Under these circumstances, he has a claim for compensation under the Arizona Constitution.

19-22.


FAMILY LAW

4/10/2014 - ADES v. ROCKY J., O.K. - 1 CA-JV 13-0255; 1 CA-JV 13-0294

The court of appeals affirmed the juvenile court ruling in a termination of parental rights case. Mother had abandoned the child and did not participate in any proceedings. Father was imprisoned and unable to care for the child, but had tried to maintain contact. Arizona Department of Economic Services obtained a dependency determination with respect to the child who was placed in the care and custody of the agency. Father was released from prison (out of state) and was unable to serve parole in Arizona. He became incarcerated again (out of state). The child’s grandmother became guardian and Father wrote some letters to the child, but was unable to arrange for visitation contacts (grandmother was uncooperative). In 2012 (child approximately 11), the grandmother refused to continue care of the child and DES sought a termination of parental rights, stating that Mother had abandoned the child and Father, due to his incarceration, was unable to provide the child with a normal home for a period of years. Father opposed, stating among other things, that he was due to be released in 2014. The juvenile court terminated Mother’s rights (she did not appear), but did not terminate Father’s rights and DES appealed. “Termination of parental rights is appropriate only when clear and convincing evidence proves a statutory ground for termination . . . and a preponderance of the evidence shows that termination is in the child’s best interest.” 13. Holding that “Section 8–533(B)(4) provides ‘no bright line definition of when a sentence is sufficiently long to deprive a child of a normal home for a period of years,’ and each case depends on its particular facts” (14), the court of appeals acknowledged the discretion of the juvenile court in evaluating the six factors discussed, that the record showed consideration of the factors, and that the evidence could be viewed to support the decision that severance as to Father was not warranted.


ADMINISTRATIVE LAW

4/8/2014 - MAGNESS v. ARIZ. REGISTRAR OF CONTRACTORS - 1 CA-CV 13-0184

Magness contracted with Lendo for certain home construction remodeling work. Lendo stopped work before completing the contract. Lendo was not licensed at the time of the initial contract, but obtained a contractor’s license during the course of work, change orders, and an additional contract with Magness.

Magness first filed an administrative complaint with the Registrar of Contractors. Lendo did not respond. The Administrative Law Judge entered an order accepting Magness’ allegations and revoking Lendo’s license. The order did not establish that Magness was entitled to recover from the Residential Contractors’ Recovery Fund.

Magness did not thereafter seek recovery from the fund via the administrative remedy of Arizona Revised Statutes § 32-1154. Instead, Magness filed a superior court action against Lendo and the Registrar – suing Lendo for breach of contract and joining the Registrar for purposes of recovery from the fund.

Lendo again did not respond. The Registrar answered and, among other things, requested that the court award no relief against the fund until Magness established eligibility pursuant to A.R.S. §§ 32-1131, -1132, and 1136.
The trial court defaulted Lendo. Magness filed an application for an order directing payment from the recovery fund to which the Registrar objected and requested a hearing on the statutory requirements for eligibility. The trial court nevertheless entered the order directing payment from the fund and denied the Registrar’s motion for reconsideration.

The court of appeals reversed, agreeing with the Registrar. The appellate court held that A.R.S. § 32- 1136 required Magness to establish eligibility and required the superior court to have a hearing as requested by the Registrar. “When, as here, the [Registrar] challenges an applicant’s lack of compliance with requirements set forth elsewhere in the governing statutes, the applicant must also demonstrate that those statutory prerequisites have been satisfied.” ¶16. The case was remanded for further proceedings.


SECURITIES FRAUD

4/3/2014 - CARUTHERS/TANOUYE v. UNDERHILL - 1 CA-CV 12-0618

In this securities fraud case, plaintiffs sought relief with respect to their purchase of shares in Underhill Holding Company, a company which owned and managed commercial real estate. Plaintiffs owned a minority interest in UHC, the majority of which was owned by Underhill family members. In 2006, Clinton Underhill bought plaintiffs’ 64 shares for $384,000.00. Plaintiffs sued later, alleging fraud in the inducement, based upon Clinton having provided an outdated appraisal of UHC properties in setting the price and misrepresenting that there was not a more recent appraisal.

The matter was tried to a jury over a ten-day period. The disposition of the various claims of different plaintiffs is unclear. One set of plaintiffs elected damages and another elected rescission. During trial, the trial judge granted a defense motion that rescission was not available as to James Underhill (leaving such claim against Clinton Underhill). At the close of evidence, the judge ruled that the jury was advisory only as to rescission, being an equitable remedy. A motion dismissing the damages claim of part of the plaintiffs also was granted. Jury instructions were limited to rescission and punitive damages.

The jury returned verdicts in favor of Allen and Macbeth on all counts, awarding each of them $224,200 in compensatory damages and $4,000 in punitive damages. The jury also returned a verdict in favor of Plaintiffs on common law fraud, consumer fraud, securities fraud, and breach of fiduciary duty, and returned an advisory finding that Plaintiffs were entitled both to rescission and $15,000 in punitive damages. The jury responded “yes” to an interrogatory that asked whether Plaintiffs had notified Clinton of their intent to rescind the sale within a reasonable time after discovery of his improper conduct.

14. Following post-trial motions, the trial judge (who now is a judge on this court of appeals) reversed his prior decision and entered an order that rescission was not available because plaintiffs had unreasonably delayed in rescinding and by that waiver ratified the stock purchase. Plaintiffs then moved for a new trial, arguing that if that election was unavailable, they should have been allowed to sue for damages. That motion was denied.

Plaintiffs appealed. The court of appeals reversed and remanded in part, holding that: when a plaintiff sues on a single theory of fraud-in-the-inducement, an election of remedies is not required. We further hold that the court correctly determined that rescission in securities fraud cases is subject to equitable defenses, but erred by disallowing the remedy of rescission based on the findings it made. Finally, we hold that if rescission were unavailable, Plaintiffs should have been allowed a damage remedy.

1. The court stated that the doctrine of election of remedies is to prevent overcompensation. “But if alternative ‘theories of recovery are factually consistent, an inconsistency does not arise until one of the remedies is satisfied[, and therefore] consistent remedies may be pursued concurrently even to final adjudication, but the satisfaction of one claim bars the other one.’” 20 (citation omitted).

In this case, election of remedies was never necessary. Plaintiffs did not seek to recover on inconsistent theories of liability. They had only one theory of the case: fraud. They did not sue for breach of contract, and their case did not depend on affirmance of the contract. To be eligible for either tort damages or rescission, Plaintiffs were required to prove a single set of facts. Because the remedies of damages and rescission were not based on inconsistent theories, Plaintiffs should not have been compelled to choose one remedy to the exclusion of the other. They established liability and were therefore entitled to be made whole -- whether by rescission, damages, or a combination of the two.

22. The appellate court also held that plaintiffs invited the election of remedies error, though, by failing to object. Plaintiffs did object, though, by their motion for new trial, when the trial judge also denied a damages remedy after eliminating the availability of rescission.

This is not a case in which the remedy Plaintiffs elected proved merely to be “inadequate,” as it would have been had they elected damages and received a smaller award than they sought. This is a case in which Plaintiffs prevailed, yet received no remedy. In these circumstances, there was no reason that the damages remedy should not have been revived when the court reversed its earlier ruling and found that rescission was unavailable. To hold otherwise would be to extend the scope of the election-of-remedies doctrine beyond its just purposes and “permit a doctrine of equitable origin to be used to accomplish an inequitable result.”

27. The appellate court also found error in the trial court’s ruling regarding rescission and the applicability of equitable defenses. But while the superior court looked to appropriate factors, it made two errors. First, the court wrongly defined the delay period as the time between the July 2006 stock sale and the December 2008 letter offering full rescission. This was error because the proper starting point for the calculation was not the date of the sale, but the date that Plaintiffs knew of the alleged fraud.

The more significant error lies in the court’s conception of prejudice caused by the delay. The court found that Plaintiffs’ delay in seeking full rescission prejudiced Clinton and UHC by “jeopardizing [Clinton’s] controlling interest” and placing UHC’s “management and control . . . under a cloud of uncertainty.” As an initial matter, we note that this finding conflicted with the court’s earlier finding that Clinton was not entitled to judgment as a matter of law because he “has not alleged, nor has he proved, that he suffered prejudice during the subject . . . period of delay.” But the earlier finding did not weigh all the evidence and was not law of the case.

43-44. (footnote omitted). The court held that on remand, plaintiffs were entitled to seek rescission as well as damages and that equitable defenses could only be considered with respect to rescission claims.

(For a related case, see: Caruthers v. Underhill, 230 Ariz. 513, 287 P.3d 807 (Ct. App. 2012).)


GUARANTOR LIABILITY AND WAIVER OF MITIGATION DEFENSE

03/26/2014 - PI'IKEA, LLC v. WILLIAMSON - 2 CA-CV 2013-0065

TBM Equities gave a promissory note in 2004 for an approximately $6 million construction loan secured by a deed of trust on the resulting apartment building in Tucson. The Williamsons contemporaneously executed a continuing guaranty of the loan.
TBM made all payments until 2008 and the note matured shortly thereafter. Although in default since 2008, the lender’s interest in the loan was conveyed in 2011 to West CRE Venture and then in 2012 was conveyed to Pi’Ikea.
In 2012, Pi’Ikea sued the Williamsons on the guaranty. The trial court granted summary judgment.

The Williamsons argued that Pi’Ikea breached a duty to mitigate because, arguably, years earlier the subject property still had sufficient value to cover the debt (a 2008 appraisal was for $10.2 million), yet no trustee’s sale was conducted. Instead, the lender initiated a trustee’s sale procedure in May 2009, but then continued the sale repeatedly before concluding it in August 2012, by which time the accruing indebtedness increased substantially and property values had decreased substantially. The lender relied upon a provision of the guaranty that expressly waived the protections of Arizona Revised Statutes § 47-3605 and “any similar or analogous other statutory or common law or procedural rule of the State of Arizona.” 12-13.
The court of appeals affirmed the summary judgment in favor of the lender. It held that the language “constitutes an explicit waiver of the mitigation defense.” 14.


