AZAPP Blog

Gutierrez v. ICA (07/08/2010): Arizona Court of Appeals Division One Holds That Physicians Making Rule 113(B) Determinations of Impairment For Workers' Compensation Should Use the AMA Guide Then In Effect

The petitioner, Jesus Gutierrez, filed a workers' compensation claim after he experienced an immediate onset of pain in his back while moving plywood at his place of employment. The claim was accepted for benefits. Gutierrez received medical treatment and was released to return to work.  The claim was then closed, listing that there was no permanent impairment. Gutierrez requested a hearing, after which the Industrial Commission of Arizona (“ICA”) administrative law judge (ALJ) entered an award finding that there was no permanent impairment. Gutierrez requested administrative review, and the ALJ affirmed his award.  Gutierrez then filed a special action to appeal the ALJ's decision.  Arizona Administrative Code (“A.A.C.”) R20-5-113(B) (“Rule 113(B)”) states that a physician discharging a claimant from treatment should rate the claimant's impairment according to the standards in “the most recent edition of the American Medical Association in Guides to the Evaluation of Permanent Impairment . . . .”  Gutierrez argued that “the most recent edition” referred to the Fifth Edition, which was the most recently published edition when the rule was published, and that the physician could not use the Sixth Edition, which was the most recently published edition at the time the physician conducted his examination.  Gutierrez further argued that if “most recent edition” referred to the edition most recently published at the time the physician conducts the exam, that it was an impermissible delegation of the ICA's rule-making authority to the AMA.  Gutierrez also argued that the use of the Sixth Edition violated Article 18, Section 8, of the Arizona Constitution, which prohibits the reduction of percentages and amounts of workers' compensation “except by initiated or referred measure . . . .”

The Arizona Court of Appeals affirmed.  The court held that Rule 113(B) referred to the most recent edition of the AMA Guides published at the time the worker is evaluated for permanent impairment.  The Court pointed out that the phrase “most recent edition” was added to the rule to recognize the practice under the old rule of using the edition most recently published at the time of the evaluation of impairment.  The Court further held that the use of the newest edition of the guide was not an unlawful delegation of authority because the physician performing the evaluation still had some discretion whether to use the AMA Guide and that prohibiting the use of the most up-to-date standards developed by experts would obstruct the efforts of the workers' compensation system to provide accurate evaluations.  The Court also held that use of the newest edition of the guide did not violate the constitutional prohibition of reductions of percentages and amounts of compensation because the ICA's use of the Sixth Edition did not have the intent or effect of depriving Gutierrez from receiving benefits to which he would have previously been entitled, because even if the Fifth Edition had been used, Gutierrez would not have been guaranteed benefits.

Judge Winthrop authored the opinion; Judges Portley and Downie concurred.

Posted By: James K. Rogers 

Estate of Braden v. State (6/29/10):  Arizona Court of Appeals Division One Holds that the State May Be Held Liable for Statutory Abuse and Neglect Pursuant to A.R.S. § 46-455 When the State Contracts With Private Agencies to Provide Development Disability Services.

Jacob Braden was a developmentally disable adult who was eligible to receive services from the State.  Through a vendor agreement, the State contracted with a private agency to provide services to Jacob.  In 2005, Jacob died as a result of injuries he sustained while living at the private facility.  Jacob’s Estate (“the Estate”) filed a claim against the State, alleging, inter alia, statutory abuse and neglect under A.R.S. § 46-455.  In relevant part, A.R.S. § 46-455 creates a cause of action for vulnerable adults who have suffered injury caused by an “enterprise . . . that has assumed a legal duty to provide care.”  The State moved for summary judgment, which the trial court granted on grounds that the State neither provided care nor assumed a legal duty to do so.  This appeal followed.

The Arizona Appeals Court first concluded, unlike the trial court, that the State “provided care” to Jacob.  Specifically, the Court held “that creating Jacob’s [individual service plan], determining the level of supervision he needed, and ensuring that [the private agency] followed these requirements constituted ‘providing care.’” 

Next, the Appeals Court held that the State assumed a legal duty to care for Jacob, despite that the duty was statutorily imposed upon the State.  Based largely on the dictionary definition of the term “assume,” the Court concluded that one can “take up or take on a duty voluntarily or by mandate.”  The Court was also concerned that under a contrary interpretation the State could skirt its statutory obligations by hiring private care providers.

Judge Orozco authored the majority opinion, joined by Judge Kessler.

Judge Hall dissented.  He noted that if the majority’s interpretation is correct, then the State could engage in criminal and civil prosecutions that would subject itself to liability – a result the legislature did not intend.  Judge Hall also reviewed the legislative history and concluded that the legislature did not intend to make the State liable for money damages.

Simon v. Maricopa Med. Center (07/01/2010):  Division One Holds That When a Party Improperly Names a Non-Jural Entity, but Properly Serves the Associated Jural Entity, Dismissal is Not Warranted.

Plaintiff filed a complaint against the Maricopa Medical Center (“MMC”), the City of Phoenix Police Department (“Police Department”), and various officers of the Police Department (the “Officers”), alleging common law tort claims arising out of an altercation with the officers in February 2008.  The Police Department moved to dismiss the claim on the grounds that it is a non-jural entity; the trial court granted this motion. MMC also filed a motion to dismiss on the ground that it is a non-jural entity, that Plaintiff did not file a notice of claim statute, A.R.S. § 12-821.01, and that Plaintiff did not certify whether expert testimony was necessary pursuant to A.R.S. § 12-2603(A).  The trial court granted this motion, finding that Plaintiff had not complied with A.R.S. § 12-821.01.  The Officers also filed a motion to dismiss, arguing that Plaintiff failed to comply with A.R.S. § 12-821.01, which the trial court granted.  Plaintiff timely appealed. 

On appeal, Plaintiff argued that the trial court erred in determining that the Police Department and MMC were non-jural entities and that he failed to comply with A.R.S. § 12-821.0.  He also argued that the superior court was biased against him in violation of his due process rights. Because documents outside of the pleadings were considered in connection with each motion, the Arizona Appeals Court treated the motions as motions for summary judgment.  The Court affirmed the entry of summary judgment in favor of the Officers, reversed the entry of summary judgment in favor of the Police Department and MMC, and remanded to the trial court for further proceedings.  

The Court held that the Police Department and MMC should not have been dismissed from the case as non-jural entities.  The Court reasoned that although Plaintiff should have named the City of Phoenix rather than the Police Department, and should have named Maricopa County Special Health Care District rather than MMC, these purely technical errors do not warrant dismissal, but rather warrant amendment of the Complaint pursuant to Arizona Rule of Civil Procedure 10(f).    The summons for the Police Department was served on a person authorized to accept service in the office of the Clerk of the City of Phoenix and the summons for MMC was served on the Assistant Clerk of the Board at the office for the Clerk of the Maricopa County Special Health Care District, thus, the proper entities received notice of the lawsuit.  The Court further found no evidence of prejudice to the City of Phoenix or the Maricopa County Special Health Care District in the record.   

With regard to the Officers, the Court held that Plaintiff was required to deliver a notice of claim to each Officer personally, or to a person of suitable age and discretion residing with the officer, or to the Officer’s agent.  Because each of the Officers filed an affidavit that they did not receive a notice of claim, nor had they appointed an agent for service of process, and Plaintiff did not proffer any evidence that he personally served the Officers, the Court found that the trial court properly granted summary judgment in favor of the Officers.  Plaintiff raised a number of additional arguments related to the trial court’s finding that he failed to comply with A.R.S. § 12-821.01.  In connection with these arguments, the Court of Appeals held that (1) substantial compliance with the statute is insufficient; (2) excusable neglect no longer applies to relieve compliance with the statute; (3)Plaintiff waived his anti-abrogation argument under Article 18 § 6 of the Arizona Constitution by failing to raise it below; (4) the notice of claim statute is not unconstitutionally vague; (5) the superior court had jurisdiction to determine whether he complied with the statute; and (6) Plaintiff alleged no facts to support his claim that the superior court judge was biased against him. 

In connection with the Maricopa County Special Health District’s argument on appeal that dismissal was warranted because Plaintiff sent the notice of claim to MMC rather than the entire board of directors of the District, the Court found that the notice of claim was sent to the proper address for the Clerk of the District, it was signed for, and neither party presented evidence on the identity of who signed for it. Moreover, because the Court had not received any briefing on the issue of who in particular was authorized to accept service for the District and whether Arizona Rule of Civil Procedure 4.1(j) or 4.1(i) applies to the District, the court declined to decide the issue.  The Court further held that Plaintiff’s failure to certify whether expert testimony was necessary did not warrant dismissal.  

Judge Kessler authored the opinion, Judges Irvine and Brown concurred.

