AZAPP Blog

Margaret H. v. Arizona Dept. of Econ. Sec. (12/21/06): Division Two Reverses Summary Judgment Terminating Parental Rights of Mother With History of Drug Abuse

The juvenile court granted a motion by the Arizona Department of Economic Security (“ADES”) for summary judgment to terminate the parental rights of Margaret H. (“Mother”) based on Mother’s history of substance abuse and her child’s nine-month out-of-home placement. Mother appealed, arguing that an affidavit she had submitted raised genuine issues of material fact and that the juvenile court had improperly judged her credibility in granting the motion for summary judgment. Division Two overturned the grant of summary judgment based on a determination that statements from Mother’s affidavit regarding actions by both ADES and Mother raised disputes of material fact. Judge Espinosa, in dissent, found the case to be a “close” one, but concluded that the “merely conclusory and self-serving” assertions by Mother’s affidavit were insufficient to defeat the motion for summary judgment in view of the sufficient, unrefuted evidence that justified the ruling of the juvenile court.

Judge Brammer wrote the opinion and was joined by Presiding Judge Eckerstrom; Judge Espinosa dissented.

Tyman v. Hintz Concrete, Inc. (12/15/06): Supreme Court Explains Relation Back under ARCP 15(c), Holds no Relation Back Where Plaintiff Does Not Show Mistake

Plaintiff Tyman tripped and fell on a sidewalk in 2002. On the eve of the expiration of the statute of limitations, she filed a complaint naming various corporate entities, as well as 30 "John Doe" defendants. Further investigation resulted in Tyman filing an amended complaint, less than 2 months after the initial complaint, dropping all named defendants and adding three new ones, including Hintz Concrete. The amended complaint was served on the 3 new defendants roughly three months after the expiry of the limitations period. Tyman argued that the amended complaints "related back" under Rule 15(c). The Superior Court granted the new defendants' motion for summary judgment on limitations grounds, holding that there was no "mistake" as to the proper party sued; and the Court of Appeals affirmed, under different rationale.

The Supreme Court began by noting that the dispositive issue in this case was whether the new defendants "knew or should have known that, but for a mistake concerning the identity of the proper party, they would have been named in the original action." Slip Op. at Para. 12 (internal citation omitted). The Court held first that Rule 15(c)(2) provides for relation back when defendants knew or should have known of a mistake within the limitations period PLUS the period provided by Rule 4(i) for service of the summons and complaint. Slip. Op. at Para. 15. The Court further explained that during the relevant period, the potential new defendant must have knowledge of the mistake of identity, not of the occurrence that is the subject of the suit. Id. at Para. 16.

The Court then turned to what constitutes a "mistake" within the meaning of Rule 15. Relying principally on the 1st Circuit's decision in Leonard v. Parry, 219 F.3d 25, 28 (1st Cir. 2000), the Court held that the proper inquiry is "whether, in a counter-factual, error-free world, the action would have been brought against the proper party." Slip. Op. at Para. 19, quoting Leonard, 219 F.3d at 29. The critical information, explained the Court, is what the Plaintiff knew or thought he knew at the time of the original pleading. Id. And it is Plaintiff's burden to establish that the potential new defendant "truly was omitted because of a mistake concerning the identity of the proper party." Id. at Para. 22 (internal citation and quotation omitted).

Here, the Court held that Tyman had not carried her burden of demonstrating mistake. Instead, she simply did not know, at the time of the original complaint, who the proper parties were. Such circumstances do not constitute a mistake under Rule 15.

Lastly, the Court dismissed Tyman's argument that her counsel's "reasonable diligence" within the limitations period should allow her amended complaint to relate back. The Court noted that this argument conflates "relation back" with the "discovery" rule for tolling the limitations period under certain circumstances. See Slip. Op. at Para. 24, citing Walk v. Ring, 202 Ariz. 310, 315-16 (2002).