APPRAISAL MALPRACTICE

03/31/2014 - SOUTHWEST NON-PROFIT HOUSING CORPORATION v. NOWAK, KNIFFEN, MARTELL - 2 CA-CV 2013-0069

Southwest is in the business of buying, rehabilitating, and selling real property. It separately sued 3 appraisers and the cases were consolidated. In each case, the appraiser had appraised a home which Southwest was selling and as a result of the appraisal being for less than the contract price, the prospective buyers’ loans were declined and the sales did not occur. Southwest alleged negligent appraisals and each appraiser defended based upon Restatement (Second) of Torts § 552. The trial court granted motions to dismiss or for summary judgment in favor of each defendant.

The court of appeals affirmed. Among other things, the court noted that the contracts for sale of the residences preceded the hiring of the appraiser so the appraiser’s opinion did not influence the seller, Southwest, in entering into any of the contracts, and the forms of contract used only allowed the buyers to cancel based upon a too-low appraisal, not the seller. The appraisal itself was performed for the benefit of the lender. Restatement § 552 states that a negligent supplier of misinformation may be liable “only to those persons for whose benefit and guidance it is supplied.” ¶24. Comment h to that section extends liability when the supplier of information knows it will “reach and influence . . . a group or class of persons, . . . and foreseeably take some action in reliance upon it.” ¶24. The appraisal engagement, though, had included a specific paragraph identifying who the appraiser acknowledged might receive and rely upon the appraisal report and the seller was not a party on that list. The court held that, while Southwest might be within some larger class that eventually might get access to such an appraisal report, it was not within the limited class to which the appraiser had intended to limit its distribution and so no duty was owed to Southwest. The court of appeals additionally concluded that Southwest presented no evidence showing any justifiable reliance upon the appraisals, either.


PREMISES LIABILITY

3/21/2014 - TIMMONS v. ROSS DRESS FOR LESS, INC. - 2 CA-CV 2013-0053

Timmons tripped, fell, and was injured at a curb or step transitioning to a shopping center parking lot when she left a Ross Dress-for-Less store. The curb/step was not part of the premises leased by Ross. Ross did additionally have an easement from the owner/landlord for non-exclusive use of the parking lot and the connecting area to its store, including that curb/step area where the fall occurred. At the time, Ross was also the only tenant. Timmons sued Ross urging that it had a duty to her to maintain the access area in safe condition.

The trial court granted Ross’ motion for summary judgment based on an argument that the owner/landlord owed a duty to Timmons, but not Ross as it had neither ownership nor a possessory interest and hence no responsibility for maintaining that easement area. The court of appeals reversed, distinguishing Kiser v. A.J. Bayless Markets, Inc., 9 Ariz. App. 103, 449 P.2d 637 (1969), as not having raised the same issue. “Here, Ross acquired and used the easement for the arrival and departure of its invitees to and from its retail premises. Therefore, Ross had a duty to act reasonably in providing for the safety of invitees to the extent they used the easement for the purposes of arriving and departing.” 12. The court separately held that the trial court also had abused its discretion in not permitting Timmons to amend her complaint before ruling upon the motion for summary judgment.


MEDICAL MALPRACTICE

3/11/2014 - SANDRETTO v. PAYSON HEALTHCARE MANAGEMENT, INC - No. 2 CA-CV 2013-0044

Plaintiff Sandretto slipped on a wet floor and injured her knee. She received surgery to repair a torn meniscus. Her pain continued, which prompted her to go to Payson Healthcare Management and see Dr. Calkins, an orthopedic surgeon. He performed a second surgery to repair the meniscus.

Within a week Sandretto’s knee became swollen and painful. No infection had been found immediately after the surgery. A physician’s assistant with PHM diagnosed a skin infection and prescribed antibiotics. Shortly thereafter PHM continued to tell her to take the antibiotics for a skin infections as did personnel at a hospital emergency room. A month later, her test results were positive for methicillin-resistant Staphylococcus aureus (MRSA). After intravenous antibiotics, Sandretto had three “washout” surgeries to clean out infection and eventually received a knee replacement. After her knee pain still continued despite the knee replacement, she was diagnosed with Complex Regional Pain Syndrome (CRPS).

Sandretto sued PHM and Dr. Calkins for medical malpractice. Before trial, Calkins and Sandretto settled. After an eleven-day jury trial, Sandretto obtained a verdict against PHM for $7,275,160. On appeal, PHM challenged the trial court’s denial of its motion for new trial, contending that the trial made erroneous evidentiary rulings, improperly denied a continuance, improperly approved Calkin’s settlement, and erred in finding the jury verdict was supported by substantial evidence. The court of appeals affirmed.

The court of appeals first noted that the notice of appeal was limited to challenging the denial of the motion for new trial and failed to identify the judgment itself as being appealed. Accordingly, the appeal was limited to issues set forth in the motion for new trial and any other arguments challenging the judgment were unavailable. Since appeal was limited to the order denying the motion for new trial, and not the judgment, the standard of review was abuse of discretion. Only questions of law addressed in the motion for new trial were subject to de novo review on appeal.

PHM argued that testimony of one of Sandretto’s experts should have been precluded pursuant to Ariz. R. Evid. Rule 702. Whether to admit or exclude expert testimony is reviewed for an abuse of discretion. While PHM argued in its brief that the trial court made a procedural error under rule 702 by failing to make a record of its inquiry or specific findings of fact to support the ruling, such argument was not in its motion for new trial and was waived on appeal. “PHM contends Ferrante’s diagnosis of CRPS and his causation opinion lacked ‘reliable or scientific[]’ grounds.” ¶10. “While implicitly acknowledging Ferrante might be a national expert on CRPS, PHM argued the trial court abused its discretion by failing to evaluate the scientific basis for Ferrante’s opinions regarding CRPS, as well as by admitting his causation opinion.” ¶16. The expert Ferrante did not link the CRPS to Calkin’s meniscus repair surgery, but rather to the trauma of repeated “washout” surgeries. A second expert for Sandretto, Talan, an expert on MRSA, opined that the more time a MRSA infection has to progress between washout surgeries, the more damage that is done to the relevant joint, which has the resulting effect of requiring more surgeries to accomplish complete cleaning out of the infection. “Taken together, the testimony of Ferrante and Talan permitted the jury to construct a cause-and-effect timeline regarding MRSA, multiple surgeries, and CRPS.” ¶9.

PHM’s next issue referred to the preclusion of evidence of Sandretto’s prior medical conditions. In this regard, the court of appeals noted that (a) some of the complained about evidence actually was admitted, (b) PHM failed to list specific items that should have been admitted but were not, and (c) it did not provide any analysis comparing the alleged relevance to the danger of unfair prejudice. The court held the argument insufficient for consideration on appeal. The court also held PHM had waived its procedural argument that the trial court erred under rule 403 by failing to make specific findings supporting its ruling. “PHM does not direct us to the rulings, cite to transcripts, or even provide the transcripts for every instance in which the court considered whether or not to admit the evidence.” ¶27.

Regarding PHM’s argument that there was no foundation for expert testimony on future medical care, it urged that the expert should have testified that there was a medical necessity for each specific element of the life care. In this regard, the court held PHM’s challenge of alleged inconsistency in testimony went to its weight, rather than admissibility, and thus was for resolution by the jury.

PHM included an argument that the testimony of a standard of care expert had not been adequately disclosed prior to trial. This also was reviewed on an abuse of discretion of standard. While rule 26.1 calls for a writing detailing “the substance of the facts and opinions to which the expert is expected to testify,” and “a summary of the grounds for each opinion,” the purpose is to provide an opportunity to prepare. ¶34. “Detailed scripting is not required, Solimeno, 224 Ariz. 74, ¶ 14, 227 P.3d at 484, and deposition testimony may be considered an amendment to prior disclosures, Link v. Pima Cnty., 193 Ariz. 336, ¶ 9, 972 P.2d 669, 672 (App. 1998).” ¶34. The court of appeals held that an affidavit and deposition testimony PHM received before trial was sufficient disclosure.

Dr. Calkins and Sandretto settled on June 19. Sandretto moved for a good faith settlement hearing on that date. Three days later, PHM moved to continue the trial, to determine the effect of the settlement agreement. On June 25, the court denied the motion to continue and ruled the settlement was made in good faith. The trial began June 26. PHM, however, never filed a formal objection to the settlement pursuant to rule 16.2, only submitting arguments against approval of the settlement. ¶37. “PHM has not demonstrated that a continuance would have permitted it to obtain the required evidence or present arguments it had been unable to present.” ¶41.

Also with respect to the Calkin settlement, PHM contends the vicarious liability claims should then have been dismissed. Calkin’s separate insurance policy paid $950,000 to Sandretto in exchange for dismissing those claims without prejudice, along with a covenant not to execute in Calkin’s favor. Relying on Law v. Verde Valley Med. Ctr., 217 Ariz. 92, 170 P.3d 701 (Ct. App. 2007), that a judgment in favor of an agent eliminates vicarious liability for the principal, PHM argued that the dismissal and covenant as to Calkin constituted a release of the claims against PHM, as well. Distinguishing Law, which involved a “judgment on the merits,” the court held that a dismissal without prejudice is not a dismissal on the merits. The court also stated that “a covenant not to execute is not a release from liability.” ¶46. The trial court ruling was affirmed, with the appellate court also disagreeing with the argument that there was collusion between Sandretto and Calkin.