Johnson v. Arizona Department of Transportation (7/8/2010): Arizona Supreme Court Holds That Evidence of Subsequent Remedial Measures Is Not Admissible to Rebut Defense of Comparative Negligence.

 A man was killed when he drove his vehicle into the back of a dump truck that had recently turned onto a highway after leaving a mining pit.  The decedent’s wife (“Plaintiff”) sued the State of Arizona, alleging negligent design and maintenance of the intersection.  The State denied negligence and alleged that the decedent was comparatively at fault.

Plaintiff sought to introduce evidence that, after the accident, the State posted a truck-crossing sign and allowed the mining company to install a variable message board near the intersection.  Plaintiff argued the evidence was admissible because the subsequent measures were taken without knowledge of the accident.  She also argued the evidence was admissible to rebut the State’s allegation that the decedent was comparatively negligent and to prove the State’s knowledge of the dangerous intersection.  The trial court ruled the evidence inadmissible under Arizona Rule of Evidence 407.

The jury returned a verdict for the State.  The Arizona Court of Appeals affirmed.  Plaintiff appealed.  The Arizona Supreme Court accepted review, vacated the Court of Appeals decision, and affirmed the trial court’s judgment in favor of the State. 

Rule 407 precludes admission of subsequent remedial measures to prove negligence or culpable conduct.  The rule permits the use of such evidence for another purpose, however, such as to prove ownership, control, or feasibility of precautionary measures, if controverted, or for impeachment. 

The Court held that the rule applies even if the remedial measures are not taken with specific knowledge of the accident in question.  The trial court also correctly determined that the evidence was not admissible for an alternative purpose.  The fact that a defendant denies fault and alleges comparative negligence does not, alone, justify the admission of subsequent remedial measure evidence as impeachment.  Finally, the evidence was not admissible to prove the State’s knowledge of the dangerous condition of the intersection because admission on that basis would violate the prohibition against using such evidence to prove negligence.

Justice Pelander wrote the opinion for the unanimous Court. 

Posted By: Mark P. Hummels

Roberts v. City of Phoenix (7/1/2010): Arizona Court of Appeals Division One Holds  That Entry of Default Judgment is an Appropriate Sanction For Discovery Violations Committed in Bad Faith if the Party Itself is at Fault and the Court Has Considered, and Rejected, Lesser Sanctions.

In early 2001, a phoenix police officer stopped Randy Roberts moments after he left a well-known gay bar in Phoenix.  According to Mr. Roberts, the officer was aggressive and refused to tell him why he had been pulled over.  The officer arrested Mr. Roberts for failure to comply with his orders, but the charges were eventually dismissed.  Mr. Roberts then sued the City of Phoenix pursuant to 42 U.S.C. § 1983 for allegedly violating his civil rights.  At trial, after the close of Mr. Roberts’ evidence, the City moved for judgment as a matter of law.  The trial court granted the motion.  In 2004, Mr. Roberts filed a motion for relief from the judgment based upon newly discovered documents that had not been disclosed by the City.  The trial court granted Roberts’ motion for relief and ordered the City to produce all files maintained by the City regarding Mr. Rodgers.  Over the course of the subsequent litigation, Mr. Roberts discovered on numerous occasions that the City had defied the court’s orders by failing to timely disclose relevant documents.  On several occasions, the judge admonished the City for its failures.  When the behavior continued, Mr. Roberts filed a motion for sanctions.  The trial court granted the motion and, as a sanction for the City’s actions, struck the City’s answer and entered default against it.  Following an evidentiary hearing on damages, the court awarded Mr. Roberts $10,000 in damages and the majority of his requested attorneys’ fees.  The City timely appealed. 

On appeal, the Arizona Court of Appeals upheld the trial court’s entry of default judgment as a sanction for the City’s discovery violations.  Rule 37(b)(2) of the Arizona Rules of Civil Procedure provides that “if a party . . . fails to obey an order to provide or permit discovery . . . the court in which the action is pending may make such orders in regard to the failure as are just.”  It specifically provides that the court may issue “an order striking our pleadings . . . or rendering a judgment by default against the disobedient party.”  Ariz. R. Civ. P. 37(b)(2)(C).  Such an extreme sanction, however, should only be employed when the violation is the result of a willful disregard or discovery obligations or bad faith.  Moreover, a court may only impose default judgment as a sanction for discovery violations if the party itself is at fault and the court has considered, and rejected, lesser sanctions.  Here, the Court of Appeals concluded that the record supported the trial court’s conclusion that the discovery violations were committed by the City itself and were made in bad faith.  Moreover, the trial court had considered lesser sanctions by repeatedly admonishing the City without otherwise imposing sanctions.  The Court of Appeal therefore held that the trial court did not abuse its discretion in striking the City’s Answer as a sanction for its discovery violations.

The Court of Appeals also upheld the award of attorneys’ fees pursuant 42 U.S.C. § 1988, which provides that “in any action or proceeding to enforce a provision of [section 1983], the court, in its discretion, may allow the prevailing party . . . a reasonably attorney’s fee.”  The Court of Appeals rejected the City’s contention that an award of attorneys’ fees under § 1988 was inappropriate because there was no decision on the merits, concluding that the evidentiary hearing after the default judgment lead to a final judgment constituting a “decision on the merits.”  The Court also rejected the City’s contention that Mr. Roberts did not “prevail” because his damages were “minimal.”       

Judge Brown authored the opinion; Judges Irvine and Kessler concurred.

Posted By: Brandon A. Hale

State Compensation Fund v. Fink (7/1/2010):  Arizona Court of Appeals Division One Holds That the 2007 Amendment to A.R.S. § 23-1023(C) – Which Gives Workers’ Compensation Carriers the Right to Intervene in Certain Actions – Applies to Motions to Intervene Filed After the 2007 Effective Date of the Amendment, Even in Cases Instituted Before the Effective Date.

In 2004, Juan Manuel Lopez-Verduzco (“Lopez”) was injured in a car accident while on the job.  He received workers’ compensation coverage from State Compensation Fund (“SCF”).  In 2006, Lopez sued Continental Tire North America, Inc. (“CTNA”) for causing the accident.  SCF claimed a lien against Lopez’s potential recovery under A.R.S. § 23-1023.  In 2007, the legislature amended A.R.S. § 23-1023(C) to provide workers’ compensation carriers the right to intervene in personal injury actions to protect their interests.  In 2009, SCF moved to intervene under A.R.S. § 23-1023(C), but CTNA opposed the motion.  The trial court denied the motion, and SCF timely filed a special action.       

The Arizona Appeals Court accepted jurisdiction of the special action because SCF presented a pure legal issue of statutory interpretation, the pertinent facts were undisputed, the issue was of first impression, SCF may have lost the opportunity to intervene by the time an appeal had been completed, and special action relief was expedient and promoted judicial economy.

On the merits, the Court granted SCF relief, holding that the 2007 amendment to A.R.S. § 23-1023(C) granted SCF the right to intervene.  The Court rejected CTNA’s argument that application of the 2007 amendment would constitute a “retroactive application” prohibited by A.R.S. § 1-244.  It explained that the application of statutory changes in procedures to proceedings already pending does not constitute a retroactive application unless the changes affect or impair vested rights.  In this case, no vested rights of CTNA were impacted or impaired by application of the amendment. 

The Court further explained that even if application of the amended statute constituted a retroactive application, the amended statute nonetheless applied because there is an exception to A.R.S. § 1-244.  A statute may be applied retroactively if it is merely procedural, and not substantive, because parties do not have vested rights in given modes of procedure.  In this case, intervention was procedural, rather than substantive, in nature.  

Presiding Judge Gemmill authored the opinion; Judges Thompson and Irvine concurred.

Posted By: Sharad H. Desai

Ellsworth Land and Livestock Inc. v. Bush (6/22/2010):  Arizona Court of Appeals Division One Holds That Annuity Payments Are Debt Subject to Garnishment and That a Court May Issue the Writ of Garnishment So Long As It Has Personal Jurisdiction Over the Garnishee.

Ellsworth obtained a money judgment against Bush.  Bush was receiving annuity payments from Canada Life Assurance Company, and Ellsworth attempted to garnish the payments.  Bush moved to quash the Writ of Garnishment, arguing that the court lacked jurisdiction to grant the writ because Canada Life did not possess any property owed to Bush within the State of Arizona.  The trial court rejected Bush’s jurisdictional arguments and issued a judgment and order of continuing lien against Canada Life, causing future annuity payments to go to Ellsworth.  Bush appealed.

The Court of Appeals affirmed unanimously.  Citing the Restatement (Second) of Conflict of Laws § 67(b), Bush argued that the trial court lacked jurisdiction because a state only has power to issue a writ of garnishment on a “person in possession of chattel” if the chattel is “within the state.”  Ellsworth contended that the obligation to make annuity payments was not “chattel,” but instead represented a “debt,” and that therefore Section 68 of the Restatement controlled.  That section allows a debt to be “garnished wherever personal jurisdiction may be exercised over the garnishee.” 

