AZAPP Blog

Barlage v. Valentine: Division Two Holds That the Delivery Requirement of Rule 4.2(c) is Satisfied When the Certified Mail Receipt is Signed by a Commercial Mail-Receiving Agency Authorized to Accept Restricted Mail.

Plaintiff Barlage attempted to serve out-of-state defendant Valentine by mail and publication. The trial court determined that both methods of service were inadequate and vacated a default judgment that had been entered against Valentine. Barlage appealed. The court of appeals upheld the trial court’s finding that Barlage’s service by publication was insufficient, but reversed the trial court’s finding that Barlage’s service by certified mail had failed.

The summons and complaint were signed for by an employee of The UPS Store, where Valentine had rented a box. The trial court determined that because Valentine herself had not signed the return receipt, she had not been adequately served by certified mail. The court of appeals disagreed. When Valentine rented the box, she signed an “Application for Delivery of Mail Through Agent,” authorizing The UPS Store – a Commercial Mail-Receiving Agency (CMRA) – to receive restricted mail on her behalf. Rule 4.2(c) requires that delivery be made to “the person to be served.” Applying general issues of agency law, the court of appeals held that because Valentine unconditionally authorized her CMRA to accept certified mail on her behalf, the employee’s acceptance of the summons and complaint evidenced Valentine’s receipt of service. The court further found that Valentine had failed to rebut the presumption of the fact that she was personally served.

Judge Pelander authored the opinion; Judges Espinosa and Howard joined.

Fearnow v. Ridenour, Swenson, Cleere & Evans: Division One Panel Holds that Law Firm is Not Required to Repurchase the Share of a Partner Who Leaves Voluntarily.

In 1987, William Fearnow paid over $33,000 for a partnership interest in Ridenour, Swenson, Cleere and Evans (RSCE). When the partners decided to form a professional corporation, Mr. Fearnow received one share of stock. When Mr. Fearnow voluntarily left RSCE to practice law at another firm, he demanded that RSCE compensate him for his share of stock. Pursuant to RSCE's shareholder agreement, a shareholder who voluntarily withdrew from the corporation was not entitled to have his share repurchased. When RSCE refused to compensate Mr. Fearnow for his share, he sued to invalidate the voluntary withdrawal provision of the shareholder agreement and also sought compensation under theories of unjust enrichment and conversion.

The trial court ruled that the shareholder agreement was a restriction on Mr. Fearnow's right to practice law in violation of Arizona Rules of Professional Conduct, ER 5.2. The shareholder agreement, which was without severability clause, was invalidated in its entirety, and the parties were invited to submit additional briefing on a remedy for Mr. Fearnow. RSCE argued that Arizona's Professional Corporation Act, A.R.S. Sec. 10-2201-2249, afforded Mr. Fearnow no remedy because under the Act, a corporation's obligation to repurchase stock arose only upon death, dissolution or disqualification of a shareholder. Although Mr. Fearnow admitted that he had no remedy under the Act, the trial court held that Mr. Fearnow was entitled to relief under the Act, ordered the appraisal of the share, and determined Mr. Fearnow's interest to be $86,500. RSCE appealed.

On appeal, a unanimous panel affirmed the trial court's ruling that the shareholder agreement was an unenforceable restriction on the right to practice law. The court answered the question, a matter of first impression in Arizona, by drawing analogies to the special protection afforded to a doctor's right to practice. Public policy requires special scrutiny of financial disincentives or penalties that might compromise a client's right to choose his or her attorney. The RSCE shareholder agreement was unenforceable because it required Mr. Fearnow to forfeit all of his contribution to RSCE regardless of whether he actually took any RSCE clients with him upon departure.

The panel next addressed the remedy granted by the trial court. The panel reversed the trial court's determination that RSCE was compelled to repurchase Mr. Fearnow's share, effectively invalidating the money judgment given to Mr. Fearnow. Relying on interpretations of similar act by courts in other states, the Court of Appeals held that RSCE was not required to repurchase Mr. Fearnow's share because Mr. Fearnow, who was a licensed attorney at the time of his departure, was not a disqualified shareholder under A.R.S. 10-2201(1), (7). The court also held that Mr. Fearnow is not entitled to compensation under a theory of unjust enrichment because, in effect, he still owns his share in RSCE.