The appellate court further disagreed with PHM that there was insufficient evidence to support the jury verdict. PHM argued that it was prejudiced by improper closing arguments, but the appellate court held that it had failed to object on that basis at trial. So, no abuse of discretion was found in denying the motion for new trial and the order was affirmed.


Premises Liability

Lopez v. Food City

Lopez alleged he was injured by a defective chair at the deli in a Food City. The trial court granted the motion for judgment as a matter of law on behalf of Food City, represented by Burch & Cracchiolo attorneys Susie Ingold at trial and Jessica Conaway on appeal, on the basis that a required element of negligence is proving breach of duty and no such breach was shown absent evidence that Food City had prior actual or constructive knowledge of the allegedly defective chair. On appeal, Food City preserved that argument, but also suggested that there was a procedural defectiveness of Lopez’ notice of appeal filed between the minute entry ruling and the final appealable order, following which there was no additional or amended/supplemental notice of appeal. The court of appeals examined its jurisdiction and held that Lopez’ appeal was premature and dismissed it, leaving the judgment of dismissal as a matter of law in favor of Food City affirmed.


Contract Dispute Litigation

02/20/2014 - HON. FIELDS et al v ELECTED OFFICIALS RETIREMENT - CV-13-0005-T/AP

The Elected Officials’ Retirement Plan was established by statute in 1985 to provide pension benefits for elected officials, including judges. Plan members receive monthly retirement benefits based on 4% of their average annual salary for each year worked, up to a maximum of 80%. There were various legislative amendments thereafter. In 1998, Proposition 100 amended the Arizona Constitution to provide certain protections and treatment of that pension plan, including recognition of participation as a contractual relationship and that benefits were not to be diminished or impaired. Notwithstanding that, the legislature subsequently enacted laws changing how the plan assets were managed, earnings reserved, and benefits calculated.

In 2011, retired judges Fields and Lankford, on behalf of themselves and as class representatives of other retired Plan members sued alleging that certain legislation (particularly what was S.B. 1609) violated the Arizona Constitution and impaired contract obligations. The State intervened to defend the legislation. Following the trial, the court found that the legislation did violate the constitutional amendment directing that “public retirement system benefits shall not be diminished or impaired.” The Arizona Supreme court accepted a transfer of the appeal directly to that court and affirmed the trial court, agreeing that S.B. 1609 violated the constitution by diminishing retired members’ retirement benefits.


Premises Liability

02/10/2014 - MONROE v. BASIS SCHOOL, INC. - 2 CA-CV 2013-0047

Monroe is an 11-year old attending Basis charter school. Riding her bicycle home from school, she was struck by a truck in a busy intersection crosswalk. The school provided no crossing guards. Monroe was in a coma for two weeks and suffered permanent injury. Her mother sued the school, alleging it was negligently located too near a busy intersection and negligent in not providing a crossing guard. The school’s motion to dismiss was granted and affirmed on appeal. The court held that the charter school owed no duty to students traveling to and from school.


Creditors’ Rights

1/30/2014 - 1 CA-SA 12-0087 - STEINBERGER v. HON. MCVEY/ONEWEST

This opinion results from a special action taken from an order dismissing the complaint. Thus the recitation of facts are wholly from the plaintiff’s perspective. As described in that complaint, the plaintiff experienced the stereotypical worst case scenario with respect to a home loan mortgage that had become unaffordable: current, but struggling to pay; told no modification discussion unless in default; defaulted for that reason; negotiations prolonged with paperwork sent and acknowledgments of receipt then denied; loan modification delayed for loan forbearance; constant denials of compliance followed by lulling actions while a trustee’s sale was scheduled then continued near last minute; and after over a year of that, then told the process was over and the trustee’s sale was going to be concluded.

Plaintiff Steinberger filed a multi-count complaint and obtained a TRO to prevent the sale. The trial court dismissed her complaint. During the special action proceedings, besides arguing against the merits, the lender group also sought to terminate the review on procedural grounds. The court of appeals did not agree that cancelling the then-pending trustee’s sale mooted the special action. The lender group also got the trial judge to sign a formal order with rule 54(b) language and argued that since an appeal then was available (and plaintiff had not thereafter filed a notice of appeal from that order), that the special action should be dismissed (and then there would be no appeal because it was too late). The COA disagreed with that argument, as well.

The complaint alleges a host of transfers as part of the securitization of the home loan, involving transfers to entities that no longer existed after being liquidated by the FDIC, “robo-signers,” bank officers signing as purported agents of MERS (Mortgage Electronic Registration System) who were not actual employees of MERS, ex post facto notarial acknowledgments, and transfers that were void because some earlier conveyance was arguably void. The COA held that if those allegations were proved, then there was a cause of action that the current holder of the deed of trust did not have authority to conduct the trustee’s sale. ¶38. “In this age of securitized home loans, the average borrower may be confused by the frequent transfers and re-assignments of his home loan. Thus, if a borrower is in default and possesses a good faith basis to dispute the authority of an entity to conduct a trustee’s sale, the borrower should not be prohibited from challenging its authority simply because such action may slow down the foreclosure process.” ¶41.

The complaint also sought relief based upon Restatement (Second) of Torts §323 (aka Good Samaritan Doctrine) for negligent performance of an undertaking. This doctrine is recognized in Arizona and has been extended to include economic harm, not just physical harm. Plaintiff Steinberger argued that the lender lured her into defaulting, then negligently administered the loan modification process. The COA held that stated a claim. “The complaint alleges a legally sufficient claim that Respondents’ negligent administration of the loan modification increased the risk that Steinberger would default on her loan and lose her home in foreclosure.” ¶50. (In footnote 15 the COA declined to comment on the impact of the economic loss rule as it had not been briefed as part of the special action.)

The complaint included another claim for negligence per se based upon A.R.S. §39-161 (false notarization statute). The COA held that the statute was for the protection of the public, particularly to protect the integrity of the document recording system. ¶¶56-58. The court said Steinberger had sufficiently pled a claim for negligence per se by alleging that the defendants were not the true beneficiaries or trustees and that they had recorded false instruments based upon the unauthorized notarial acknowledgments.

Her quiet title claim did not survive – that dismissal was upheld. Under a deed of trust, legal title is held by the trustee until the indebtedness is paid. Steinberger was determined to be arguing, not that she had paid and held legal title, but rather that, there were deficiencies in the title claimed by the putative trustee and beneficiary. Quite title claims must be based upon the strength of the claimant’s title, not the asserted weakness of someone else’s position.

Her breach of contract claim was restored by the COA. This claim was apparently based upon some provisions of the underlying note and deed of trust which Steinberger alleged were breached.

Steinberger’s claims for fraudulent concealment, common law fraud, and consumer fraud, remained dismissed. Among other things, the pleading failed for lack of particularity; the complaint did not identify which defendant engaged in what specific fraudulent conduct, but instead sought to aggregate it.

Claims for procedural and substantive unconscionability were restored. “Procedural or process unconscionability is concerned with ‘unfair surprise,’ fine print clauses, mistakes or ignorance of important facts or other things that mean bargaining did not proceed as it should.” ¶82 (citation omitted). “Procedural unconscionability also takes into consideration circumstances, such as those alleged here, where unexplained or unusual terms cause ‘unfair surprise’ to a party entering the contract.” ¶84 (citation omitted). “When analyzing substantive unconscionability, we examine the relative fairness of the obligations assumed by the parties, including whether the ‘contract terms [are] so one-sided as to oppress or unfairly surprise an innocent party,’ whether there exists ‘an overall imbalance in the obligations and rights imposed by the bargain,’ and whether there is a ‘significant cost-price disparity.’” ¶85 (citation omitted). “As noted above, Steinberger alleges several terms in the loan which she contends are unusual, one-sided and oppressive.” ¶86. The dismissal was vacated as to unconscionability, except to the extent plaintiff sought to include in it the loan modification process because that was not part of the original contract.

The COA also left in place the dismissal of the part of the count citing A.R.S. § 47-3604(A)(1) and alleging payment of the debt based upon the presumed destruction of the original note. Possible destruction of the note after the original was scanned did not demonstrate intent to discharge the indebtedness. Revived, however, was of the part of the count citing A.R.S. § 47-3602, and alleging that part of the loan was paid by the FDIC pursuant to some shared loss agreement (which might have meant that FDIC had a claim for reimbursement for the part it paid, but did not entitle any of the defendants to that amount).


Business & Corporate Law-Personal Jurisdiction

1/23/2014 - CV-13-0170-PR - BILL BEVERAGE et ux v PULLMAN & COMLEY

In the Arizona Court of Appeals opinion, the court determined that an Arizona resident who was offered a tax shelter investment and through the seller of that investment contacted a Connecticut law firm about getting a tax opinion letter, paid the law firm $50,000 for its opinion letter, and then later was audited, resulting in a $3,000,000 tax liability, could sue the Connecticut law firm in Arizona. The court held that the law firm knew it was issuing the opinion to an Arizona resident for use in Arizona, so personal jurisdiction was held to exist in Arizona.

The Arizona Supreme Court affirmed the court of appeals opinion with the clarification that the analysis was based upon the clients being Arizona residents, as opposed to something about the transaction being Arizona based. “These contacts are more precisely termed ‘Arizona-client-specific contacts’ because they relate not to Arizona, but rather to the Beverages, who were at all relevant times Arizona residents. For example, the tax opinion letter included information about the parties and entities involved in the Beverages’ tax-shelter transaction, the amounts loaned and the terms of repayment, and the Beverages’ reason for entering into the transaction.” ¶3.