The Court agreed with Ellsworth.  Looking to definitions of “annuity,” “debt,” and “chattel” found in Black’s Law Dictionary, the Court concluded that an annuity was a “debt” for garnishment purposes and adopted Section 68 of the Restatement as the proper analysis.  Applying Section 68, the Court held that the garnishment was proper because the trial court obtained personal jurisdiction over Canada Life when Ellsworth served the writ of garnishment on Canada Life’s authorized agent in Arizona.

Judge Orozco authored the opinion; Judges Barker and Winthrop concurred.

Kadlec v. Dorsey (7/2/2010):  Arizona Supreme Court Holds That the Mere Creation of a Roadway Easement Does Not Raise a Presumption That the Road Has Been Dedicated for Public Use.

Richard Turigliatto owned a parcel of land north of Tucson, which he split into three lots.  A dirt roadway ran across the lots, connecting the public roads on either side.  Turigliatto sold two of the lots, each time retaining an easement across them.  When he sold the third lot, he retained an ownership interest in the road.  The Dorseys eventually purchased one of the two lots subject to the easement.  The Kadlecs and the Howells (“Plaintiffs”) owned nearby property and had used the road.  They filed suit after the Dorseys blocked their access to the road, claiming that they had a prescriptive easement and the right to reasonable use of the roadway across the Dorseys’ property.

On cross-motions for summary judgment, the trial court ruled in favor of the Plaintiffs, but not on the grounds they had asserted.  Instead, the trial court said that Turigliatto’s original deed of the property effected a public dedication of the road because a roadway, “by its very nature invites public use unless the dedicator’s intent was otherwise.”

Division Two of the Court of Appeals affirmed in a divided opinion.  According to the majority, although a public dedication is ordinarily not presumed, dedication is presumed when an easement is a road. 

Judge Brammer dissented, pointing to a long line of Arizona cases running contrary to the majority’s opinion.

The Supreme Court reversed the trial court and the Court of Appeals.  First, the Court noted that a public dedication requires both the owner’s offer to dedicate the land and the general public’s acceptance.  And, according to Arizona case law, dedication cannot be presumed and the presumption of intent to dedicate arises only if that intent is “clearly shown by the owner’s acts and declarations.”  The Court of Appeals was incorrect that that presumption changes merely because an easement is a road.

The Court also noted that, under the Restatement (Third) of Property:  Servitudes § 2.5, the burden of proof is on the party asserting public dedication, and that party must come forward with affirmative evidence.  In this case, the Plaintiffs did not identify any facts allowing the inference that Turigliatto had intended a public dedication.  The Court therefore reversed the summary judgment in favor of the Plaintiffs and remanded, noting that its opinion did not resolve the Plaintiffs’ claim that they had a prescriptive easement over the Dorseys’ property.

PRACTICE NOTE:  The Dorseys’ requested attorneys’ fees, but because the Plaintiffs’ claim for prescriptive easement rights remained unresolved by the Court’s opinion, it declined to award fees pending further proceedings in the trial court.

Justice Ryan authored the Court’s unanimous opinion.

Hospital – Carondelet, L.L.C. (5/27/2010):  Division Two of the Arizona Court of Appeals Holds That Defendants Have the Burden to Apportion Damages Among Themselves When the Plaintiff Proves That Each Contributed to the Final Injury.

Louis Salica went to Tucson Heart Hospital’s (“THH”) emergency room in the early morning of September 26, 2005, and was admitted to the hospital later that day.  Over the next two days, Salica’s condition deteriorated, and on the morning of September 28, an internist ordered Salica to the ICU.  Salica had cardiothoracic surgery later that day and ultimately died from complications and infections that resulted from the surgery.

Salica’s widow sued THH and others for wrongful death, and a jury determined that THH was 60% at fault and responsible for $600,000 in damages.  THH filed a motion for judgment as a matter of law, which the trial court denied.  THH appealed this ruling arguing that there was insufficient evidence that its negligence caused Salica’s death.  The Court of Appeals affirmed.

The Court recounted the course of events in detail, including a nurse’s failure to report Salica’s deteriorating condition to a physician during her shift from 9 p.m. on September 26 to 6 a.m. on September 27.  Experts testified that this fell below the standard of care and that the standard of care for a doctor who received a report of Salica’s condition would have required action that was not taken, meaningfully decreasing Salica’s chance of survival.

THH claimed there was insufficient proof that the nurse’s actions proximately caused Salica’s death.  The Court noted that, in cases like this in which multiple tortfeasors are alleged to have caused a single indivisible injury, the test for determining causation is whether the defendant’s actions were a “substantial factor” in producing the injury.  Under this test, which Arizona adopted from the Restatement (Second) of Torts, the alleged tortfeasors have the burden of apportioning damages among themselves.  Rejecting THH’s argument that the plaintiff was required to show that the nurse’s actions were a “but-for” cause of the injury, the Court found sufficient evidence from which a jury could conclude that the nurse’s actions were a substantial factor in Salica’s death.

The Court also rejected THH’s argument that the “existence of multiple defendants has no impact on the plaintiff’s burden of proof.”  Although Arizona has abrogated joint and several liability, the Supreme Court in Piner v. Superior Court, 192 Ariz. 182, 962 P.2d 909 (1998), later noted that causation and apportionment of fault remain interrelated, and when a plaintiff can show that multiple defendants “contributed to the final result,” the burden on the plaintiff to prove causation is relaxed and the burden is on the defendants to apportion fault.

PRACTICE NOTE:  THH argued that the plaintiff had not presented sufficient evidence of causation because the on-call cardiologist had not testified that he would have initiated the necessary treatment had he received a report from the nurse.  The Court rejected this argument, saying that expert testimony may establish both breach of standard of care and causation.

Judge Eckerstrom authored the opinion; Judges Brammer and Vásquez concurred.

County of La Paz v. Yakima Compost Co. (6/22/10):  Arizona Court of Appeals Division One Holds that a Public Entity Waives a Defense Based on an Insufficient Notice of Claim if the Public Entity Fails to Raise the Defense in a Responsive Pleading or Rule 12(b) Motion, and that the Implied Covenant of Good Faith and Fair Dealing is Violated When a Party Exercises Contractual Discretion in Such a Way so as to Force Termination of an Agreement  

Yakima Compost Co. (“Yakima”) and the County of La Paz (“the County”) executed an agreement which allowed Yakima to receive sewage sludge and process it on county land for an initial 25-year period (“the Agreement”).  Shortly after execution of the Agreement, disputes arose, and the County filed suit against Yakima for breach of contract.  Yakima filed a counterclaim for breach of contract.  The case proceeded to trial, after which the jury returned a $9.2 million verdict in Yakima’s favor.  This appeal followed.

Among other arguments, the County claimed that the trial court should have granted judgment in its favor because Yakima did not comply with the notice of claim statute, but the Arizona Appeals Court rejected that argument.  The Court, instead, held that the County had waived the notice of claim defense by failing to assert it in a responsive pleading or Rule 12(b) motion.

The County also argued that it was entitled to absolute immunity.  The Court of Appeals held that absolute immunity did not apply because the County’s decision whether to perform its obligations under the Agreement was not a legislative or protected administrative function.

Next, the County argued that Yakima failed to prove that the County violated the implied covenant of good faith and fair dealing.  The Court also rejected this argument, reasoning that the jury could have found that the County exercised its discretion under the Agreement merely to force a termination of the Agreement due to a change of heart regarding the wisdom of the Agreement.

Finally, the Court concluded that the Agreement was not a lease entered into in violation of the bidding requirements of A.R.S. § 11-256.  The Court concluded that the Agreement was more akin to a license than a lease because the Agreement did not give Yakima a right of exclusive possession of the land.

Judge Timmer authored the opinion; Judges Swann and Brown concurred.

Sempre Limited Partnership v. Maricopa County (6/22/2010): Arizona Court of Appeals Division One Holds That a Taxpayer Whose Application That Property Be Classified as Being Used For Agricultural Purpose Has Been Denied Does Not Need to Seek Administrative Review Before Filing a Direct Appeal in Tax Court .

In early 2007, Maricopa County (the “County”) notified Sempre Limited Partnership (“Sempre”) that, for purposes of the 2008 tax year, the County had valued its property on the basis that it was not used for agricultural purposes.  Several months later, Sempre appealed the valuation in tax court.  The County moved to dismiss on grounds that Sempre had not exhausted its administrative remedies.  The County argued that A.R.S. § 42-16201 requires taxpayers whose applications that property be classified as being used for agricultural purposes have been denied must exhaust their administrative remedies before proceeding to tax court.  The tax court granted the County’s motion to dismiss, which Sempre appealed. 