The Court affirmed the decision of the Superior Court and vacated the decision of the Court of Appeals. Justice Hurwitz authored the decision, in which the entire Court concurred.

Coconino County v. Antco, Inc. (12/19/06): Division One Reverses Trial Court’s Decision Citing Improper Application of the Doctrine of Primary Jurisdiction and Remands for Consideration of the Doctrine of Preemption

ADEQ inspected Antco’s composting facility several times, but found no violations. Coconino County filed a complaint against Antco alleging its composting practices violated various ADEQ regulations. Antco filed an answer and a counterclaim for declaratory judgment seeking a declaration that state statute precluded the County from regulating the use of land for agricultural composting. The parties filed cross motions for summary judgment. Relying on the doctrine of primary jurisdiction, the trial court dismissed the entire case without prejudice in deference to ADEQ for an initial decision on the matter and declined to rule on any other issue. Both parties appealed.

Judge Weisberg’s opinion analyzed the distinction and interplay between three legal doctrines: exhaustion of remedies, primary jurisdiction, and preemption. The Court held that the exhaustion of remedies doctrine was clearly inapplicable because no administrative action was pending with respect to Antco at the time the trial court dismissed the County’s complaint and because ADEQ acknowledged the County’s statutory right to initiate enforcement actions independently. The Court further held that trial court improperly applied the doctrine of primary jurisdiction, which may not be used to prevent a local government from taking actions that are within its power or after the appropriate administrative agency has had an opportunity to determine the matter. The Court concluded that the trial court should have analyzed the case under the doctrine of preemption, inquiring into the scope of the County’s power to act and the possible preemption of that power by the state.

Judge Weisberg authored the opinion; Judge Thompson and Ehrlich concurred.

Lohmeier v. Hammer (12/12/06): Division One Holds That Trial Court Did Not Abuse Its Discretion In Admitting The Expert Testimony, Without a Frye Hearing, of a Biomechanical Engineer To Opine That Defendant Did Not Cause Plaintiff’s Physical Injury, And Invites The Arizona Supreme Court to “Reconsider Logerquist”

Plaintiffs William and Barbara Lohmeier appealed a jury verdict in favor of Defendant Juanita Hammer on their claims arising from a motor vehicle accident in which Hammer admitted rear-ending the Lohmeiers but disputed causation and damages. Mr. Lohmeier alleged that the accident caused injuries to his lumber and cervical spine, as well as his shoulder, and that he was more susceptible to injury due to preexisting medical conditions. At trial, over the Lohmeiers’ objection, Hammer presented the expert testimony of Dr. Joseph Peles, a biomechanical engineer, who opined that the forces involved in the collision were not sufficient to have caused Mr. Lohmeier’s injuries. In response, the Lohmeiers presented the testimony of Dr. Immerman, a licensed chiropractic physician, who criticized the small sample groups of the studies cited by Dr. Peles as well as the absence of any biomechanical studies involving subjects with preexisting conditions similar to Mr. Lohmeier.

The jury returned a verdict in favor of Hammer, and awarded no damages to the Lohmeiers. The trial court awarded most of Hammer’s expert’s fees to Hammer, who had submitted an offer of judgment the Lohmeiers had rejected. The Lohmeiers filed a motion for a new trial, which the court denied.

The Lohmeiers appealed several evidentiary issues, all of which were affirmed, but the court spent the bulk of its analysis on whether the trial court erred by allowing a biomechanical engineer to testify as to the causation of Lohmeier’s physical injuries.

The Court analyzed the admission of Dr. Peles’ testimony, which it ultimately affirmed, at length. The Lohmeiers argued on appeal that the trial court erred in admitting his expert testimony because Dr. Peles was not qualified to testify on medical causation, because his testimony was admitting without being subject to the analysis set forth in Frye v. U.S., 293 U.S. 1013 (D.C. Cir. 1923), and because Dr. Peles never examined Mr. Lehrmeier.