Labor & Employment Law-Workers Comp

1/23/2014 - 1 CA-CV 13-0019 - ACOSTA/SIERRA v. KIEWIT-SUNDT

Acosta worked for Contractors West, a subcontractor to Kiewit, and was injured on the job on March 17, 2010. He collected workers’ compensation benefits paid by State Compensation Fund (SCF). Acosta did not sue Kiewit within a year of his injury. On March 14, 2011, he asked SCF to reassign the claim to him to sue Kiewit, but SCF refused. On March 15, 2012, Acosta filed a complaint in negligence against Kiewit. The trial court granted Kiewit’s motion for summary judgment, holding that without a reassignment from SCF, Acosta was not entitled to pursue the claim.

The court of appeals reversed. The court relied upon the 2007 amendment to ARS §23-1023(B) which had deleted the phrase “deemed assigned,” in referring to the workers’ compensation insurance carrier, while making other amendments to the statute with respect to who and how such claims could be made and the rights of the insurance carrier. While the portion of the statute referring to “reassignment” remained, the court read the omission of the “deemed assigned” language to mean that such a negligence claim was no longer automatically assigned to the carrier. The amended statute still included requirements to notify the carrier about an intent to sue the third party and included a right of intervention, but was not construed to require a reassignment because the automatic statutory assignment no longer occurred. The matter was remanded to proceed on Acosta’s claim.


Indian Law-Sovereign Immunity

1/16/2014 - 2 CA-CV 2013-0051 - MM&A PRODUCTIONS, LLC v. YAVAPAI-APACHE NATION, et al

MM&A Productions had a contract with the Yavapai-Apache Nation with respect to Cliff Castle Casino. It filed a complaint based upon the contract which the trial court dismissed for lack of subject matter jurisdiction, agreeing with the Nation that it had not waived sovereign immunity. The court of appeals affirmed.

The contract included a specific waiver of sovereign immunity. That document had been signed by the casino’s marketing director who apparently had represented that he had authority. The Constitution of the Nation, however, stated that sovereign immunity was to be preserved except where expressly waived and the Cliff Castle Board of Directors Act adopted by the Tribal Council of the Nation required all contracts to be approved by majority vote of the Tribal Council. The Nation provided declarations of the Tribal Council’s Executive Secretary that she had reviewed all minutes and that there were no motions authorizing any casino employee to execute the contract nor approving a waiver of sovereign immunity.

The court of appeals affirmed the trial court conclusion that MM&A had failed to utilize the available tribal procedures in obtaining execution of the contract and waiver of sovereign immunity. The apparent authority argument was rejected, the court specifically noting that federal law on sovereignty governed and that waiver of sovereign immunity may not be implied. An argument that discovery should have been permitted on the subject of authority was also rejected.

 


1/21/2014 - 1 CA-SA 13-0203 - ACCOMAZZO v. HON. KEMP/ACCOMAZZO

The superior court ordered disclosure of certain attorney-client communications, holding privilege was waived by virtue of a challenge to a prenuptial agreement. The court of appeals granted special action relief, vacating the superior court order, and holding the privilege was not waved.

Husband and Wife married in 1998, each with separate counsel for purposes of their prenuptial agreement. Wife sought a divorce in 2012 and challenged (on various grounds) the enforceability of the agreement. The trial court ruled that she waived the attorney-client privilege with respect to the attorney who advised her during negotiation and execution of the agreement. Acknowledging the rule that a privilege may not be used as both a “sword” and “shield,” the appellate court stated that the privilege was not waived merely because the agreement was the subject matter of the dispute and that the communications with counsel might be relevant to the issues in dispute. The court stated (¶11) that: “Wife has not used privileged communications in aid of her position.” The appellate court characterized the dispute as a generalized criticism of the document and its wording, but which did not place in issue the advice Wife had received from her attorney.

The court also addressed the presence of Wife’s parents during communications with her attorney. Acknowledging that such put her at risk that a parent might disclose the communications, the court did not hold that mere presence necessarily waived the privilege. Finding (¶16) that Husband had not presented evidence to rebut a “presumption that Wife reasonably believed that communications . . . remained confidential despite her parents’ participation,” the appellate court found the privilege was not waived.


1/16/2014 - 1 CA-CV 12-0728 - BMO HARRIS v. WILDWOOD, et al.

In M&I Marshall & Ilsley Bank v. Mueller, 228 Ariz. 478, 268 P.3d 1135 (Ct. App. 2011), the court of appeals applied the deficiency protection of Arizona Revised Statutes §33-814(G) to the debtor-landowners who had started construction of a dwelling on the foreclosed property. In this case, the land was vacant throughout the duration of the subject loan and resulting trustee’s sale. The debtors, however, supplied affidavits that they intended to build a home and occupy it as their primary residence. The court of appeals stated that Mueller does not extend that far and ruled in favor of the bank. In a specially concurring opinion, one judge opined as to what the court should do where there is a debatable issue as to partial construction.


01/14/2014 - 2 CA-CV 2013-0086 - THE ESTATE OF JOSEFA U. DeCAMACHO v. LA SOLANA CARE AND REHAB, INC.

DeCamacho, an elderly woman with cognitive problems, was admitted to La Solana for care. Her daughter, Guthrie, signed on her behalf. The documents included an arbitration clause. DeCamacho was injured and died at the facility. Claims were brought for her estate, including allegations based upon the Adult Protective Services Act protecting vulnerable adults and for wrongful death.

The trial court issued an order requiring all of the claims to be arbitrated. The court of appeals upheld the arbitration order as to the vulnerable adult claims. The court reversed as to the wrongful death claims.

The opinion discusses the arguments made as to why the arbitration clause should not be enforced based upon contract principles, but disagreed with appellants. The opinion holds, though, that the wrongful death claims are independent claims of the survivors who were not bound by the arbitration agreement, so those claims were not governed by the arbitration requirement.


1/14/2014 - 1 CA-IC 12-0038 - PORTEADORES v. VALENZUELA/SPECIAL FUND

A Mexican-citizen employee of a Mexican company was injured while working in Arizona and sought workers’ compensation benefits in both Mexico and Arizona. Arizona law holds that its workers’ compensation statutes are not limited by geographic boundaries. If the employer causes work to be done in Arizona, Arizona law applies even if the employer is located elsewhere. Arizona law also holds that an injured employee is entitled to the full benefits under the Arizona workers’ compensation laws even though the employee may be receiving benefits elsewhere for the same injury. The court of appeals upheld the Industrial Commission award, answering both of the following questions in the negative.

1. Whether an employer has the legal authority to assert a claim that the North American Free Trade Agreement (NAFTA) preempts Arizona's workers' compensation statutes

2. Whether the Commerce Clause of the United States Constitution and the general federal policy of uniformity on foreign matters preclude application of Arizona's workers' compensation statutes to foreign employers engaged in interstate commerce.


1/14/2014 - 1 CA-JV 13-0069 - JOSE M. v. ELENOR J., S.M.

This opinion reviewing a decision from the juvenile court addresses consolidated motions regarding parenting time, child support, and termination of parental rights involving minor parents – mother was 15 and father was 16 when their child was born. The court of appeals reversed the lower court termination of parental rights, noting that father had sought more parenting time before the petition to sever, that some but not all of father’s failure to take advantage of available time was attributable to him, and that mother’s desire to marry fiancé with whom she had another child and have him adopt father’s daughter was an insufficient ground for termination.


1/2/2014 - 1 CA-SA 13-0123 - SIMMS v. HON. RAYES/TP RACING et al.

During ongoing litigation in this family infighting over control of a business, one group obtained a ruling that the lawfirm representing the other group could not also represent that other group in bringing a derivative suit on behalf of the entity. The disputes are between brothers Ron and Jerry Simms who individually or through trusts or entities control TP Racing which operates Turf Paradise.

The trial court ruled that certain claims asserted by Ron against Jerry (breach of fiduciary duty) could not be urged by him individually, but only on behalf of TP Racing, a limited partnership. Ron sought to assert those claims via a derivative suit, but first asked the court to rule whether the lawfirm representing him individually in his suit against TP Racing could bring the derivative suit, which would be in the name of TP Racing. While the trial court ruled there was a conflict prohibiting that arrangement, the court of appeals reversed after accepting special action jurisdiction.

According to the court of appeals, the lawyer-client relationship in a derivative suit remains between the lawyer and the minority interest holder initiating the suit and does not become a lawyer-client relationship with the entity. The trial court ruling was reversed and it was held that Ron’s attorneys were not disqualified from also being counsel in the derivative suit, acting for Ron in bringing the breach of fiduciary duty claims derivatively on behalf of the entity.


12/19/2013 - 1 CA-CV 12-0624 - NEXT GEN v. CONSUMER

A payday loan company sought to get out of its lease based on the expiration of a state law that had permitted such a lending business. The landlord prevailed on the basis that the statute had an expiration date when the lease was entered, so the possibility that the law would not be extended was known, but the parties had not contracted for that possibility in making the lease. The tenant’s frustration of purpose argument was rejected. The court also held that the burden of proving that the landlord failed to make adequate efforts to mitigate damages was upon the tenant as the breaching party. Summary judgment for the landlord was affirmed.


12/18/2013 - 2 CA-CV 2013-0056 - DOUGALL v. DOUGALL

While ARS 25-530 precluded consideration of certain veterans benefits in setting child support/maintenance amounts, it did not prevent consideration of such a resource as available to a veteran in contempt proceedings for failure to pay previously ordered amounts.


11/26/2013 - 1 CA-CV 11-0788 - WEITZ CO v. HETH, et al.

Equitable subrogation versus statutory mechanics lien laws – the court held that the statutes prevail. Where the legislature has established a lien priority system for protection of mechanics and materialmen, a court may not substitute equitable principles to alter the statutory system. Summary judgment confirming the mechanics lien priority over a lender’s lien was affirmed.


11/26/2013 1 CA-CV 12-0820 DREW/KING v. PRESCOTT USD/BAYOMI

A.R.S. § 12-821.01 requires the settlement offer of a notice of claim to remain open for sixty days unless the public entity or employee denies it within that time. A settlement offer in a notice of claim that lapsed after 15 days was non-compliant, warranting dismissal of the case.