On appeal, the Arizona Court of Appeals reversed, holding that Sempre did not need to seek administrative review before filing a direct appeal in the tax court.  The Court concluded that although the language of A.R.S. § 42-16201 could be interpreted to require exhaustion of administrative remedies, that interpretation was precluded by A.R.S. § 42-16201(A) – which provides that “[a] property owner who is dissatisfied with the valuation or classification of the property as determined by the county assessor may appeal directly to the court . . .  regardless of whether the person has exhausted the administrative remedies under this chapter” – and A.R.S. § 42-15104 – which provides that “[a] person who is not satisfied with the valuation or classification of the person’s property determined by the assessor may . . . [a]ppeal to tax court pursuant to § 42-16201.”  According to the Court of Appeals, these two statutes “plainly and unequivocally” authorize a taxpayer dissatisfied with the assessor’s valuation of classification to appeal directly to the tax court.  The Court thus rejected the County’s contention that A.R.S. § 42-16201 required Sempre to exhaust its administrative remedies before appealing the valuation to the tax court.  Because the tax court had dismissed the complaint for lack of jurisdiction, the Court of Appeal remanded the case for further proceedings.  

Judge Orozco authored the opinion; Judges Hall and Kessler concurred.

Posted By: Brandon A Hale 

Braillard v. Maricopa County (05/27/2010): Arizona Court of Appeals Division Two Holds That the Maricopa County Sheriff’s Office Is a Nonjural Entity Which Cannot Be Sued Separately From the County, That An Adult Child Does Not Have Standing to Bring a Wrongful Death Action Under § 1983, and That Plaintiffs May Claim Punitive Damages Under § 1983.

Jennifer Braillard brought a wrongful death and survival action under state law and 42 U.S.C. § 1983 against Maricopa County, Maricopa County Sheriff Joseph Arpaio, the Maricopa County Sheriff‟s Office (MCSO), and seven individual MCSO and County employees, for damages arising from the death of her mother while she was held in jail on suspicion of drug possession. MCSO employees at the jail failed to ascertain that Braillard’s mother was an insulin-dependent diabetic. Braillard’s mother did not receive medical attention for her diabetes for four days while in jail, and died 18 days after being hospitalized. Braillard brought her action in her individual capacity and on behalf of her mother’s estate. The superior court granted the defendants’ motion for summary judgment with respect to Braillard’s § 1983 claims. Braillard appealed, and the defendants filed a cross-appeal regarding discovery issues and the trial court’s refusal to grant summary judgment that the MCSO was a nonjural entity and that Braillard did not have standing to bring a wrongful death action under § 1983.

As a matter of first impression, the Court held that the MCSO is a nonjural entity and cannot be separately sued from the county, and that the MCSO should therefore be dismissed from the case. The Court held that Braillard, as an adult child, did not have individual standing to bring a wrongful death action under § 1983 because she had failed to allege a violation of a constitutionally protected right. The Arizona Appeals Court reversed the trial court’s grant of summary judgment in favor of the defendants. The Court held that Braillard had alleged sufficient facts that a jury could find that MCSO employees, Sheriff Arpaio, and Maricopa County were liable under § 1983. The Court rejected the MCSO’s claims of qualified immunity, holding that pretrial detainees have a right to adequate medical care. The Court held that punitive damages claims under § 1983 were not precluded under Arizona law and that Braillard was also entitled to claim damages for her mother’s pain and suffering. The Court also affirmed the trial court’s rejection of the defendants’ argument that Braillard’s mother’s refusal to disclose her illness was a proximate cause of her death. The Court affirmed the trial court’s discovery rulings, holding that the Defendants were not entitled to production of the Braillard’s mother’s computer and that the employment records of Braillard’s expert witness on the standard of care were irrelevant and that the trial court was justified in quashing the defendants’ subpoena of the employment records.

Judge Vásquez authored the opinion; Judges Eckerstrom and Brammer concurred.

Posted By: James K. Rogers 

Old Republic National Title Insurance Co. v. New Falls Corporation (6/15/10): Arizona Court of Appeals Division One Holds That a Garnishment Action May Properly Be Dismissed If an Objection to the Answer is Not Heard Within Ten Days as Required by A.R.S. § 12-1580.B

Appellant, Albert M. Coury Trust (AMC) was the successor-in-interest to a judgment held by Old Republic National Title Insurance Company against Albert M. Coury.  On May 25 and 26, 2005, AMC served writs of garnishment on Tony M. Coury Buick, Inc. (TMCBI) for TMCBI stock held by Coury.  AMC objected to TMCBI’s answer and amended answer and the court scheduled a hearing on these objections for September 14, 2005.  AMC sought derivative relief on behalf of TMCBI in a separate action, but this action was removed to bankruptcy court after several of the judgment debtors commenced bankruptcy proceedings.  AMC and TMCBI agreed to vacate the September 14, 2005 hearing in the garnishment action, believing that the hearing might violate the automatic stay in the bankruptcy matter.  There was no further activity in the garnishment matter until AMC and TMCBI entered into a stipulation that judgment should be entered in favor of AMC Trust for any right held by Coury in the common stock of TMCBI on March 28, 2008.

New Falls Corporation also held a judgment against Coury and filed a motion to intervene in the garnishment action.  The trial court denied the motion and New Falls filed a petition for special action relief.  The Court of Appeals accepted jurisdiction, granted relief, and ordered the trial court to grant New Falls’ motion to intervene and vacate the stipulation.  New Falls then moved to dismiss AMC’s garnishment action, arguing that the garnishment statutory scheme required a dismissal because their had been no activity in the matter for over two-and-a-half years and that the trial court had the inherent power to dismiss the action for lack of prosecution.  The trial court granted the motion to dismiss without explanation.  AMC appealed.

The Court of Appeals rejected as irrelevant garnishment sections 12-1587 and 12-1581.B.  The Court determined that only section § 12-1580.B applied on the facts in this matter.  Section 12-1580.B states that a hearing on an objection to an answer “shall be continued within five days of the request…but may continued for good cause…However, in no event shall the hearing be held later than ten days from the date of the request unless the request for a continuance is made by the judgment debtor.” The Court noted that AMC filed its objections on June 28, 2005 and requested a hearing.  The hearing was scheduled for September 14, 2005 but was subsequently vacated on request of the parties.  The Court found that the trial court had not made a finding of good cause to continue the hearing and neither party had requested that the court reset the hearing.  According, the Court determined that the statutory timeframes of § 12-1580.B were not met.

AMC contended that its garnishment action could not be dismissed, nonetheless, because: (1) the statute did not provide a penalty for failure to meet the timeline; (2) Coury never objected to vacating the hearing; and (3) during the special action, the Court of Appeals had stated that the “proceedings were still at an early stage because no hearing had been held on AMC Trust’s objection.”  The Court found none of these objections persuasive.  Although the statute did not mandate a particular penalty, its plain language requires that an objection be heard within ten days unless the judgment debtor requests a continuance.  The Court found that, because it is presumed that the legislature did not intend to write a statute that contained a void, meaningless, or futile provision, a penalty is permitted to enforce the time line.  The Court found that although Coury did not object to vacating the hearing, he also failed to request a continuance as required by the statute.  Finally, the Court held that its language in the special action merely addressed the timeline regarding New Falls’ motion to intervene and had no bearing on whether the trial court could properly dismiss the action. 

Additionally, the Court of Appeals affirmed the trial court’s decision for AMC’s failure to prosecute in accordance with Maricopa County Local Rule 3.6(a)(3).  Although AMC argued that it was making progress in the garnishment action as it progressed in the bankruptcy action, the Court noted that the two actions were never consolidated.  Furthermore, the Court of Appeals found that the trial court permitted AMC to file a response on the motion to dismiss and held oral argument, properly giving AMC an opportunity to be heard before dismissal and, therefore, was within its discretion in dismissing the matter. 

Judge Orozco authored the opinion; Judges Thompson and Swan and concurred.

Posted By: Christina C. Rubalcava 

Perry v. Hon. Ronan/Bennett (06/22/2010):  Division One Holds That an Offer With a Deadline That is Conveyed Late Due to the Offeror’s Fault or the Offeror’s Approved Means of Transmission Can Nevertheless Be Accepted and Enforced If the Offereee Neither Knows Nor Has Reason to Know That There Has Been Delay.

During mediation, Perry offered to pay Bennett $400,000 to settle the case, which offer Bennett rejected.  Two weeks later, on October 21, 2009, Bennett authorized his attorney to settle the case for $400,000 provided that the offer was accepted by 5:00 p.m. on October 26, 2009 and asked his attorney to contact the mediator who could convey the offer to Perry.  Bennett’s attorney conveyed the settlement offer to the mediator but did not convey the October 26, 2009 deadline.  The mediator did not inform Perry of the offer until October 27, 2009.  Two days later, Perry accepted.  The mediator then asked both parties to confirm the agreement. Perry confirmed but Bennett did not.  Bennett stated that he would not agree to the settlement.  Perry filed a motion to enforce the settlement.  The trial court denied the motion, stating that Bennett’s attorney did not have the authority to settle the case after October 26, 2009 at 5:00 p.m.  Perry then petitioned the Arizona Appeals Court for special action relief.    