Applying abuse of discretion to the trial court’s decision to admit Dr. Peles’ testimony, the Court first concluded that under Arizona law, Dr. Peles was qualified to give expert testimony, as “it is not necessary that an expert witness be a medical doctor in order to offer testimony regarding causation of physical injuries so long as the trial court has properly determined that the expert has specialized knowledge that will assist the jury in its resolution of that issue” as required by Arizona Rule of Evidence 702. The court noted this is a fact-specific question, and that in this case, Dr. Peles was retained to testify about his construction of the accident, his calculations of the forces involved in it, and his opinion as to whether such forces could cause injury to the human body. Dr. Peles has a bachelor’s degree in mechanical engineering from Vanderbilt, a master’s degree in bioengineering from Arizona State, and a PhD from Arizona State in bioengineering with a specialty in injury biomechanics. He also had extensive personal experience in conducting accident reconstruction analysis and as a PhD student, had performed research regarding spinal injuries, had conducted mechanical testing on cadaver spines to study how different loading conditions result in injury, and had developed computer models of the human spine to study injury production and stability. Under these circumstances, his knowledge was significantly greater than that of an ordinary juror and would be helpful to the jury in determining causation.

The Court, albeit somewhat reluctantly, concluded further that pursuant to Logerquist v. Mcvey, 196 Ariz. 470, 1 P.3d 113 (2000), the trial court did not err in refusing to subject Dr. Peles’ testimony to a Frye examination. The court reviewed the Frye, Logerquist, and “Daubert trilogy” extensively, and stated that under Logerquist, in which the Supreme Court interpreted Arizona Rules of evidence 702 and 703 and rejected Daubert, the Frye test is not always applicable. Rather, a Frye examination is “applicable when an expert witness reaches a conclusion by deduction from the application of novel scientific principles, formulae, or procedures developed by others. It is inapplicable when a witness reaches a conclusion by inductive reasoning based on his or her own experience, observation, or research. In the latter case, the validity of the premise is tested by interrogation of the witness; in the former case, it is tested by inquiring into general acceptance.” (emphasis added) (citing Logerquist, Ariz. 196 Ariz. at 490, ¶ 62, 1 P.3d at 133).

Here, Dr. Peles’ reconstruction and biomechanical analysis of the accident was based on a “combination” of deductive reasoning based on accepted physics principles and inductive reasoning from his own personal research and calculation. However, when the trial court denied the motion in limine, it did not did so without any substantive explanation. The Court reasoned that “the trial court might have denied the Lohmeier’s request for a Frye hearing either because it (1) found that the scientific theories Dr. Peles relied upon were not novel, or because it (2) found that his testimony stemmed from ‘inductive reasoning’ based on his own ‘experience, observation, or research.’” In the absence of an explanation, the Court gave the trial court the benefit of the doubt, and affirmed the admission of Dr. Peles’ testimony because doing so based on the latter reasoning is consistent with Logerquist. (The Court cited non-Arizona cases to conclude that the trial court would have erred if it had determined, sua sponte, that Dr. Peles’ testimony was based on scientific principles that were “generally accepted,” not novel, and therefore not subject to Frye, particularly in light of Dr. Immerman’s testimony criticizing the principles).

Judge Weisberg authored the opinion; Judge Orozco and Judge Norris concurred.

Smith v. Smith (12/7/06): Division Two Holds That a Remand for Redetermination of Ownership Interests in Property in a Divorce Proceeding Revives a Litigant’s Right to Notice a Peremptory Change of Judge.

In a divorce proceeding, Petitioner had previously appealed the Commissioner’s decree disposing of the parties’ ownership interests in several parcels of real property. The Court of Appeals vacated the portion of the decree relating to the marital residence and remanded because the Commissioner had applied an improper legal presumption. On remand, Petitioner filed a notice of change of judge, claiming that her right to a peremptory change of judge under Ariz. R. Civ. P. 42(f)(1)(E) had been revived by the remand. The Commissioner denied the request for change of judge and Petitioner brought a special action to the court of appeals.

