AZAPP Blog

An article appearing today on azcentral.com describes the comments made at a recent forum at the Phoenix Art Museum dealing with the issue of same-sex marriage, and includes references to Division One's decision (covered in a previous posting) rejecting a constitutional challenge to the State's refusal to sanction such a marriage.

Jimenez v. Wal-Mart Stores, Inc.: Division Two Rejects Contentions That a New Trial Was Warranted Because of an Expert’s Purported Undisclosed Testimony, the Exclusion of Photographic Evidence, and the Judge Pro Tem’s Purported Bias

Plaintiffs Margaret Jimenez and her husband sued Wal-Mart for negligently maintaining an entrance after Ms. Jimenez fell outside a Wal-Mart garden center. In a third trial – that followed a reversal of a plaintiff’s verdict and a subsequent mistrial – the jury found in favor of Wal-Mart. On appeal, the Court rejected the Jimenez’s contentions that Wal-Mart’s expert had introduced a “surprise” legal theory by changing his testimony, finding that the “substance” of the testimony was the same in both trials. The Court also rejected the Jimenez’s contention that the trial court’s admission of photographic evidence without any objection at the first trial constituted law of the case requiring the trial court to admit the evidence at the third trial. Finally, the trial court rejected the Jimenez’s contentions that the Judge Pro Tem’s recusal of himself after the case had ended in conjunction with appearing in a matter adverse to the Jimenez’s attorney demonstrated judicial prejudice or hostility warranting a new trial.

Judge Pelander authored the opinion; Chief Judge Espinosa and Judge Eckerstrom concurred.

Owen v. Blackhawk: Division One Holds that a Hearing to Prevent Relocation of a Child is a Contested Custody Matter Requiring Detailed Findings of Fact

A father who had joint custody of a child, but was not the primary residential parent, filed a petition to prevent the child's mother from relocating the child from Arizona to Wyoming after she remarried. The trial court found that it was not in the child's best interest to relocate because the move would adversely affect the father's rights and his relationship with the child. Judge Thompson, writing for a unanimous panel, reversed and remanded to the lower court because it had not made detailed findings of fact pursuant to the requirements of A.R.S. § 25-403(J). The father argued that such findings were not necessary because the matter was not a "contested custody matter" under A.R.S. § 25-403(J), but rather was brought under the "relocation" statute (A.R.S. § 25-408) which has no detailed-finding requirement. The court disagreed, noting that the father sought a change in custody if the mother chose to move to Wyoming.

The Court of Appeals also reversed the trial court's modification of physical custody. Although the mother desired to move to Wyoming where her new husband lives, she stayed in Arizona during the pendency of the hearing and testified that, if the court did not allow the child to relocate to Wyoming with her, she would remain in Arizona. Nonetheless, the trial court modified the physical custody from mother to father and imposed a long-distance parenting time schedule for the mother. This despite the facts that the father had not requested it in his petition and the mother still lives in Arizona. The Court of Appeals held that the modification was an abuse of discretion because there was no evidence of any material change in circumstances affecting the welfare of the child.

The Court of Appeals disagreed with the mother's claim that there were additional reversible procedural defects in the hearing, but did direct the trial court to consider on remand newly-discovered post-hearing evidence regarding the father's relationship with his fiancee.

Judges Snow and Gemmill joined in Judge Thompson's opinion.

An article appearing today on azcentral includes the comments of attorneys involved in the Arizona gay marriage case (see previous posting) and others regarding the relevance to that case of the recent decision of the Massachusetts Supreme Judicial Court holding that the prohibition of same-sex marriages violated that State's Constitution. Lawyers for both sides agreed that the decision was highly relevant, although not binding on the Arizona Supreme Court.

An article in today's Arizona Republic notes that the petitioners in Division One's gay marriage decision (covered in a previous posting) plan to seek review of the Court of Appeals' decision by the Arizona Supreme Court. The petitioners' existing lawyer will be assisted in this effort by Arizona State University Law School Professors Paul Bender and James Weinstein. The petition is due on December 7.