The Appeals Court accepted jurisdiction and granted relief to Perry, remanding to the trial court to enforce the settlement agreement.  Perry argued that his acceptance of the offer was timely pursuant to Section 49 of the Restatement (Second) of Contracts.    Section 49 provides:

If communication of an offer to the offeree is delayed, the period within which a contract can be created by acceptance is not thereby extended if the offeree knows or has reason to know of the delay, though it is due to the fault of the offeror; but if the delay is due to the fault of the offeror or to the means of transmission adopted by him, and the offeree neither knows nor has reason to know that there has been delay, a contract can be created by acceptance within the period which would have been permissible if the offer had been dispatched at the time that its arrival seems to indicate.

The Court expressly adopted that section and held that the parties entered into an enforceable settlement agreement when Perry accepted Bennett’s offer.  As the Court explained, the “period” referred to in Section 49 is the period of time that would have been permissible if no delay had occurred.  In making his offer, Bennett allowed for five calendar days/three working days for acceptance.  Perry accepted the offer within two days of receiving it from the mediator, within the time period that would have been allowed if the offer had not been delayed. The Court further held Arizona Rule of Civil Procedure 80(d) inapplicable to the facts of the case because Bennett did not dispute the existence or the terms of the agreement, he only disputed whether he was bound by it.     

Judge Orozco authored the opinion, Judges Johnsen and Thompson concurred.

Ezell v. Quonn (6/17/2010): Arizona Court of Appeals Division One Holds That Plaintiffs Must Move to Have a Default Judgment Set Aside Before They Can Appeal, That a Pleading Need Only Have a Concise Statement of the Cause of Action Sufficient to Put the Defendant on Notice, That a Claim for Punitive Damages Need Only Contain a General Prayer for Punitive Damages, and That a Request For an Award of Attorney’s Fees Must Cite the Legal Basis For the Request.

Brian Ezell and Jeff Quon entered into an oral partnership agreement to each contribute $15,000.00 and jointly buy a fifty percent interest in a convenience store for $30,000.00.  Ezell was to remain a silent partner.  Ezell’s contribution to the purchase, and interest in the store, was to remain hidden from the other partner in the store. Without Ezell’s knowledge, however, Quon purchased the half interest in the store at a lower price of $20,000.00.  Quon paid using the money Ezell had contributed, and signed a promissory note to pay the remaining balance.  After Quon failed to make profit distributions to Ezell, Ezell discovered that Quon had used Ezell’s money to purchase the partnership interest, and that Quon had not contributed any of his own money.  Ezell filed a complaint against Quon in superior court.  After Quon failed to timely respond to the complaint, Ezell requested a default judgment.  The court held a default hearing at which it heard evidence and then entered judgment in favor or Ezell.  The judgment awarded Ezell compensatory and punitive damages, the right to purchase Quon’s remaining interest in the business, and attorney’s fees. Quon appealed the judgment, but the appeal was dismissed for lack of jurisdiction. Quon then filed a motion with the trial court to set aside the judgment, which was denied. Quon appealed again.

The Arizona Appeals Court affirmed. The Court rejected Quon’s argument that the Appeals Court had incorrectly dismissed his original appeal for lack of jurisdiction. The Court held that, contrary to Quon’s contention, he was required to move to have the default judgment set aside before he could appeal. The Court also rejected Quon’s argument that the relief granted by the trial court exceeded the relief requested in the pleadings and that the trial court, therefore, did not have jurisdiction to enter an award. The Court pointed out that a pleading “need only ‘contain a plain and concise statement of the cause of action and give defendants fair notice of the allegations as a whole.” The Court also rejected Quon’s argument that the trial court’s award of punitive damages was beyond the scope of the complaint because Ezell failed to allege conduct that would warrant a punitive damages award. The court held that the facts as alleged in the complaint were sufficient to show that Quon intended to harm Ezell and that Quon was indifferent to the harm that it would cause. The Court further held that a complaint need only contain a “general prayer for punitive damages.” The Court also rejected Quon’s argument that the trial court lacked jurisdiction to divest him of his partnership interest. The Court rejected Ezell’s claim for attorneys’ fees because his request for fees cited no basis for the request. Judge Gemmill dissented from the majority’s decision to refuse attorneys’ fees because the record showed that Ezell had consistently sought attorneys’ fees based on A.R.S. § 12-341.01 throughout the course of the lawsuit.

Judge Hall authored the opinion; Judges Weisberg concurred; Judge Gemmill concurred in part and dissented in part.

Posted By: James K. Rogers

Baker v. Dolphin Beach Rental & Management, LLC (6/15/2010):  Division One of the Arizona Court of Appeals Holds That a Person Need Not Be a Licensed Contractor to Bring Suit for Breach of Contract When the Work Contracted for Was to Be Done in Mexico.

Scott Baker, an Arizona resident, entered into a contract with Dolphin Beach Rental & Management, an Arizona limited liability company, under which Baker agreed to perform repair and maintenance work on air conditioners in condos managed by Dolphin Beach in Rocky Point, Mexico.  Baker performed under the contract for several months, and Dolphin Beach paid him periodically, but eventually Dolphin Beach notified Baker that it no longer required his services.  Baker sued Dolphin Beach for breach of contract, among other things.  The trial court dismissed the suit, relying on A.R.S. § 32-1153, which prohibits an unlicensed contractor from bringing suit on a contract for which a license is required. 

The Court of Appeals reversed.  The prohibition in A.R.S. § 32-1153 applies only to “contractor[s] as defined in § 32-1101” who contract to perform “any act for which a license is required by this chapter.”  This language, the Court said, did not encompass work performed outside Arizona’s borders.  Relying heavily on a California case addressing “virtually the same issue,” the Court concluded that, because the police power of the state to regulate occupations is limited to activities within the state, Baker was not required to be licensed in Arizona to perform work in Mexico.  Therefore, A.R.S. § 32-1153 did not bar his suit in Arizona state court.

Judge Gemmill authored the opinion; Judges Thompson and Irvine concurred.

Chopin v. Chopin (6/03/2010):  Arizona Court of Appeals Division One Holds That Definition of “Romantic Cohabitation,” As Used in Spousal Maintenance Agreement, Includes a “Physical Living Together.”

As part of their divorce in February 2007, Husband and Wife entered into a spousal maintenance agreement that stated, among other things, that spousal maintenance would terminate “upon Wife’s remarriage or romantic cohabitation” with another.  Starting in January 2007, Wife started a romantic relationship with Waddell; they were engaged in January 2008, but the relationship ended in December 2008.  After a hearing, the trial court found that Wife and Waddell were romantically cohabitating and terminated the spousal maintenance as of January 1, 2008.  Wife appealed.

In a unanimous opinion, the Court of Appeals reversed the termination of spousal maintenance. Relying on the parties’ testimony at the trial court and dictionary definitions of “romantic cohabitation,” the Court accepted the trial court’s conclusion that “romantic cohabitation” includes a financial support requirement and means “living together and behaving as a married couple.”

The Court reversed because the trial court failed to apply the “living together” requirement to Wife and Waddell.  Instead, in the Court’s view, the lower court inappropriately considered any living arrangement a married couple might engage – including not living at the same residence –as a “romantic cohabitation.”  In the Court’s view, this stripped the word “cohabitation” of meaning.  The Court reasoned that cohabitation can be determined by looking to many factors but that a “physical living together” is indispensable.

Finally, the Court applied its definition to Wife and Waddell.  Evidence showed that Waddell stayed at Wife’s home approximately one day a week, that he did not keep his things at Wife’s home, and did not receive mail there.  On that record, the Court held that Wife and Waddell never lived together and thus were not “romantically cohabitating.”  Consequently, the Court reversed the termination of Wife’s maintenance.

Judge Barker authored the opinion; Judges Winthrop and Johnsen concurred.

PRACTICE NOTE:  Wife asked the trial court for attorney’s fees in connection with Husband’s petition to terminate.  The Court deemed the request denied because the trial court did not rule on the request.  On appeal, Wife asserted that the denial was in error because of the difference in income between Husband and Wife.  The Court held this argument was waived because Wife did not assert a statutory basis for her fee request.  The Court further held that the denial would be affirmed in any event because Wife did not support her request with any evidence of Husband’s financial status.