Pursuant to Rule 42(f)(1)(E) a party’s right to a peremptory change of judge revives upon a remand to the trial court for “a new trial on one or more issues.” The Court of Appeals accepted jurisdiction and held that its prior remand for redetermination in this matter constituted a “new trial” on one or more issues because the Commissioner would be required to apply the proper legal presumption and to provide the respondent with an opportunity to present evidence rebutting that presumption. In so holding, the Court distinguished cases where an appellate court remands for “further proceedings,” as opposed to a remand for “de novo redetermination.” A remand for “further proceedings” does not qualify as a “new trial” and therefore will not revive a party’s right to notice a change of judge under the rules.

Judge Espinosa authored the unanimous opinion joined by Presiding Judge Eckerstrom and Judge Vasquez.

Volunteer Center of Southern Arizona v. Staples (11/29/06): Division Two Holds That a Nonprofit Organization May Lease Its Property to Another Nonprofit Organization Without Forfeiting Its Tax Exempt Status on the Property.

Both the Volunteer Center of Southern Arizona (the “Center”) and JobPath, Inc. are nonprofit corporations exempt from federal income tax under 26 U.S.C. § 501(c)(3). The Center owns an office building and uses two-thirds of it for its charitable activities, and leases the remaining third to JobPath. The Center sought a tax exemption for the real property pursuant to A.R.S. §§ 42-11107 and 42-11121, which create tax exemptions for property “not used or held for profit.” Although the Center qualified for the tax exemption with respect to the portion of the property it used for its own charitable purposes, the Assessor concluded that leasing property at market rates to JobPath fell outside the exemption (even though the lease proceeds went to charitable purposes and JobPath’s own use of the property would qualify it for a tax exemption if it owned the property). The Court held that under the plain language of the statutory scheme, a § 501(c)(3) organization may lease property to another § 501(c)(3) organization and qualify for the tax exemption. The Court distinguished several prior cases that were decided before the Legislature’s enactment of the language now found in Section 42-11154. It further explained that the reasoning underlying the earlier cases would not change the result because those cases focused on the actual physical use to which the property was put in evaluating the tax status of the property, and here that use is a qualifying charitable use by JobPath.
Judge Eckerstrom authored the opinion; Judges Brammer and Espinosa concurred.

Chilton v. Center for Biological Diversity, Inc.(12/06/06): Unanimous Division Two Panel Affirms Compensatory and Punitive Awards Against Environmental Group Liable for Defaming a Cattle Rancher

Rancher James Chilton sued the Center for Biological Diversity for defamation after the Center published on the Internet materials it had submitted to the U.S. Forest Service in opposition to Chilton's application to renew his permit to graze cattle on southern Arizona land. Among the materials the Center posed on its website were misleading photographs with misleading or false captions. The Center posted the materials after appealing the Forest Services' decision to renew Chilton's application and kept the materials on its website for almost a year. The jury awarded Chilton $200,000 in compensatory damages and $500,000 in punitive damages.

On appeal, the Center argued that its publication was privileged under the federal and state constitutions and Arizona common law. The Court of Appeals found that the Center had waived all but its common law claim. The Center raised its federal first amendment defense in its pleadings, joint pretrial statement and its proposed jury instructions. Not enough, said the Court of Appeals, which noted that the Center never raised or discussed the federal constitutional issue in its directed verdict motion and refused to relax the waiver doctrine. The Court also found that the Center was not entitled to an absolute privilege under the common law because the alleged defamatory statement was made on its website, not in the context of a legislative, judicial or administrative proceeding. The Court upheld the jury's findings regarding falsity and malice and found no error in the jury interrogatories or the punitive damages award.

Opinion authored by Judge Brammer, with Judges Espinosa and Howard concurring.