11/26/2013 - 1 CA-TX 11-0008 - FIRST DATA et al v. ADOR

Gains from sale of a wholly owned subsidiary of a corporation held to constitute “business income” within the meaning ofArizona Revised Statutes section 43-1131(1).


CR-13-0060-AP STATE OF ARIZONA v RICHARD J. GLASSEL

The opinion in this criminal case may have some application or relevance where there are related civil, tort proceedings. When a convicted defendant dies while his/her appeal is pending and undecided, the conviction is set aside pursuant to the doctrine of abatement ab initio. In this opinion, the supreme court reversed a lower court application of that doctrine with respect to a death occurring during appeal regarding post-conviction relief. When a defendant dies after conviction has been affirmed and while post-conviction relief proceedings are pending, the conviction stands and is not set aside by abatement.


11/19/2013 - PARKER v. COMMITTEE FOR SUSTAINABLE RETIREMENT IN SUPPORT OF INITIATIVE - 2 CA-CV 2013-0120

The court of appeals opinion set forth the reasons for its prior order directing the lower court to enjoin the placing of a certain initiative on the Tucson city ballot. Among other things, the court of appeals held that: (1) petition signatures gathered by circulators with felony convictions were invalid unless the person’s civil rights (and not just right to vote) had been restored in the state of conviction; (2) the trial court was correct in disqualifying signatures gathered by out-of-state circulators who had not registered as required with the Secretary of State; and (3) the evidence supported the disqualification of signatures where the circulator’s affidavit falsely stated that the signatory had printed her/his own name and address.


11/7/2013 - JAMERSON v. QUINTERO - 1 CA-CV 12-0769

Jameson sued for a slip and fall accident at a Walgreens. She said water had been left on the floor by a janitor. Walgreens contracted for janitorial services to American. Quintero was an employee of American performing services at the Walgreens in question.

After a mediation, Jameson settled with Walgreens. American moved for summary judgment on the basis that it was the agent and the judgment by settlement with the principal, Walgreens, released any claim against it, as well. The motion was granted by the trial court and reversed by the court of appeals.

“When a plaintiff sues both the agent and the principal for the negligence of the agent, a judgment in favor of the agent bars the plaintiff’s vicarious liability claim against the principal, even when the judgment is the product of a settlement.” ¶6. The converse does not hold. Judgment for the vicariously liable principal does not dictate judgment for the directly liable agent, however. “Under § 12-2504, a ‘release or covenant not to sue . . . given in good faith to one of two or more persons liable in tort for the same injury . . . does not discharge any of the other tortfeasors from liability . . . unless its terms so provide, but it reduces the claim against the others to the extent’ of the amount paid.” ¶9.

Although the stipulated judgment in favor of Walgreen constitutes an adjudication on the merits of Jamerson’s claim against Walgreen, see Law, 212 Ariz. at 96, ¶ 15, 170 P.3d at 705, the judgment does not affect her claim against American because that claim is not derivative of the claim against Walgreen. In other words, the stipulated judgment in favor of Walgreen represents an adjudication on the merits that Walgreen is not liable for any negligence of American, but it says nothing about whether American was negligent or whether it may be liable for such negligence. This follows from the principle that although claim preclusion applies to a consent judgment, issue preclusion does not.

¶15. Summary judgment for American was reversed and the matter remanded to the trial court.

 


10/29/2013 - CALVIN B. v. BRITTANY B., G.B. - 1 CA-JV 12-0197

The court of appeals reversed and remanded an order terminating a father’s parental rights based on abandonment. The trial court granted the order amid conflicting evidence on the mother’s part alleging domestic violence, drug use, failure to pay support, and limited to no contact with the child. On the father’s part, he presented evidence of attempts to maintain contact, thwarted by mother’s limitations on permitting same, and his inability to pay for supervised visits. The court of appeals held that the record did not meet the clear and convincing evidence standard required to warrant a termination of parental rights and remanded for further proceedings.

 


10/01/2013 - ROGERS v. BOARD OF REGENTS OF THE UNIVERSITY OF ARIZONA - 2 CA-CV 2013-0015

This case addresses the application of the statute of limitations relative to the notice of claim statute (ARS 12-821) and claims for an easement by implication. It may be debated whether it is correctly decided.

Schugg owned a parcel referred to as Section 16 near certain farm property owned by the Board of Regents. Schugg used a road that traversed the farm property and along a boundary of Section 16.

The Board of Regents constructed a gate blocking Schugg’s access to the road some time in early 2008. By letter dated September 17, 2008, Schugg demanded a quitclaim deed for an easement to use the road. The Board of Regents did not respond. Schugg filed a complaint December 14, 2009. In its answer, the Board of Regents counterclaimed for quiet title relief against Schugg. (Practice Note: you can only get attorney’s fees in a quiet title action if the party has tendered the quitclaim deed and sought quiet title relief as the statute does not provide for fees merely for successfully defending such a claim, so a counterclaim should almost always be made.)

The Board of Regents moved to dismiss Schugg’s easement claim as barred by the one-year limitation period of ARS 12-821. The trial court granted that motion. Thereafter, the trial court also granted the Board of Regents’ motion for summary judgment on its counterclaim. The court of appeals affirmed.

Although the notice of claim statute has been held not to apply to declaratory claims (and other claims not for monetary damages), the court’s analysis was that the one-year limitations period of ARS 12-821 did apply to declaratory claims. Since Schugg pled that the gate blocking his access had been in place since at least early 2008 and asserted same in a letter in September 2008, the complaint filed December 2009 was more than one-year later and time barred. The court rejected an argument that a new claim arose each time the road was blocked. The court also noted that had Schugg not sent his September 2008 letter and the Board of Regents had first filed a claim to quiet title against him, the statute would not have prevented Schugg from pursuing a counterclaim for the same relief. ¶20, n.6. Yet, the court did not find the result absurd, either. The dismissal of Schugg’s claim and summary judgment in favor of the Board of Regents’ counterclaim were affirmed and attorney’s fees awarded on appeal.

 


10/17/2013 - 1 CA-CV 12-0183 - ORCA v. NODER, et al.

The Opinion addresses various restrictive covenants in an employment setting.

Noder was employed in 2002 as President of Orca, a public relations company. Noder had no prior experience in public relations and was trained by Orca. In connection with her employment, she signed a Confidentiality, Non-Solicitation, and Non-Competition Agreement which contained 4 restrictive covenants: (1) one prohibiting use or disclosure of confidential information of the company; (2) another precluding her from competing by providing conflicting consulting services; (3) one prohibiting her from soliciting customers of Orca; and (4) another precluding her from soliciting away Orca employees.

In 2009, Noder was to buy Orca, but that transaction failed. She then decided to start a competing company and contacted some of Orca’s customers, told them of her plans, and sought to have them delay potential projects with Orca until she formed her new business, so that they might contract with her instead. Noder formed Pitch Public in 2009, offering similar services to Orca.

Orca sued Noder in 2010. The complaint alleged 6 counts: (1) breach of contract for violating all 4 restrictive covenants; (2) breach of fiduciary duty; (3) breach of covenant of good faith and fair dealing; (4) fraud; (5) tortious interference; and (6) unfair competition.

Noder filed a rule 12(b) motion to dismiss. Judge Buttrick granted her motion and awarded attorneys’ fees. Orca appealed. The court of appeals affirmed in part and vacated in part.

With respect to the confidentiality covenant, the COA found that the definition of “confidential information” was so overbroad as to be unenforceable. Similarly, the COA held that the non-compete and customer non-solicitation covenants sought to protect more than the legitimate business interests of Orca and also were unenforceable. The court did not find that the severance clause salvaged any of the covenants. The COA held that the trial court had erred in dismissing the covenant of good faith and fair dealing count as that was implied as part of the employment relationship and not dependent on the unenforceable restrictive covenants. The COA agreed with the trial court that Arizona’s adoption of the Uniform Trade Secrets Act pre-empted common law tort claims alleging misuse of trade secret information (but not misuse of confidential information not rising to the level of trade secret), however, the COA also held that Orca had plead some claims for tortious interference and breach of fiduciary duty that were not dependent on use of alleged trade secret information. Accordingly, those aspects of the tortious interference and breach of fiduciary duty count should not have been dismissed. The COA also affirmed dismissal of the fraud count, finding no false representation with respect to the failed negotiations for Noder’s purchase of Orca.


10/1/2013 - 1 CA-CV 12-0242 - NIEHAUS et al. v. HUPPENTHAL et al.

Arizona Center for Law in the Public Interest, through Niehaus, sued the Arizona Superintendent of Public Instruction, challenging the Arizona Empowerment Scholarship Accounts program (ESA, ARS §§15-2401 through -2404) as violating the Aid and Religion Clauses of the Arizona Constitution, or alternatively as unconstitutionally conditioning a benefit on the waiver of a constitutional right. The ESA program allows the parent of (1) a student who has a recognized disability, (2) and whose child-student attended a public school in the previous year, (3) to receive a scholarship equal to ninety percent of the base support level that otherwise would be provided for state education of the student, (4) that the parent may use for the education of the child, (5) provided the parent agrees to educate the child in certain basic courses (readin’, writin’, and ‘rithmetic), (6) agrees not to enroll the child in a public or charter school, and (7) releases the school from any responsibility for educating the child.