Posted By: Joseph N. Roth

Yeung v. Maric (6/8/2010):  Arizona Court of Appeals Division One Holds That Statements Made by a Witness in Private Arbitration Are Protected by the Absolute Privilege Afforded to Participants in Judicial Proceedings.

In April 2002, Plaintiff, a spinal surgeon, performed surgery on L.L.  In May 2002, L.L. was involved in a motor vehicle accident.  Plaintiff performed further surgery on L.L.  In 2005, Defendant, another physician, conducted an independent medical examination (“IME”) of L.L. to determine whether her pain was related to the May 2002 accident.  In his IME report, Defendant criticized Plaintiff’s treatment of L.L.  Plaintiff filed a complaint alleging defamation and false light invasion of privacy based on statements made in Defendant’s IME report.  Defendant moved for summary judgment, arguing that his statements were absolutely privileged.  The lower court granted Defendant’s motion and Plaintiff timely appealed.

The Arizona Appeals Court affirmed.  In Arizona, witnesses in judicial proceedings are protected by an absolute privilege for any allegedly defamatory statements made during depositions and trial, as well as in their reports, consultations, and advice relevant to the litigation and prepared as preliminary steps in the institution or defense of a case.  The Court held that the privilege applies to statements made by witnesses in private arbitrations because arbitrations are quasi-judicial proceedings.  The Court relied on Craviolini v. Scholer & Fuller Associated Architects, 89 Ariz. 24, 357 P.2d 611 (1961), which held that arbitrators are entitled to absolute immunity because they engage in quasi-judicial functions, as well as cases from other jurisdictions.  The Court also explained that extending the absolute privilege to private arbitrations served public policy by ensuring that witnesses testify voluntarily and candidly without fear of potential liability.

The Court rejected Defendant’s argument that the absolute privilege should apply to arbitration proceedings only when minimum judicial safeguards are in place, finding that there were sufficient judicial safeguards in the arbitration to make it sufficiently analogous to judicial litigation.  The Court also rejected Defendant’s argument that the privilege did not attach because litigation was not seriously contemplated at the time the IME was conducted, explaining that the IME was made in connection with litigation.

Presiding Judge Gemmill authored the opinion; Judges Thompson and Irvine concurred.

Posted By: Sharad H. Desai

Edwards v. Board of Supervisors of Yavapai County (03/30/2010):  Division One Holds That A.R.S. § 12-820.03 Does Not Include a “State of the Art” Standard for Establishing Qualified Immunity.  

In 2004, Plaintiffs were leasing a house located in Havasupai Trail in Dewey Arizona.  The house was constructed in 1974, at which time no applicable building codes or zoning regulations were in effect.  In 1985, the development where the house is located hired an engineer to design roads and drainage infrastructure, including a culvert that ran near the Plaintiffs’ home.  The culvert was built to withstand a twenty-five year water event.  In 1987, these roadways were dedicated to Yavapai County.  In 1997, the County sent the home-owners a letter advising that their property could potentially flood from water backing up behind the culvert.  In the summer of 2004, two significant rainfalls caused the culvert to overflow, flooding Plaintiffs’ home and causing damage to their landscape and personal property.  Plaintiffs sued the County on theories of negligence and gross negligence.  The County moved for summary judgment on the basis of qualified immunity under A.R.S. § 12-820.03, which the trial court granted.  Plaintiffs appealed, arguing that the County failed to provide evidence to support immunity. 

On appeal, Plaintiffs argued that the County had not established that (1) the roads and culvert were “state of the art” and (2) the County had provided adequate warning under A.R.S. § 12-820.03.  The Appellate Court affirmed the grant of summary judgment in favor of the County.  Pursuant to A.R.S. § 12-820.03, the County was required to establish that the drainage was prepared in conformance with the generally accepted engineering or design standards in effect at the time and that the public was given adequate warning of any unreasonably dangerous hazards. 

The Court found that the County had established both elements, thereby providing the County with immunity.  Specifically, the Court reasoned that the “state of the art” standard asserted by Plaintiffs is not the applicable standard under A.R.S. § 12-820.03, and that the County had presented sufficient evidence that the culvert was built according to the generally accepted engineering and design standards in effect at the time it was built (the proper standard).  Because Plaintiffs did not offer any disputing evidence, no genuine issue of fact existed.  The Court further found that the 1997 letter gave adequate warning of the potential for flooding and allowed the property owners to take suitable precautions, thus meeting the statutory requirement.  The Court explained that the letter did not need to provide suggestions of potential precautions to the homeowners to comply with the statute.  Plaintiffs did not offer any disputing evidence regarding the warning given.  Accordingly, no genuine issue of fact existed.   

Judge Orozco authored the opinion, Judges Weisberg and Norris concurred.

In re Thomas R. (6/17/2010): Arizona Court of Appeals Division One Holds that Expert Witness Testifying in Sexually Violent Person Civil Commitment Proceeding May Rely on Hearsay Evidence of Sexual Assault for Which Defendant Was Never Prosecuted.

Upon his release in 2003 for an assault and rape conviction, the State initiated a civil commitment proceeding for Thomas R.  The jury concluded that he was not a Sexually Violent Person (“SVP”) and the court continued him on probation.  See A.R.S. § 36-3701 et. seq. (SVP commitment statutes).

In 2004, Thomas R. was charged again with sexual assault.  The State later dismissed the indictment, however, because the victim moved out of state, was afraid to return to Arizona to testify, and a subpoena could not be served to compel her to testify.  

Thomas R. then violated probation and was re-incarcerated.  Before his release, the State filed a new SVP petition and the court set the case for a jury trial.  Thomas R. filed a motion in limine seeking to preclude evidence of the 2004 assault in the absence of testimony from the victim or a witness competent to introduce DNA evidence.  The trial court denied the motion.  The matter proceeded to trial.  The jury found Thomas R. to be an SVP, and he was committed to the Arizona Community Protection and Treatment Center.  He appealed.

The Court of Appeals affirmed.  A determination in a prior SVP proceeding does not bar a subsequent proceeding based on changed circumstances.  Because the definition of an SVP under A.R.S. § 36-3701(7)(b) requires that a person currently has a mental disorder that makes the person likely to engage in acts of sexual violence, the issue in the 2008 SVP petition was not identical to the issue decided in the 2003 proceeding.  The changed circumstances permitting a subsequent SVP petition are not limited to convictions, but may include any acts or wrongs tending to show the person is an SVP.

Testimony by the State’s expert witness concerning hearsay evidence of DNA results linking Thomas R. to the 2004 assault did not violate Thomas R.’s right to confront witnesses against him.  The testimony was not used to prove guilt in the 2004 assault, but rather to explain the bases for the expert’s opinion that Thomas R. was an SVP.   The reference to the DNA results was an insignificant part of the expert’s testimony and was subject to a limiting instruction that the jury should not consider the DNA-related testimony as proof of guilt in the 2004 assault.  The trial court therefore did not err by allowing the testimony as a basis of the expert’s opinion. 

 Judge Kessler wrote the opinion; Judges Irvine and Brown concurred.

Posted by: Mark P. Hummels

Leveraged Land Co. v. Hodges (5/27/2010): Arizona Court of Appeals Division Two Holds That (1) a Tax Lien Purchaser is Not a Bona Fide Purchaser Because the Recorded Default Judgment Provides  Constructive Notice of the Land Owner’s Interest in the Land, (2) the Trial Judge Has Discretion to Extend the Time Period for Filing a Motion for Attorneys’ Fees, and (3) Tax Lien Holders are Entitled to Reasonable Attorneys’ Fees in Contesting the Redemption of the Lien Even When the Resistance is Ultimately Unsuccessful

Hodges was served with notice by publication of a tax lien redemption foreclosure initiated by Leveraged Land Company (“LLC”).  In June 2005, LLC obtained a default judgment and took title to Hodges’s land.  LLC sold the land to Raven and Raven conveyed a partial interest in the property to Bingham in February 2007. 

In November 2005, Hodges moved to set aside the default judgment for insufficient service of process and moved for a new trial on the ground that he was able to redeem the tax lien.  LLC and Raven successfully opposed both motions at the trial court.  On appeal, the Court of Appeals determined that the service was sufficient, but reversed the trial court’s denial of Hodges’s motion for a new trial because Hodges had timely shown he was able to redeem the tax liens.  On remand Hodges redeemed the tax liens with money provided by Cain, Hodges successor in interest and intervener in the action.

LLC filed a complaint against Hodges and Cain (Hodges II), challenging the validity of Hodges’s redemption of the lien.  The trial court granted partial summary judgment in favor of Hodges and Cain, dismissed LLC’s claims, and entered judgment pursuant to Rule 54(b).  The Court of Appeals affirmed Hodges’s redemption on appeal.