Corbett v. Manorcare of America, Inc. (11/29/06): Division Two Addresses Statutes of Limitations, Res Judicata, and Collateral Estoppel Issues in Adult Protective Services Act Case.

Dyane Corbett filed suit against Manorcare of America, Inc. (“Manorcare”) on behalf of her mother’s estate, alleging, inter alia, violations of the Adult Protective Services Act, A.R.S. § 46-451 et seq. (“APSA”). Manorcare removed the case to federal district court. During discovery, Corbett learned that Manorcare had several subsidiaries. She amended her complaint pursuant to the parties’ stipulation to include the subsidiaries. But the subsidiaries moved to dismiss the complaint on the ground that they were not timely served, and the district court granted the motion. When Corbett sought leave from the district court to amend the complaint, the district court denied the motion, finding that amendment would be futile because the claims would be barred by the statute of limitations – an issue the court raised sua sponte. The court then granted summary judgment to Manorcare, finding that Corbett had “pursued the incorrect defendant.” Corbett appealed the case to the Ninth Circuit. While the appeal was pending, Corbett filed another lawsuit in Pima County Superior Court against the subsidiaries and their employees. The defendants moved for summary judgment, citing res judicata, collateral estoppel, statutes of limitations, and the statute’s language respecting individual liability. The superior court granted summary judgment to all of the defendants, holding that the claims against the subsidiaries were barred by res judicata and collateral estoppel, certain claims against the employees were barred by collateral estoppel, other claims against the employees were barred by statutes of limitations, and the claims against the employees were invalid because the employees were not “employed to provide care” to Corbett’s mother under APSA (A.R.S. § 46-455(B)).

Claims against one employee were dismissed on the ground that he was not timely served. On appeal, Division Two first held that the trial court correctly found that the latter employee was not timely served, as he was not employed by Manorcare at the time the complaint was served, and had not authorized Manorcare to accept service for him. With respect to the grant of summary judgment for the subsidiaries, the court held that res judicata did not bar Corbett’s claims, because the subsidiaries had not shown that the first and second lawsuits involved the same parties. The court found that collateral estoppel also did not bar Corbett’s claims against the subsidiaries, because the statutes of limitation issue had not been “actually litigated” in the first lawsuit: The district court had raised the issue sua sponte, and when Corbett sought reconsideration of the ruling, she was unable to obtain it because her notice of appeal had divested the district court of jurisdiction. The Court of Appeals further noted that Corbett should not be estopped from litigating the limitations argument because an important Arizona Supreme Court decision affecting the argument (City of Tucson v. Clear Channel Outdoor, Inc., 209 Ariz. 544, 105 P.3d 1163 (2005)) had been issued while the case was pending. Finding that the claims aginst the employees were not barred by res judicata or collateral estoppel for the same reasons, the court next turned to the trial court’s statutory interpretation reasoning. The employees argued that APSA required a “direct caregiver-patient relationship” for a duty to arise under the statute. The Court of Appeals disagreed, finding that APSA was intended to cover “a broader class of tortfeasors” than the employees argued. At the same time, the court found that summary judgment was proper for those individuals who Corbett conceded were employees of the parent company only, and who had no personal involvement in her mother’s care. The court rejected the argument, made by another employee who was personally involved in caring for Corbett’s mother, that res judicata barred the claim against her because she was in privity with a subsidiary that was involved in the first lawsuit. The court reasoned that, because the subisiaries were dismissed from the first lawsuit prior to the issuance of the statutes of limitations rulings from which the employee sought to benefit, she was not entitled to res judicata with respect to those rulings.

The opinion was authored by Judge Vásquez and joined by Judges Pelander and Howard.

Arizona Supreme Court Issues Minutes

The Arizona Supreme Court issued its Minutes in two parts, Part A and Part B. The Court ruled on 59 petitions for review, granting three. The Court granted review of Division One's decision in State of Arizona v. John David Crawford, Division Two's decision in William Roubos v. Hon. Leslie Miller/Tucson, and Division One's decision in State of Arizona v. Jeffrey Arthur Gastelum.