The trial court denied injunctive relief and the court of appeals affirmed. “No public money . . . shall be appropriated for or applied to any religious worship, exercise, or instruction, or to the support of any religious establishment.” Ariz. Const., art. 2, §12. “The ESA does not result in an appropriation of public money to encourage the preference of one religion over another, or religion per se over no religion.” ¶11. “The ESA is a system of private choice that does not have the effect of advancing religion.” ¶12. The “Aid Clause,” states that “[n]o tax shall be laid or appropriation of public money made in aid of any church, or private or sectarian school, or any public service corporation.” Ariz. Const., art. 9, §10. It precludes the appropriation of public money to private schools. “The specified object of the ESA is the beneficiary families, not private or sectarian schools.” ¶15. “This program enhances the ability of parents of disabled children to choose how best to provide for their educations, whether in or out of private schools. No funds in the ESA are earmarked for private schools.” ¶18. The COA also held that “the ESA does not unconstitutionally condition receipt of a government benefit on the waiver of a constitutional right.” ¶23.


DELONG v. MERRILL - 2 CA-CV 2013-0023 - 09/27/2013

DeLong sued Merrill upon a loan contract pursuant to which he claimed a breach entitled him to foreclose upon Merrill’s real property. Merrill claimed she had tried to contact DeLong as the maturity date of the loan approached and he avoided her until after the maturity then sued.

During the litigation, DeLong served a set of requests for admissions. Merrill’s attorney prepared draft responses and mistakenly thought they had been finalized and served, but none were. Eventually DeLong moved for summary judgment, relying in part upon the admissions deemed made by the non-response.

Merrill sought relief from the court to permit late filing of responses to the requests for admissions. DeLong asserted prejudice due to the long delay. The trial court denied relief from the admissions and granted summary judgment. The effect was to also dispose of Merrill’s counterclaims, except for a couple of unrelated tort claims that she lost at trial.

On appeal, DeLong filed no answer brief. The court of appeals reversed in favor of Merrill. Per the COA, relying upon federal authorities construing the analogous federal rule, the trial court abused its discretion by accepting the mere delay in responding to the requests for admissions as prejudice. There was no trial impending at the time, no unavailable witnesses as a result, nor claim of any lost evidence. “And when the delay in responding to requests for admission was inadvertent, without conscious indifference and merely the result of an oversight, and no prejudice was shown, it was an abuse of discretion to deny Merrill’s request.” ¶18.

The COA also analyzed the grant of summary judgment and found that inappropriate based upon disputed facts pointed out by Merrill in the absence of the admissions imposed. Summary judgment was reversed and attorney’s fees for Merrill approved.


GRADY v. HON BARTH/TRI-CITY - 1 CA-SA 13-0106 - 09/24/2013

This special action arises from a forcible detainer (eviction) action by the purchaser of residential property at a trustee’s sale against the former owner who remained in possession and did not leave. The trial court’s discretion to deny a stay on appeal was the issue. The stay at issue was not a supersedeas bond-type stay, but one governed by the landlord-tenant statutes.

Grady bought a residence, giving a deed of trust as security for payment. Grady defaulted. Tri-City, the loan creditor, bought the property at the ensuing trustee sale. Grady did not leave following Tri-City’s demand for possession.

Tri-City brought an action to evict Grady and obtain a writ of restitution to obtain possession of the property. Grady challenged the trustee sale. The trial court granted summary judgment to Tri-City.

Grady filed a notice of appeal from the summary judgment and sought a stay of enforcement of the writ of restitution. The trial court declined to grant any stay, prompting this special action. The court of appeals accepted jurisdiction (no adequate remedy by appeal as to the stay and a purely legal question) and granted relief (as to granting a stay, but not as to the bond condition).

A statute related to forcible detainer actions was worded so as to suggest that whether to grant a stay is subject to the discretion of the trial court. The COA noted that an earlier decision involving a forcible detainer with respect to a holdover tenant had held that the statute had to be read in conjunction with another statute regarding landlord-tenant relationships which mandated grant of a stay upon appeal, subject to a bond sufficient to cover rental value during the appeal and all awarded damages (cost, past rent). Despite acknowledging that Grady never had a landlord-tenant relationship with Tri-City, the COA determined to apply the same requirement. Thus, the trial court was required to approve a stay, but determining what was an appropriate bond amount remained subject to the trial court’s discretion.


MINER/SAFECO v. TOHO-TOLANI - 1 CA-CV 10-0665 - 09/24/2013

Miner and Toho-Tolani (an improvement district in Coconino County) contracted for certain road/drainage improvements to be constructed by Miner. Safeco provided a performance bond.

Miner did not complete the contract within the agreed time, but the parties entered into a settlement agreement with a new completion date. Before that new date, Miner sued alleging Toho-Tolani was in breach for failure to pay for certain work Miner submitted was done. (Eventually, there were 5 lawsuits among Miner, Toho-Tolani, Coconino County, and Safeco, all consolidated in this action.)

As the purported termination and suit by Miner preceded the new completion date, the Board of Directors of Toho-Tolani issued notice for a hearing pursuant to ARS § 48-924 to determine whether Miner was willing and able to complete the project. Miner elected not to participate in that hearing where it was found to be in default. Toho-Tolani then made a claim to Safeco upon the performance bond; it also sued Miner for default after the completion date passed.

The primary issues were who breached first (as each used that to excuse its own subsequent non-performance) and whether the Board of Directors hearing was entitled to res judicata effect. The trial court granted summary judgment to the Toho-Tolani district against Miner, awarding damages and approximately $630,000 in costs and fees, and against Safeco, awarding approximately $65,000 costs and fees. The court of appeals affirmed in part (as to Miner) and reversed in part (as to Safeco).

The COA held that, as an improvement district, Toho-Tolani was acting within its authority to hold the quasi-judicial hearing. Miner failed to appear, to request a continuance, or to challenge the ruling by special action. Preclusive effect was upheld to prevent Miner from thereafter asserting its “first breach” argument to excuse its failure to complete within the contractual deadline. Per the COA, that argument could have been asserted at the administrative hearing, had Miner participated.

Miner also argued that Toho-Tolani was improperly awarded actual and liquidated damages. The contract provided for both. The COA agreed that a party may not receive an award of both for the same injury, but that there was no prohibition if each compensated for a distinct injury. The COA held that the record here supported that the awards were for separate injuries and upheld them.

As to Safeco, however, when Toho-Tolani was obtaining another contractor to complete the work of Miner, Toho-Tolani and Safeco had entered into a Takeover Agreement. Therein they agreed on the amount paid and the balance owed under the contract with Miner. Safeco argued that Toho-Tolani waived liquidated damages in that Takeover Agreement. The COA determined that the contractual language was susceptible to two reasonable interpretations (waiving liquidated damages or not), rendering it ambiguous in that regard. As a result, there was a fact question that could not be resolved on summary judgment. As to the Safeco, the summary judgment was reversed on the issue of liquidated damages.

Safeco also had argued that Toho-Tolani was required by the states’s Little Miller Act to first exhaust the assets of Miner before making a claim upon the bond. The COA rejected that argument.


1 CA-CV 12-0080 - CENTENNIAL v. LAWYER'S TITLE - 09/24/2013

Centennial bought 75 acres in Snowflake, giving back two deeds of trust to the seller as security. It obtained a title commitment and policy from Lawyer’s Title (now Fidelity).

Centennial subsequently discovered a road/utility easement not disclosed on the title commitment. It was unsuccessful in selling the property, which Centennial attributed to reduced value caused by the easement. It defaulted and gave its seller a deed in lieu of foreclosure for all but 1 acre it retained (which was not burdened by the easement).

Centennial sued Lawyer’s Title for negligence and breach of contract. The trial court granted summary judgment for Lawyer’s Title. The court of appeals affirmed as to negligence, but reversed on the contract claim.

As to negligence, the COA held that the 1992 amendment to ARS § 20-1562 precludes any negligence claim against the title insurer. The title commitment and its list of exceptions do not constitute a promise that no other exceptions exist. Rather, it is a promise to indemnify for any damage that occurs due to title defects that it should have discovered, but did not discover.

As to breach of contract, the insurer had relied upon the “continuation of insurance after conveyance of title” provision. It argued that there was no coverage after Centennial conveyed the 74 acres back to its seller (and no damage on the 1 acre retained). Centennial argued that it paid too much for the property because of the non-disclosure of the easement and so it incurred damage while it owned the property. The COA held that the “continuation” clause did not require the insured to own the property at the time it made the claim; it had to own it at the time of injury. The policy was held to insure against damage caused by an “encumbrance on title” incurred by Centennial when it owned the property, as it asserted here.


FIRST CREDIT UNION v. COURTNEY - 2 CA-CV 2013-0005 - 09/12/2013

In 2006, Orange Grove obtained a construction loan of $3.56 million secured by the Appian Estates Property. The Courtneys signed a personal guarantee of the indebtedness. In 2009 an agreement was made to provide additional security, the Citrine Property. The Courtneys also signed consenting to that agreement. The Citrine Property was subject to existing liens of about $52,000.

Orange Grove defaulted. Lender First Credit acquired the Appian Estates Property at trustee sale for $2.4 million. It elected not to foreclose on the Citrine Property and promptly sued the Courtneys on their personal guaranty.

The trial court granted partial summary judgment to First Credit on liability, but the matter was tried as to fair market value. The trial court held that the Courtneys waived liability defenses in the guaranty they signed. (Division Two of the court of appeals noted this issue had been decided to the contrary as to borrowers in PARKWAY v. ZIVKOVIC, 1 CA-CV 12-0612 decided in June, where the issue had been reserved as to guarantors. The panel did not refer to CSA 13-101 LOOP v. LOOP 101, 1 CA-CV 12-0167 decided by Division One just two days before this Courtney opinion, which held the statutory defenses also non-waivable by guarantors, as well.) The court of appeals affirmed on the basis that the trial court had reached the correct result, although not for the correct reason.