As reflected in the Court's updated Hearing Notice, a panel of the Ninth Circuit will hear 18 cases in Room 200 of the Sandra Day O'Connor United States Courthouse in downtown Phoenix on Monday, December 1 and Tuesday, December 2.

An article in yesterday's Arizona Republic notes that applicants are needed to fill four non-attorney positions on the Commission on Appellate Court Appointments. The Commission reviews applications for seats on Arizona's Court of Appeals and Supreme Court.

An article in today's Arizona Republic notes that the Scottsdale Unified School District has asked the United States Supreme Court to review a Ninth Circuit decision holding that the District violated free speech rights when it refused to hand out in its schools a flier advertising religious summer camps.

Brake Masters Systems, Inc. v. Ken K. Gabbay: Division Two Affirms Post-Arbitration Judicial Determination of Arbitrability and Finds That Substantial Evidence Supported Trial Court’s Findings That Arbitrator Had the Authority to Decide Arbitrability of Issues

The parties to this case entered into a settlement agreement with an arbitration clause, but disagreed as to whether the particular issues involved were subject to arbitration. The arbitrator determined he had the authority to decide the arbitrability of the issues, found they were subject to arbitration, and ruled in appellee’s favor. Appellant appealed the trial court’s confirmation of the arbitration award.

As a preliminary matter, the court held that Arizona’s arbitration statutes allow either a pre- or post-arbitration judicial determination of arbitrability, even where one party contests arbitrability.

Next, the court addressed whether the arbitrator had the authority to decide arbitrability of the disputed issues. The court relied on First Options of Chicago v. Kaplan, 514 U.S. 938 (1995), which required “clear and unmistakable evidence” that the parties agreed that an arbitrator could decide his or her own jurisdiction. The court noted that although the trial court may have erred when it failed to hold an evidentiary hearing to determine an issue of material fact, the parties waived the issue at trial. The court applied the clearly erroneous standard of review and found that substantial evidence supported the trial court’s factual finding that the arbitrator had primary authority to decide the arbitrability of issues, even though the arbitration agreement did not specifically state so. Citing First Options, the court concluded that once the trial court had determined that the arbitrator had the authority to determine arbitrability of an issue, the court was required to defer to the arbitrator’s ruling. On this basis, the court of appeals affirmed the trial court’s judgment upholding the arbitrator’s decision.

Judge Browning authored the Opinion; Presiding Judge Brammer and Judge Johnson (sitting by designation) concurred.

Douglas v. Governing Board of Window Rock Consolidated School District No. 8, et. al.: Division One Holds That A Private Right of Action Is Implicit in A.R.S. § 15-952

Randall and Elizabeth Douglas worked as teachers in the Window Rock School District from 1993 to 1998. After leaving, they initiated a class action lawsuit against the school, claiming a violation of A.R.S. § 15-952, a 1986 statute that increased the school district’s base funding by 1.25 percent for establishing an appropriate teacher-performance-evaluation, with the caveat that the money be used for additional teacher compensation. The Douglases alleged that the school district has misappropriated those earmarked funds. The school moved to dismiss the complaint, arguing that the statute did not establish a private right of action. The superior court agreed.

On appeal, the Arizona Court of Appeals reversed, holding that A.R.S. § 15-952 allowed a private right of action against the school district. It noted that the primary purpose of the statute was to increase teacher compensation, and rejected the school district’s arguments that the institution of a teacher-evaluation system was not mandatory and that A.R.S. § 15-952(A)(3)(a) provided an enforcement mechanism that precluded a private right of action. To the contrary, the court found that there was no statutory remedy for misappropriation of funds earmarked for teacher compensation other than the maintenance of a private right of action. Whether the unpaid additional compensation is “wages” pursuant to §§ 23-350 and 23-355 was determined to be a matter for development on remand.