Turley v. Ethington (11/29/06): Division Two Rules Statute of Frauds Inapplicable to Claim for Constructive Trust Brought by Nephew Claiming Breach of Fiduciary Duty by Uncle Under Oral Partnership Agreement to Purchase Land

Plaintiffs (“Nephew”) alleged an oral partnership agreement with Defendants (“Uncle”) for the purchase of certain real estate. Nephew claimed bad faith, fraud, unjust enrichment and breach of fiduciary duty, and sought money damages and an order for a constructive trust. The trial court dismissed the claims under Rule 12(b)(6), Ariz. R. Civ. P., for failure to satisfy the statute of frauds for transfer of an interest in land, A.R.S. § 44-101(6).

Nephew appealed the dismissal, arguing that the statute of frauds did not preclude a claim for constructive trust resulting from the breach of the Uncle’s fiduciary duty under the partnership agreement. The Court of Appeals agreed, and reversed the trial court’s dismissal. The Court noted that Uncle did not challenge the validity of the alleged partnership agreement under the Revised Uniform Partnership Act (“RUPA”), A.R.S. §§ 29-1001 through 29-1111. The Court held that, because RUPA provides adequate protection against fraud under the circumstances, the statute of frauds did not bar the imposition of a constructive trust. The Court adopted the approach of Corbin on Contracts § 17.12 (1997) for determining under which circumstances the statute of frauds would apply to transfers of an interest in property relating to a partnership, and overruled Johnson v. Gilbert, 127 Ariz. 410, 621 P.2d 916 (App. 1980), to the extent of any conflict.

Judge Howard wrote the opinion, with Judges Pelander and Vásquez concurring.

Grand v. Nacchio (11/24/06): Division Two Exercises Special Action Jurisdiction to Clarify Tender and Loss Causation Rules in Securities Actions Brought Under Arizona Law

Plaintiff purchased shares of Defendants’ stock, the majority of which Plaintiff had sold when it was disclosed that Defendants may have engaged in questionable accounting practices that had inflated its revenue. After the disclosure, Plaintiff sold its remaining shares. Plaintiff subsequently filed a multi-count securities fraud action against Defendants, asserting various statutory and common law claims. Defendant moved for partial summary judgment, claiming that Plaintiff could not show causation for damages relating to the shares sold pre-disclosure. Defendant further claimed the Trust could not rescind the transaction because it had sold the shares and could not tender them as required by law. The trial court granted summary judgment in favor of Defendants on all claims involving the stock sold pre-disclosure. The court then granted Plaintiff’s motion to dismiss, without prejudice, its remaining claims regarding the other shares so that the Plaintiff could file an appeal.

In a lengthy opinion, the Court of Appeals affirmed in part, reversed in part, and remanded. As a threshold matter, the Court concluded that it lacked appellate jurisdiction. A party may not obtain appellate review of an adverse partial summary judgment ruling by having all remaining claims dismissed without prejudice, regardless of whether the trial court’s ruling includes “Rule 54(b)” language. Ultimately, however, the Court treated Plaintiff’s appeal as a petition for special action and accepted special action jurisdiction

On the merits, the Court held that in an action for true rescission under A.R.S. § 44-2001(A), a plaintiff may substitute tender by purchasing and delivering the securities to the defendant before trial. But mere sale on the open market will not suffice. Because true rescission is not a damages remedy, a plaintiff need not prove loss causation in order to obtain rescission of a securities transaction under A.R.S. § 44-2001(A) or the common law. However, a plaintiff must generally prove loss causation to obtain damages in a securities action brought under either A.R.S. § 44-1991(A)(1) or (3). An exception applies if the plaintiff claims “rescissory damages” and there is a showing of sufficient equitable reasons for having the tender requirement waived.

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