The appellate court answered in the negative whether a lender brings an action for a deficiency judgment under A.R.S. § 33-814 prematurely when it has not exhausted all of its collateral. Noting among other things that A.R.S. § 33-814(C) permits a creditor to collect without selling the collateral, A.R.S. § 33-814(B) was held not to impose a 90-day delay before such an action may be brought. A.R.S. § 33-814(G) was held not to prevent a creditor from obtaining a deficiency judgment on residential property notwithstanding that the loan was not a purchase money loan and although the creditor has not conducted any trustee’s sale. The Courtneys also argued, unsuccessfully, that the extinguishment of the borrower’s debt by virtue of A.R.S. § 33-814(D) should preclude any recovery from them as guarantors under A.R.S. § 33-814(A). “Subsection (D) is merely a limitation section and is not intended to impose substantive restrictions on a creditor’s rights. Nowhere does § 33-814 require the creditor to sue the principal debtor. . . . Subsection (D) simply does not specify against whom “an action” must be “maintained” and we see no reason to read such a requirement into the statute. . . . Additionally, it is well settled that a guaranty contract may provide greater liability than the principal obligation of the debtor, and that a guaranty may be enforced even when a lawsuit against the principal debtor is barred.”

First Credit had received judgment in the trial court for a deficiency in the amount of $1,355,039.28 plus interest at the rate of 18% and attorney fees of $95,342.25. That was affirmed and the court of appeals approved an additional award for attorneys’ fees on appeal.


WILDEARTH v. HICKMAN/KNIGHT - 1 CA-CV 12-0338 - 9/12/2013

This case involved a challenge to the award of a grazing lease on State Trust Land. The Knights had held the grazing lease on certain land near Springerville for years and the lease was due to expire. WildEarth Guardians sought to obtain the lease. It did not intend to continue grazing, however, but to restore the land to pre-grazing status (which among other things would include closing any private roads and closing the land to hunters, as well).

The Land Department required each applicant to submit reports for evaluation of the equities of their competing applications. The Director determined that the equities favored the Knights, although WildEarth offered to pay higher rent. WildEarth sued, challenging both the statutory process and the Department’s administrative decision. The statutory process was upheld and determined not to offend the applicable Enabling Act; the administrative decision was also upheld as not involving any abuse of discretion.


LOOP v. LOOP 101 - 1 CA-CV 12-0167- CSA 13-101 - 9/10/2013

Notwithstanding any contractual term imposing the contrary, a guarantor cannot waive the anti-deficiency protection of ARS § 33–814(G). PARKWAY v. ZIVKOVIC, 1 CA-CV 12-0612, decided in June, held unenforceable a contractual provision that a borrower waive the anti-deficiency protection as a violation of public policy. According to footnote 4 of this opinion in CSA 13-101, “the statutory scheme prohibits waiver of the right to a fair market value determination,” as to guarantors, and the court stated it did not need additionally to “consider whether public policy also prohibits such a waiver.”


COHEN v. LOVITT & TOUCHE, INC. - 2 CA-CV 2012-0063 - 09/06/2013

Cohen and Zuckerman were officers/directors of an entity that was the defendant in a class action settled for $16 million. The nature of the suit was such that they were personally liable. Since the entity was by then defunct, they personally paid the settlement. Then they made a claim for reimbursement from the directors/officers insurance carrier, which was denied. Cohen and Zuckerman sued (1) the insurer, Greenwich Insurance, for breach of the contract of insurance and bad faith, and (2) the broker, Lovitt & Touché, for negligence in procuring the coverage and/or failing to advise of non-insured risks.

The trial court granted summary judgment in favor of Greenwich, agreeing that the settlement payment was restitutionary and uninsurable as a matter of public policy. Cohen and Zuckerman settled with the insurer, so it was not a party to the appeal.

Summary judgment also was granted in favor of Lovitt & Touché. If the settlement payment of the class action matter was uninsurable, it was conceded that there could not be negligence in failing to obtain such coverage. The trial court apparently failed to address the negligent representation claim, but signed a rule 54(b) judgment dismissing the claims against Lovitt & Touché.

The court of appeals concluded that there was not an absolute ban on insuring losses incurred from unforeseen restitutionary payments. The court agreed with the principles set forth in Restatement (Second) of Contracts § 178 (1981) in determining whether contractual provisions should be enforceable on public policy grounds. The court of appeals concluded that the factors in favor of permitting such coverage could outweigh those against it, but the trial court had not conducted such an analysis. “We therefore conclude the trial court erred when it determined as a matter of law that Arizona law prohibits insurance coverage for restitutionary payments. We express no opinion, however, whether the policies obtained by Lovitt covered the losses claimed by Cohen and Zuckerman. We remand to the trial court for further proceedings consistent with this opinion.”


SITTON v. DEUTSCHE BANK et al. - 1 CA-CV 12-0557 - 9/5/2013

In February 2007, Sitton obtained a loan secured by a deed of trust on her home. The deed of trust listed MERS (Mortgage Electronic Recording System, Inc.) as nominee for the SFG Mortgage as the lender. Whether there were other interim transfers is not stated, but in March 2007, the lender’s interests appear to have been held by Deutsche Bank National Trust Co. as trustee for Terwin Mortgage Trust and such interests were at that time transferred to Specialized Loan Servicing.

Sitton defaulted. Various documents were recorded in August 2010, including a notice of trustee’s sale to initiate a non-judicial foreclosure pursuant to the deed of trust. Sitton and Specialized agreed to a loan modification so that sale was vacated. Sitton again defaulted and another notice of trustee’s sale was issued in February 2011.

Prior to the trustee’s sale, Sitton filed an action pursuant to A.R.S. § 33-420 seeking to quiet title, for a monetary award, and she also obtained a stay of the trustee’s sale. Deutsche Bank/Specialized Mortgage filed a motion to dismiss which the trial court treated as a motion for summary judgment and granted. Sitton appealed.

The court of appeals affirmed in an opinion identifying several issues. Echoing its recent ruling in Stauffer v. US Bank Nat’l Ass’n, No. 1 CA-CV 12-0073/1 CA-CV 12-0132, filed 08/20/2013, the court held that Sitter had standing for her claim under A.R.S. § 33-420 and the documents she challenged did involve an interest in land within the meaning of A.R.S. § 33-420. Because that temporary stay of the trustee’s sale had been lifted after summary judgment and the trustee’s sale concluded, though, Sitton’s quiet title claim disappeared (per A.R.S. § 33-811(C)), but not any monetary claim she might be entitled to pursuant to A.R.S. § 33-420(A) (a Pyrrhic victory since Sitton ultimately deemed to have no such claim). Sitton also escaped a statute of limitations defense. The court of appeals held that A.R.S. § 12-541(5) does not limit to a one-year period, claims where “the liability is a penalty or a feature.” Because A.R.S. § 33-420(A) prescribes liability as the greater of $5000 or treble actual damages, the court said that was a penalty. “Claims brought under A.R.S. § 33-420(A) are therefore not subject to the one-year limitations period by § 12-541(5), and are instead governed by the general four-year limitations period contained in § 12-550.” ¶ 19. Despite the foregoing, and despite the court noting some misrepresentations or false information in the MERS-recorded documents challenged by Sitton (¶¶ 30, 32), the court of appeals determined that “these misrepresentations were not material to Sitton.” ¶ 32. “Because Sitton could not show that the assignments contained a material misstatement or false claim, she could not prevail on her § 33-420(A) claims.” ¶34.

The opinion denied the claim for attorneys’ fees by Deutsche Bank/Specialized Mortgage because, although there were certainly contract documents involved in the case, the issues litigated did not arise from such contracts. The opinion also is noteworthy for its comments on Sitton’s trial court motion to strike a declaration offered against her. “Such motions to strike are unnecessary. . . . Objections to a movant’s filings are properly made in the response to the motion, and a separate motion is neither required nor authorized by any rule.” ¶ 22 note 5. Further characterizing such motions as a “waste of time,” the opinion also points out that a rule change effective next year will then prohibit such motions to strike. Id.


KOBOLD v. AETNA - 1 CA-CV 12-0315 - 9/5/2013

The first paragraph of the opinion succinctly summarizes the issue and holding:

¶1 Arizona law generally forbids subrogation in personal injury cases. This case presents the question whether 5 U.S.C. § 8902(m)(1) of the Federal Employee Health Benefits Act (“FEHBA”) preempts that Arizona law. We answer the question in the negative, and hold that Arizona law barring subrogation governs this dispute between an injured insured and his FEHBA insurer.


HAWK v. PC VILLAGE - 1 CA-CV 12-0362 - 9/3/2013

ARS 33-341, adopted 2009, precludes enforcement of a real property covenant prohibiting the posting of “for sale” signs. This opinion says the statute is constitutional and that it trumps CC&Rs recorded prior to 2009. The CC&R dispute was also held to arise out of contract, so the landowner who challenged the CC&Rs additionally got an attorney fee award against the property owners’ association.


KOSS v. AMERICAN et al. - 1 CA-CV 11-0635 - 8/29/2013

Another case involving an imaginative scam. Instead of the fraudfeasor utilizing a bank for the scam, though, here she used her American Express card.

Sujata Sachdeva supervised the accounting department at Koss (the headphone manufacturer). She embezzled about $20 million. (Chad Kennedy’s $600,000 fraud not so impressive now.) Sachdeva diverted about $16M by wire transfers, $4M using cashier checks paid out of Koss accounts, and another $200K by generating checks directly drawing on Koss accounts.

The embezzled money was used to pay Sachdeva’s American Express account bills (lots and lots of luxury goods – probably included the purse that Swiss retailer didn’t think Oprah could afford). American Express personnel had noticed the wire transfers from Koss, that they were being used to pay Sachdeva’s personal bills, and had verified she was a Koss employee with a $200K salary. AmEx continued to accept the wire transfers, but did not disclose anything to Koss. Months later an AmEx employee referred to the situation as a “clear case of embezzlement” and alerted AmEx’s Financial Intelligence Unit which did not then make any report to law enforcement authorities nor to Koss. About 20 months after the embezzlement begun (so the average was about $1M/month for a $200K/year employee), AmEx contacted Koss to inquire about the wire transfers. Koss fired her and notified the FBI.