Opinion by Judge Weisberg, with Presiding Judge Portley and Judge Kessler concurring.

Johnson v. Earnhardt's Gilbert Dodge, Inc.: A 2-1 Panel of Division One Holds that an Extended Service Contract Prevents an Auto Dealer from Limiting the Implied Warranty of Merchantability.

Brenda Johnson bought a used Kia from Earnhardt's Gilbert Dodge and, along with the car, purchased the 60,000/6 year extended service contract. The service contract was signed by both Johnson and an Earnhardt representative. It provided, among other things, Johnson could take her Kia back to Earnhardt for any service covered by the contract. Almost a year after the purchase and 9295 miles later, Johnson attempted to revoke her acceptance of the vehicle due to service concerns. When Earnhardt declined Johnson's tender, Johnson filed suit for breach of the implied warranty of merchantability under the Magnuson-Moss Warranty Act, 15 U.S.C. sections 2301-2312 (1998), and revocation of her purchase due to Earnhardt's breach. The trial court granted Earnhardt's motion for summary judgment on both counts and awarded attorneys' fees.

The Court of Appeals reversed. The Magnuson-Moss Warranty Act prevents an automobile dealer from placing any limitation on an implied warranty if the dealer makes a written warranty or if the dealer "enters into a service contract." Although Earnhardt argued that the contract was only for the benefit of DaimlerChrysler, the Court of Appeals disagreed and found that the service contract qualified as both a written warranty and a service contract between Earnhardt and Johnson. The salient fact in the court's analysis was Earnhardt agreement to provide service to Johnson's Kia. The Court of Appeals also rejected Earnhardt's argument that the implied warranty is limited by A.R.S. 44-1267(C) to only fifteen days or five hundred miles. The Court held that the Arizona statute, which provides a floor for limiting the implied warranty, does not permit the dealer to limit the implied warranty of merchantability where, as here, the dealer gives a written warranty or enters into a service contract. The Court also vacated the attorneys' fees award.

Presiding Judge Snow authored the opinion; Judge Gemmill concurred.

Judge Thompson dissented, arguing that DaimlerChrysler, not Earnhardt, was the warrantor.

Judicial Nominating Commission Announces Supreme Court Vacancy:

The Judicial Nominating Commission today announced that it is now accepting applications to fill the vacancy on the Arizona Supreme Court to be created with the retirement of Chief Justice Jones in June. Applications will be accepted until May 3 for the $126,525-per-year post. The Commission will forward at least three candidates' names to Governor Napolitano, who will nominate one candidate from the list. More detailed information is available at the Court's website, www.supreme.state.az.us/hr/vacant.htm.

Morgan v. Carillon Inv., Inc.: Arizona Supreme Court Holds A.R.S. 12-1512 and 12-1513 do not Impose Limitations Period for Motion to Set Aside Arbitration Award.

The Supreme Court granted review to resolve a conflict between two Court of Appeals decisions. In Hatch v. Double Circle Ranch, 22 Ariz. App. 124 (1974) the Court of Appeals had imposed the 90 day limitations period of A.R.S. 12-1513 on a motion to vacate an arbitration award filed under A.R.S. 12-1512. In Morgan v. Carillon Investments, Inc., 207 Ariz. 547, 548 (App. 2004), the Court of Appeals declined to impose a time-bar to Morgan's similar motion, which came 14 months after the entry of the arbitral award.

In a per curiam opinion, the Supreme Court the Supreme Court held that the Court of Appeals in the instant case had correctly reasoned that A.R.S. 12-1512 does not impose a statute of limitations. The Court also explained that a prevailing party seeking to give finality to their arbitral award can do so simply by filing a motion to confirm under A.R.S. 12-1511. The decision of the Court of Appeals was thus affirmed, and the case remanded to the Superior Court for consideration of the merits of Morgan's motion to set aside.