While Hodges II was pending, Hodges and Cain moved for summary judgment against Raven and Bingham, and asked the court to quiet title to the property to Cain.  The trial court granted the motion and, in its final judgment, ordered Bingham and Raven to pay attorneys’ fees to Hodges and Cain.  The trial court also required Hodges and Cain to pay $1,500 of LLC’s attorneys’ fees pursuant to A.R.S. § 42-18206.  LLC, Raven, and Bingham filed separate appeals.

Raven and Bingham argued that trial court erred in quieting title to Cain because they were bona fide purchasers.  The Court of Appeals affirmed, finding that neither Raven nor Bingham qualified as a bona fide purchasers - one who purchases property for value and without notice.  The Court reasoned that prior decisions make clear that pursuant to Arizona Rule of Civil Procedure 59(j) a person served by publication has one year to redeem a tax lien and, if successful, a prevailing party under a Rule 59(j) motion is placed in the same legal position he was in before the entry of default.  The Court noted that purchasing a tax lien entails risk and the purchaser bears the burden of protecting its own interests.  In this matter, LLC properly recorded the treasurer’s deed with the default judgment attached.  LLC, Raven, and Bingham, therefore, had constructive notice of Hodges’s interest in the property and, therefore, were not bona fide purchasers.

Bingham contended that the trial court erred in ordering it to pay attorneys’ fees to Cain because Cain’s application was untimely under Rule 54(g)(2).  Rule 54(g)(2) states that a “motion for attorneys’ fees shall be filed within 20 days from the clerk’s mailing of a decision on the merits of the cause, unless extended by the trial court.”  (Emphasis added.)  The Court of Appeals found that the rule’s plain language gave the trial court discretion to extend the time for requesting attorneys’ fees, which it did.

Bingham further argued that the trial court erred in awarding attorneys’ fees in the quiet title action because Cain did not tender five dollars with a request for the execution of the quit claim deed as required by A.R.S. § 12-1103.  The Court of Appeals found that the record supported the trial court’s finding that Cain’s counsel sent Bingham correspondence that included a quit claim deed and a check for five dollars. 

LLC appealed the trial court’s award of $1,500 in attorneys’ fees to LLC pursuant to A.R.S. § 42-18206.  Section 42-18206 provides that a person entitled to redeem a lien may do so, “but if the person who redeems has been served personally or by publication in the action, judgment shall be entered in favor of the plaintiff against the person for the costs incurred by the plaintiff, including a reasonable attorney fee to be determined by the court.”  The trial court determined that LLC’s request of $153,182 in attorneys’ fees was unreasonable and awarded it $1,500. 

The Court of Appeals addressed the issue of whether Hodges was required to pay attorneys’ fees reasonably incurred by LLC in resisting the redemption.  The Court found that the plain language of § 42-18206 does not suggest that there is a temporal limit to its application or that it only applies to certain matters.  The Court of Appeals rejected both Hodges’s argument that LLC’s right to attorneys’ fees ended when it initially obtained the default judgment as well as Hodges’s contention that LLC’s right to attorneys’ fees ended when Hodges’s declared his intent to redeem the lien.  The Court found that the trial court abused its discretion because its award was based on the erroneous assumption that LLC was not entitled to fees for an unsuccessful appeal.  Section 42-18206, however, contemplates the award of attorneys’ fees regardless of whether the plaintiff is successful in the underlying litigation.  On remand, the Court of Appeals noted that the trial court has discretion to determine reasonable fees and whether at some point in the proceedings it became apparent that LLC’s continued resistance was unreasonable.  The trial court must determine whether LLC’s objections to Hodges’s attempt to redeem were sufficiently reasonable and meritorious to justify the award of fees. 

Judge Brammer authored the opinion; Judge Kelly concurred.

Judge Eckerstrom dissented.  He maintained that the majority misconstrued § 42-18206 by requiring property owners to pay for all of a lien holder’s non-frivolous attorneys’ fees and costs.  He argued that the purpose of the statute is to make lien holders whole for any expenses they incurred in taking the necessary steps to foreclose before the property owner demonstrated the ability and intent to redeem the property.  He contended that the majority’s broad interpretation of §42-18206 confuses a determination of whether the amount of fees requested is reasonable with a determination of the reasonableness of the scope of the litigation, and will ultimately discourage redemption by property owners.

Posted By: Christina C. Rubalcava

Scottsdale Memorial Health Systems, Inc. v. Maricopa County (3/30/2010): Arizona Court of Appeals Division One Holds That Parties May Prove Facts by Statistical Sampling and Extrapolation in an Appropriate Case with Adequate Safeguards of Reliability.

This consolidated appeal arose from the adjudication of tens of thousands of separate claims by hospitals for reimbursement from Maricopa County for costs of providing health services to indigent patients.  The Superior Court appointed a Special Master to recommend and implement procedures for the efficient management and resolution of the cases.

The parties disputed whether to rely on statistical sampling and extrapolation to resolve the claims.  The County agreed that such sampling might be useful for mediation, but objected to the use of sampling to prove facts at trial.  Following a series of hearings and trials of claims by groups, the Superior Court overruled the County’s objections to the use of sampling, adopted the Special Master’s findings and conclusions, and entered judgment for the Hospitals. 

The Arizona Court of Appeals reversed and remanded for further proceedings.  Although statistical sampling may be used as a means of fact-finding in some cases, the record below did not contain sufficient evidence to support the use of the sampling methodology employed.

The Court applied the balancing test set forth by the United States Supreme Court in Connecticut v. Doehr, 501 U.S. 1 (1991) to determine whether the sampling methodology was permissible.  The test involves: “[F]irst, consideration of the private interest that will be affected by the [measure at issue]; second, an examination of the risk of erroneous deprivation through the procedures under attack and the probable value of additional or alternative safeguards; and third, . . . principal attention to the interest of the party seeking [to implement the measure], with, nonetheless, due regard for any ancillary interest the government may have in providing greater protections.” Doehr, 501 U.S. at 11.

Applying the Doehr balancing test, the Court reasoned that the hospitals’ interests weigh in favor of resolving the thousands of claims in an expedient manner, and the County has no economic interest in whether any particular claim is resolved properly.  Rather, the County’s only interest is that it not be held liable in the aggregate for more than the sum of all valid claims.  At the same time, the public has an interest in resolving the claims fairly but efficiently without consuming undue amounts of judicial resources.

The Court held that the Superior Court may adopt statistical sampling and extrapolation as a case management tool only when the specific methodology to be used is tailored to produce a result at least as fair and accurate as would be produced by traditional particularistic fact-finding methods.  In making this determination, the court must at a minimum consider the number of claims in the relevant universe, the number and nature of the variables present in those claims, the sample size and whether the sample is truly representative of the universe of claims.  The court also must make detailed findings that permit the reviewing court a clear understanding of the entire methodology and its application.

Here, however, neither the Superior Court nor the Special Master made the findings of fact necessary to determine the reliability of the statistical sampling method used.  There was no evidence on the record as the viability of the methodology, the appropriateness of the stratification of claims, or whether the methodology was properly implemented. 

When, as here, the master’s findings are subject to review pursuant to a “clearly erroneous” standard, the special master must make detailed findings of fact so the appointing court is allowed a meaningful opportunity to review the master’s work, including a review of whether the sampling methodology satisfied the parties’ rights to a fair and just process.

Judge Johnsen authored the opinion, which was joined by Judge Orozco.  Judge Swann specially concurred, writing separately that the Superior Court’s procedure was flawed because the Special Master’s role had exceeded the permissible scope of a reference under Rule 53, Ariz. R. Civ. P., in the absence of consent by all parties.

Posted By: Mark Hummels

Hormel v. Maricopa County (5/27/2010):  Arizona Court of Appeals Division One Holds That Once a County Approves a Property Classification Change Without Taking Exception, the County Must Correct the Tax Roll to Reflect the New Classification and Must Refund Any Overpaid Taxes.

In 2004, Taxpayer sought to change its Property’s tax classification for tax years 2001, 2002 and 2003 to become eligible for refunds for those years.  The County agreed to the classification change without taking exception, but later refused to pay any refunds.  Taxpayer filed a complaint in the Arizona Tax Court seeking refunds for the tax years at issue.  Taxpayer and the County both moved for summary judgment.  The tax court denied Taxpayer’s motion after determining that it was not entitled to refunds for the tax years at issue because it did not properly request a classification change for those years.  The court also denied the County’s motion with respect to tax years 2004 and beyond, finding that the classification change was proper for those years.  Both parties timely appealed.

The Arizona Appeals Court affirmed in part and reversed in part.  It reversed the tax court’s denial of refunds to Taxpayer for tax years 2001, 2002 and 2003, holding that once the County agreed to change the classification of the Property, A.R.S. § 42-16254(E) required it to correct the tax roll and refund any taxes that had been overpaid with interest.  A.R.S. § 42-16254(E) states:  “If . . . the parties agree on all or party of the proposed correction, the board of supervisors shall direct the county treasurer to correct the tax roll to the extent agreed, and any taxes that have been overpaid shall be refunded with interest.”  (Emphasis added.)  Because the County agreed to the classification change for tax years 2001, 2002 and 2003, Taxpayer’s failure to properly request a classification change for those years was irrelevant.