Koss also sued AmEx and the individual who managed its Fraud Operations Group. AmEx won in the trial court. “[T]he superior court dismissed Koss’s common-law claims for conversion, negligence, aiding and abetting fraud, and aiding and abetting a breach of fiduciary duty after determining, in part, that the Uniform Commercial Code (“U.C.C.”) preempted those claims. In addition, the court dismissed Koss’s negligence claim on the basis that Appellees had no duty to Koss and the conversion claim on the theory that a party cannot convert a check.” ¶1.

The court of appeals affirmed in part and reversed in part. “We affirm the dismissal of the negligence claim but reverse the dismissal of the other common-law claims for several reasons. First, the U.C.C. does not displace Koss’s common-law claims that concern wire transfers because those claims are grounded on allegations that Appellees knowingly aided and abetted a Koss employee’s defalcations – allegations that do not pertain to any defect or irregularity in the wire transfer process. Second, the U.C.C. does not preclude a common-law conversion of cashier’s check claim under these circumstances. However, we affirm the dismissal of the negligence claim because we agree Appellees did not owe a duty under negligence law to Koss to disclose such defalcations.” ¶2.

It’s a long opinion. The court of appeals held that the UCC did not preempt the common law claims because the claim was not based upon the mechanics of the wire transfers, but because of AmEx’s allegedly accepting the funds knowing that they were embezzled. The rationale is similar with respect to the cashier’s checks. Sachdeva was using funds alleged to be known to be embezzled to purchase cashier’s checks, rather than any claim that she had improperly signed checks herself drawn upon a Koss bank account. (Those $200K in checks that were drawn on Koss accounts were apparently not made payable to AmEx – they were just another part of her fraudulent scheme.) The court of appeals held that a check (as distinguished from the proceeds of a check) was property that could be converted. No negligence, though. Koss made no negligence claim as a customer of AmEx. AmEx had no duty to Koss to catch the fraud. But the court did say AmEx might be susceptible to a claim for aiding and abetting the fraud.


GILBERT, et al v. WELLS FARGO - 1 CA-CV 12-0585 - 8/29/2013

How to use the bank to commit fraud. (This is an old scam, but apparently still works.)

Chad Kennedy was a principal in some entities developing some land in Chandler (The Reserve residential subdivision). The opinion groups them together as the Borrowing Entities. They borrowed from a couple of hard money lenders the opinion refers to as the Lenders. Money to pay contractors and suppliers went through an escrow account and was drawn against invoices submitted as work was done.

One of the contractors was Sun West Builders, Inc. It completed a framing contract for $720,000.00. Chad Kennedy phonied up some Sun West invoices and draw requests for over $1.3 million. He went to a Wells Fargo branch and opened an account for Sun West Builders, LLC. (There is no such LLC.) Kennedy completed and signed the bank’s business account application form in which he certified that he was the owner of that LLC. The bank did not ask for more nor independently verify the entity’s existence or standing. Kennedy deposited the checks to the Wells Fargo account, paid Sun West Builders, Inc. from that account, and kept the difference of over $600,000.

The Borrowing Entities defaulted. The fraud was discovered. Kennedy was defaulted when sued, so he probably had spent the money and disappeared. The Borrowing Entities also sued Wells Fargo alleging that “it had acted negligently by allowing Kennedy to open the corporate bank account without determining whether Kennedy was authorized to act on behalf of Sun West Builders, LLC and by failing to obtain documentation that proved that Sun West Builders, LLC existed.” ¶6. The trial court granted SJ for the bank – no duty to non-customers.

The Lenders’ argument based on the Bank Secrecy Act (which they maintained required the bank to verify the information) was held only to impose obligations upon banks to the government and not to create any private cause of action. The argument based on Restatement of Torts § 324A (gratuitous undertaking) failed because it requires there to be physical harm. An argument based upon the bank’s failure to follow its own internal policies/industry standards failed – those might be relevant to establishing breach of duty, but not to the threshold issue of whether a duty exists.

Kennedy wins (by disappearing). Bank wins (no duty).


MARISOL METZLER v. BCI COCA-COLA BOTTLING CO. OF LOS ANGELES - 2 CA-CV 2012-0173 - 08/28/2013

Prejudgment interest – it’s different when it’s a sanction, such as pursuant to rule 68.

Metzler sued BCI Coca-Cola for injuries incurred from a fall at a grocery store. BCI turned down a lower settlement offer before a jury returned a verdict for $1.5 million. The resulting judgment included prejudgment interest based on rule 68(g). Most of the case is about whether the interest rate should be 10% or prime plus 1% based on the amendment made to ARS 44-1201. (There is some procedural stuff, though, based on the judgment having been entered then vacated by the partial grant of a new trial, but then directed to be reinstated by a prior appeal, and the court of appeals in this opinion stating that, while that prejudgment interest as a sanction only runs from the rejection of the prior settlement through judgment, here there was no judgment until a new one was entered pursuant to the appellate mandate due to that prior vacation of judgment by the partial grant of the motion for new trial.)

The bulk of the opinion is about whether interest awarded as a sanction, and thus included in a judgment, is interest on an “obligation” or interest on a “judgment.” The wording of ARS 44-1201 provides for 10% interest if on an “obligation” and only prime plus 1% (about 4.25%) if on a “judgment.” The court of appeals determined interest awarded as a sanction qualified as an “obligation” and upheld the trial court award based on 10%.


READ v. KEYFAUVER - 1 CA-CV 12-0007 - 8/27/2013

Read is a law enforcement officer. He was on duty, writing up a traffic citation, when he saw Keyfauver’s rollover accident, trapping her in her car.

He radioed that information then went to help her. He injured his knee extracting her from the car.

Read sued Keyfauver. He argued the rescuer’s rule, that injury to a rescuer is forseeable, and that her neglgient driving caused his knee injury. She argued that the firefighter’s rule is an exception to that and it barred his claim. Read responded to that with an argument that, while he was on duty, his duties did not require him to do more than report the accident and the rescue was outside of his duties, so not barred from recovery, and he later argued that it should be a jury question whether to impose the firefighter’s rule.

The trial court granted summary judgment for Keyfauver. The court of appeals affirmed.

It was enough that Read was on duty. That invokes the firefighter’s rule whether the conduct by the public safety officer is within or beyond his or her normal duties. The court of appeals rejected the premise that the firefighter’s rule is a form of assumption of risk which was the basis for the jury question argument.


PETERSON v. FENTZLAFF - 1 CA-CV 11-0797 - 8/27/2013

Peterson sued Fentzlaff regarding their automobile accident. Peterson chose to sue in small claims court where the limit was $2500. She received a judgment for that maximum amount.

Later, Peterson filed a superior court suit against Fentzlaff for a greater amount of damages based on the same accident. Fentzlaff’s MTD based on claim preclusion by the prior small claims court judgment was granted.

The court of appeals affirmed. This matter would only seem to warrant a two-page memorandum decision, except perhaps because of an earlier case that created uncertainty about the preclusive effect of a non-appealable small claims judgment. Clusiau v. Clusiau Enterprises, Inc., 225 Ariz. 247, 236 P.3d 1194 (Ct. App. 2010). The plaintiff here chose to initially litigate with a small claims limit and got a judgment; that was fatal to the second claim.


Wycoff v. Mogollon Health Alliance - 2 CA-CV 2012-0152 - 08/22/2013

Although there is some discussion regarding abatement of the cause of action and setting aside a default, the case principally is about the appeal from summary judgment disposing of a workplace mold case based upon the statute of limitations.

The court of appeals stated that it is plaintiff’s burden to show that the discovery rule should toll the 2 year time for bringing the action. In that regard, the court reviewed the opinions from other jurisdictions with respect to claims of toxic mold and concluded the following to be the general rule: “The cause of action begins to accrue when the claimant experiences physical signs and symptoms of illness, knows that she has been exposed to mold, and knows that mold may present a health hazard.” ¶10. In this case, the plaintiff had experienced symptoms and seen a doctor before her retirement from her place of employment, was aware of the presence of mold, and suspected the mold as a cause. Because there was no evidence that she had presented her suspicions to a doctor and had the doctor tell her otherwise, she was unable to exploit the discovery rule. “Rather, the record suggests that, once she sought a medical opinion to confirm those suspicions, she eventually received that confirmation, albeit after several months had passed.” ¶15. Summary judgment was affirmed.


SUN VALLEY, ET AL V. MALLET - 1 CA-CV 12-0538 - 8/22/2013

This case involves the continuing efforts by Sun Valley Group to be paid for fiduciary and attorney’s fees with respect to its handling of a conservatorship/guardianship. The probate court approved only part of the application based upon inability of the protected person to be able to afford the expense. The court of appeals remanded for further proceedings stating that capacity to pay was not sufficient by itself for evaluation and the court was required also to evaluate the reasonableness by doing a cost-benefit analysis.


HENDERSON-JONES V. INTERNATIONAL/SCF - 1 CA-IC 12-0053 - 8/22/2013

Although a workers’ compensation case, this opinion also may be of some relevance in other cases where there is an employee/independent contractor an issue. Here the issue was whether the person was an employee or a volunteer. The court of appeals concluded volunteer. After reciting the factors about control, the court stated that a certain degree of control nevertheless could exist with a volunteer without making that person an employee. Whether payment was remuneration or reimbursement was significant and payment of a stipend could be deemed reimbursement (not an employment characteristic), rather than remuneration (payment for your efforts is indicative of being an employee and not a volunteer).

Burch & Cracchiolo, P.A.