Judge Ehrlich authored the Opinion; Presiding Judge Irvine and Judge Pro Tempore Stephen Desens concurred.

An article in today's Arizona Republic describes the oral argument that took place on Thursday before the Arizona Supreme Court in a case involving a Mesa firefighter's challenge to that City's random, suspicionless drug testing program. The article quotes the parties' attorneys as being unsure which way the Court would rule, and summarizes several of the Court's questions.

Valley Farms v. Transcontinental Insurance: Division Two Holds That Prospective Insured Must Update Insurer On Changes Materially Affecting The Risk To The Insurer That Occur After The Application For Insurance Is Submitted But Before The Policy Is Issued.

On November 6, 2003, Division Two issued a decision reviewing a trial court's entry of summary judgment for an insurance company defending an insured's claims for breach of contract and bad faith. The insured was a company that owned apple orchards and stored apples in a refrigerated warehouse. When it applied for coverage from the insurer, the insurer requested information regarding its claims history. The insured complied, reporting in its application for insurance that it had made one claim to its then-current insurer for lightning damage. After submitting the application, the insured made three additional claims for lightning damage to its then-current insurer, but did not update the prospective insurer with respect to these new claims. The insurer issued a policy to the insured. When the insured filed a claim with the insurer (for yet another lightning strike), the insurer discovered the unreported prior claims. Because of the unreported prior claims, the insurer refused to pay for all of the damage claimed by the insured. The insured then filed the underlying lawsuit, charging the insurer with breach of contract and bad faith. The insured moved for summary judgment on the ground that the insurer had fraudulently misrepresented material facts in its application for insurance. The trial court granted the motion, and the insured appealed.

The Court of Appeals noted that the insurer's motion rested on A.R.S. § 20-1109, which provides that misrepresentations and omissions in applications for insurance shall not prevent a recovery under the policy unless the misrepresentations are (1) fraudulent and (2) material to the acceptance of risk or to the hazard assumed by the insurer, and (3) the insurer would not have issued the policy, or would have issued a more limited policy, had it been aware of the fact omitted or misrepresented. (In this context, the Court noted, "fraud" does not require an intent to deceive.) Addressing an issue of first impression in Arizona, the Court adopted the rule that "changes materially affecting the risk to an insurer and about which the insurer has previously inquired that become known to the prospective insured between the time an application for insurance is completed and submitted and an insurance policy is issued must be disclosed to the insurer." The Court applied this principle to hold that the insured's failure to report the three additional claims to the insurer established the fraud element as a matter of law. The Court also found the second statutory element satisfied by the insured's failure to contest a statement in the insurer's affidavit to the effect that the prior claim history was material to the insurer's acceptance of the risk. On the third statutory element, however, the Court found that the affidavit submitted by the insurer was "equivocal." Because a material issue of fact therefore remained as to that element, the Court reversed the grant of summary judgment for the insurer.

PRACTICE NOTES:

The insurer did not initially include the defense of misrepresentation in its answer to the insured's complaint. In fact, the insurer had not amended its complaint to include this defense by the time it moved for summary judgment on the basis of misrepresentation. After the insurer moved to strike the summary judgment motion on this ground, the insurer moved to amend its complaint to include the defense. The Court of Appeals held that the trial court did not abuse its discretion in granting the motion.

Both parties in the appeal moved for attorney's fees on appeal pursuant to A.R.S. § 12-341.01(A). In its discretion, the Court of Appeals declined the requests "without prejudice to either party to renew the request in the trial court after a decision on the merits."

The opinion was authored by Judge Brammer and joined by Judges Florez and Howard.