The Court also affirmed the tax court’s ruling with respect to the classification of the Property for 2004, finding that the issue was moot because the County had issued a notice of proposed correction to Taxpayer and Taxpayer had agreed to reclassify the Property for 2004.  Finally, the Court affirmed the tax court’s denial of the County’s request for sanctions under A.R.S. § 12-349, finding that it did not abuse its discretion.

Presiding Judge Winthrop authored the opinion; Judges Hall and Portley concurred.

Posted By:  Sharad H. Desai

Ramsay v. Wheeler-Ramsay (5/20/2010): Arizona Court of Appeals Division One Holds That (1) Real Property Acquired During a Marriage Does Not Necessarily Lose Its Community Character When One Spouse Encumbers the Property Without the Other Spouse’s Joinder, (2) a Debt so Incurred May be a Community Debt, and (3) the Maricopa County Spousal Maintenance Guidelines Have No Force of Law, and Cannot be Used to Attack an Otherwise Proper award of Spousal Maintenance

Husband and Wife divorced after ten years of marriage.  Husband contested the trial court’s division of property with regards to a property in Queen Creek, a property in Rocky Point, and credit card debt.  Husband also contested the trial court’s award of spousal maintenance. 

Husband and Wife purchased the Queen Creek property as community property with right of survivorship and used community credit cards for the down payment.  Three months after Husband filed the petition for dissolution, Wife refinanced the property as a married woman dealing with her sole and separate property.  Seven months later, Husband and Wife agreed to lease the property and both signed the lease agreement as lessors.  The trial court determined that the property was owned by the community and that the mortgage should be divided equally.  On appeal, Husband argued that because Wife refinanced the property as her separate property after he filed the petition for dissolution, the trial court lacked authority to consider the property or the mortgage community property.  Pursuant to A.R.S. § 25-211(A)(2), property “[a]cquired during the course of marriage is community property, unless the property is “[a]cquired after service of a petition for dissolution of marriage . . . if the petition results in a decree of dissolution of marriage.”  The Court of Appeals found that the property was community property before the petition was filed and that the character of the property did not change as a result of the refinancing.  Although Wife purported to treat the property as her sole and separate property when obtaining the loan, Husband did not sign a disclaimer disavowing an interest in the property.  In addition, Husband signed the lease agreement as an owner of the property following the refinancing.  With regards to the repayment of the mortgage, the Court agreed with Husband that the bank failed to abide by A.R.S. § 25-214(C)(1) which requires both spouses to join in “[a]ny transaction for the acquisition, disposition or encumbrance of an interest in real property.”  However, the Court of Appeals noted that there is a strong presumption that debt acquired is community in nature and if the mortgage was determined to be Wife’s separate debt, she would have in effect made a very large gift to Husband while the petition for dissolution was pending.  Furthermore, the trial court had issued an injunction requiring the parties to maintain the status quo which would be violated by allowing the debt to remain Wife’s separate property.

With respect to the Rocky Point property, Husband and Wife both signed an agreement to purchase it and the down payment was a combination of community property and Husband’s separate property.  Problems occurred and the house never closed.  The trial court found that Husband and Wife were each entitled to half of any refund of the down payment.  On appeal, Husband asserted that trial court should have allocated the return of the down payment should have proportionally. The Court of Appeals noted that funds in a joint bank account are presumed separate property while property purchased using the funds of one spouse is presumed to be a gift to the other spouse and the property belongs to the community.  The act of parting with money for a stated community goal triggers the presumption of community character.  Here, the Court of Appeals explained, the parties intended that the funds would be applied towards property that they were purchasing jointly.  Accordingly, the presumption that Husband’s funds were a gift to the community applies. 

With respect to the joint bank accounts, when Husband filed the petition for dissolution, the parties’ joint bank account held $47,592.01.  The trial court ordered that each party receive one half of this balance.  On appeal, Husband argued that Wife had withdrawn $13,150 after the filing of the petition.  He also admitted that both parties had deposited money into the account and that he had withdrawn money as well.  The Court of Appeals found that although wife had withdrawn money, she had also deposited at least $10,115 after being served with the petition.  Although courts must distribute property and debt equitably, distribution of marital property is left to the sound discretion of the trial court.  The Court of Appeals held that the trial court’s distribution of the bank account funds was not clearly erroneous. 

In connection with the community credit cards, both parties agreed in their joint pretrial statement that they owed $31,340.17.  The trial court ordered that each party bear half of the debt.  To accomplish this, the court ordered Husband to pay wife $15,670.00 and ordered wife solely responsible for the debt.  On appeal, Husband argued that the trial court lacked authority to require one party to pay the other an equalizing payment as a payment toward outstanding debt due to a third party.  The Court of Appeals held that the trial court properly used its equitable authority in requiring Husband to pay Wife his portion of the credit card debt.

The trial court also ordered husband to pay $2,700.00 per month for twenty-one months.  On appeal, Husband argued that the trial court erred by not following the Maricopa County Guidelines for spousal support.  The Court of Appeals held that the trial court was not required to follow the Maricopa County Guidelines.  A.R.S. § 25-319(B) vests the trial court with broad discretion to determine the amount and duration of spousal support so long as the court considers the thirteen factors enumerated in the statue.  The trial court properly considered the relevant statutory factors.  The Court of Appeals affirmed the decision of the trial court.

Judge Swann authored the opinion; Judges Norris and Barker concurred.

City of Chandler v. Arizona Department of Transportation (5/20/2010):  Division One of the Arizona Court of Appeals Holds That a City Is Responsible for Paying the Expenses to Relocate Its Utility Lines When Necessitated by Road Improvements, Unless the Utility Lines Were in Place Before the Public Acquisition of the Roadway.

In the early twentieth century, six properties near what is now the intersection of McQueen and Willis Roads were deeded from one private party to other private parties.  The deeds for these properties dedicated easements for roads, and Maricopa County (on behalf of the State) accepted the dedications by recording plats for McQueen and Willis Roads and declaring them public rights of way.

In the late twentieth century, the City of Chandler placed utility lines under the roadway easements, although the McQueen and Willis intersection was outside the City’s southern boundary.  There was no permit or contract authorizing this construction, but the County apparently never objected to the City’s placing or using the utility lines.

In 2001, Arizona Department of Transportation established the Loop 202 as a state highway and later took control of the public property rights in the McQueen and Willis intersection previously managed by the County.  ADOT notified Chandler that it would have to relocate its utility lines.  This lawsuit resolved the dispute between ADOT and Chandler over whose responsibility it was to pay for the relocation.  On cross-motions for summary judgment, the trial court concluded that it was Chandler’s responsibility.  The Court of Appeals affirmed.

Chandler and ADOT agreed that the conveyances in the early twentieth century resulted in valid common law dedications, which the County properly accepted, thus creating roadway easements.  The parties also agreed that the State, through ADOT, had the right to manage and control whatever property rights attached to the easements.  The parties disputed, however, the scope of those rights.  Chandler argued that the State held only a “surface easement,” but the Court of Appeals rejected this contention, citing case law from Arizona and other states holding that a roadway easement includes substantial subsurface rights, including rights for utility lines.

Nevertheless, the City argued that the State had to pay for relocation of the utility lines because (1) the lines were present before the Loop 202 came into existence, (2) no permit or contract limited the City’s rights to the utility lines, and (3) the City did not place the utility lines based on a “franchise right.”  The Court also rejected each of these arguments, resting its reasoning largely on its opinion in Sanitary District No. 1 v. State, 1 Ariz. App. 45, 399 P.2d 179 (1965).

First, the Court noted the Arizona common law rule that a public utility has the duty to relocate its lines when street improvements make relocation necessary.   And, in Sanitary District No. 1, the Court had stated that with respect to the duty to relocate utility lines, “a municipality is in no better position than a privately owned public utility.”  The single exception to this rule is when the utility lines are in place before the dedication of the street, which indisputably did not apply to this case.  It did not matter that the Loop 202 was a new right-of-way with a different alignment because ADOT’s plan for the roadway construction was a reasonable and proper exercise of state police power.  Further, the Court found the City’s second and third arguments illogical because they would allow the City to claim greater rights than a properly permitted or franchised utility simply by avoiding seeking the full approval of the requisite governmental entity.

Finally, the Court rejected Chandler’s claim that the State owed it just compensation for taking its property rights.  A utility is not entitled to compensation for its relocation expenses if the State’s action is reasonable, which it was in this case.

Judge Portley authored the opinion; Judges Winthrop and Downie concurred