Eastern Vanguard Forex, Ltd. et. al. v. Arizona Corporation Commission: Division One Holds, Inter Alia, That the Arizona Securities Act is not Pre-empted by the Federal Commodities Exchange Act

The Arizona Corporation Commission’s Securities Division (“ACC”) initiated an administrative proceeding against Forex Investment Services, two other investment companies, and numerous individuals in their capacities as officers, directors, and shareholders of the companies for violations of the registration and anti-fraud provisions of the Arizona Securities Act Following the hearing, the ACC held that the individuals were liable as “controlling persons” of their respective corporations. The individual defendants appealed to the Superior Court, which found that the ACC had jurisdiction to conduct the hearing but reversed the ACC’s finding of “control liability.” The court also limited the attorneys fees the individual defendants could recover to those incurred in the court proceeding, not those incurred in the administrative proceeding. Both parties appealed the superior court’s holdings. The ACC appealed the court’s reversal of its control liability finding, and the individual defendants cross appealed both the limited attorney fee award and the court’s finding that the ACC retained jurisdiction over off-exchange transactions in foreign currency, arguing that subject is pre-empted by federal law.

On appeal, the Arizona Court of Appeals affirmed the jurisdictional finding, but reversed the court’s determination that the ACC did not sufficiently establish control liability. It further reversed the limited attorney fee award. First, the Court held that the ACC retained jurisdiction over off-exchange transactions in foreign currency pursuant to the Arizona Securities Act. That Act is not pre-empted by the federal Commodities Exchange Act because the latter preserves existing state legislation, like the Securities Act, through a savings clause. Next, the Court held that the ACC did not act in an arbitrary and capricious manner when it found that the individual defendants were subject to “control liability,” and rejected the individuals’ argument that a “controlling person” need have actually participated in the violation to be liable as too restrictive. Finally, the Court reversed the attorneys’ fee award, holding that A.R.S. § 41-1007 mandates an award of attorneys’ fees for administrative proceedings in certain situations to parties would would not normally qualify for them under A.R.S. § 12-348.

Judge Hall authored the Opinion; Judge Gemmill and Judge Voss concurred.

An article in today's Arizona Republic notes that the owner of a West Valley shopping center is awaiting a ruling in the Arizona Court of Appeals on its challenge to a trial court judgment upholding Maricopa's County's power to compel the property owner to extend its lease with the government for property used to house the Peoria County Justice Court.

An article in today's Arizona Republic notes that on Thursday the Arizona Supreme Court, sitting at the University of Arizona, will hear arguments in a case in which a Mesa firefighter is challenging the constitutionality of suspicionless random drug testing.

City of Tucson v. Clear Channel Outdoor, Inc.: Division Two Holds That The Two-Year Statute Of Limitations Pertaining To Billboard Ordinance Enforcement Applies Retroactively Barring Certain Enforcement Claims By The City of Tucson

On October 31, 2003 Division Two held that the two-year statute of limitations governing enforcement actions for outdoor-advertising zoning violations, A.R.S. § 9-462.02(C), applies retroactively. The City of Tucson sued Clear Channel’s predecessor Eller Media Corp., alleging numerous violations of the City’s sign and zoning codes the day after A.R.S. § 9-462.02(C) became effective. The trial court entered summary judgment against the City with respect to the alleged violations that occurred more than two years before the City filed the action. Applying the general rule that statutory changes in procedures or remedies apply retroactively to pending proceedings (except when the legislature has indicated another intent or such application would impair vested rights), the Court held that § 9-462.02(C) applied to the City’s claims. The Court rejected the City’s position that applying § 9-462.02 retroactively would unconstitutionally deprive the City of any vested rights because cities do not have vested rights in their municipal powers. The Court also rejected the City’s position that A.R.S. § 12-505 reflected some expression of legislative intent requiring prospective application of § 9-462.02. To the contrary, § 12-505’s clear language made § 9-462.02 applicable to the City’s claims. Finally, the Court rejected the City’s contention that the policy favoring prompt elimination of nonconforming uses required the court to give § 9-462.02 prospective application because the Legislature had spoken clearly on the issue.

Chief Judge Espinosa authored the opinion. Judges Pelander and Druke (retired) concurred.