AZAPP Blog

Grubb & Ellis Management Services, Inc. v. 407417 B.C., LLC (07/27/06): Division One Affirms Enforcement of Contractual Indemnity Provision

Appellant Landlord and Appellee Management Company entered into a management agreement that obligated Landlord to indemnify Management Company “except for [Management Company’s] gross negligence or willful misconduct.” The trial court enforced the indemnity provision and denied Landlord’s counterclaim for implied indemnification. This appeal followed.

Judge Hall, writing for a unanimous panel, found that the parties’ agreement “clearly and unequivocally” set forth the Landlord’s obligation to indemnify the Management Company, even for negligent management of the premises. The court found that public policy does not prohibit a party from seeking indemnity for professional negligence; the plain language of the provision made it a “specific indemnity clause,” which covered the Management Company’s negligence; and the Landlord failed to timely raise the affirmative defense that the Management Company was grossly negligent. The court further found that the Landlord’s recovery on claims for implied contractual indemnity and indemnity implied by operation of law were precluded by the existence of an express indemnity provision in the contract.
Judge Hall authored the opinion, Judges Norris and Ehrlich joined

Kelly R. v. Arizona Department of Economic Security (06/27/06): Division One Upholds Termination of Parental Rights Despite Failure to Appoint Guardian Ad Litem for Mother Deemed to be Mentally Ill But Not Mentally Incompetent

A mother (“Mother”) with a substance abuse problem appealed a decision terminating her parental rights to her biological children. Mother claimed that the juvenile court should have appointed a guardian ad litem (“GAL”) to represent her interests because of the evidence demonstrating that Mother was mentally ill. Division One affirmed the trial court’s decision, finding no evidence that Mother was mentally incompetent, despite “ample evidence” of mental illness. For purposes of the statute, A.R.S. § 8-535(F), the court held that “the essential question in deciding if reasonable grounds exist to believe a parent is mentally incompetent is whether the parent is unable to understand the nature and object of the proceedings or assist in his or her defense.” Because the trial court was not presented with reasonable grounds to believe Mother was mentally incompetent, the court did not abuse its discretion for failing to appoint a GAL.

Judge Norris wrote the opinion; Judges Hall and Thompson concurred.

Bohart v. Hanna (07/26/06): Supreme Court Holds That The Five-Day Window To Appeal A Nomination Challenge Under A.R.S. § 16-351(A) Does Not Exclude Weekends Or Holidays.

Robert Bohart challenged the “nomination petitions of David Goulet, a candidate for Glendale City Council.” The trial court rejected his challenge, and Bohart filed his notice of appeal six calendar days later.

The Supreme Court dismissed Bohart’s appeal as untimely. Under A.R.S. § 16-351(A), the notice of appeal must be filed “within five days.” Contrary to Bohart’s argument, the statute does not exclude weekends or holidays from the five-day deadline. Although the legislature modified A.R.S. § 16-351(A) expressly to exclude weekends and holidays for other time limits, it did not modify the time for filing the notice of appeal. Cf. Bedard v. Gonzales, 120 Ariz. 19, 20, 583 P.2d 906, 907 (1978) (construing the time limit for challenging petitions in superior court). Furthermore, this construction is consistent with “the requirement that the time elements in election statutes be strictly construed,” and “[i]t also serves the goal of expeditious resolution of nomination challenges.”

Justice Berch authored the unanimous opinion. Justice Ryan did not participate in the decision.

Fearnow v. Ridenour Swenson Cleere and Evans (07/18/06) Arizona Supreme Court Holds that an Agreement Requiring Departing Lawyers to Forfeit Monetary Contribution to Law Firm is Permissible if Reasonable

In a case sure to impact the structure of Arizona law firm partnership agreements, the Arizona Supreme Court, following California's lead, held that lawyers may enter into reasonable withdrawal agreements that require departing lawyers to tender stock or other capital contribution for no compensation. At issue was a Shareholder Agreement entered into by shareholders (including plaintiff William Fearnow) of the Ridenour, Swenson, Cleere & Evans firm ("Ridenour"). The Shareholder Agreement required departing attorneys who continue to practice privately to tender their share in the corporation for no compensation. When Fearnow left Ridenour to join another Phoenix firm, he demanded payment for his share. Ridenour refused, citing the terms of the Shareholder Agreement. Fearnow sued, claiming that the Shareholder Agreement violated ER 5.6, which prohibits an "agreement that restricts the right of a lawyer to practice [law] after termination of [a lawyer firm] relationship." Such agreements are prohibited because they limit a lawyer's professional autonomy and interfere with client choice. Fearnow argued that the financial disincentive imposed by requiring departing attorneys to tender shares for no compensation discourages the departing attorney from competing with the law firm or representing former clients, thereby becoming a de facto restriction on the attorney's right to practice law.

The trial court held that the provision in the Shareholder Agreement violated ER 5.6 and was unenforceable. The appellate court agreed, but found that Fearnow had no remedy under the Shareholder Agreement or Arizona's Professional Corporation's Act, forcing Fearnow to retain his virtually valueless share.

The Supreme Court reversed, holding that lawyer agreements that do not expressly or completely prohibit attorneys from practicing law or representing clients will be reviewed under the same reasonableness standard applied to restrictive covenants in other contexts. Noting that ER 5.6 prohibits only agreements "that restrict the right of a lawyer to practice law," which was not the effect of the Shareholder Agreement at issue, the Court should not treat attorneys different than other professionals, such as doctors and accountants, who are permitted to enter into reasonable restrictive covenants. In doing so, Arizona rejected the per se rule advanced by Fearnow and adopted by jurisdictions such as New York, New Jersey, and Oregon, and instead adopted the reasonableness rule announced in Howard v. Babcock, 863 P.2d 150 (Cal. 1994). Because the trial court had not made a determination of reasonableness, the Supreme Court remanded for that determination, noting that such provisions may be reasonable based on such factors as the firm's economic interest, investments, training, capital expenditures, hiring of associates, and marketing and other expenditures directly caused by departing lawyers. The Court noted that if the Shareholder Agreement is found unreasonable, the trial court should sever the voluntary withdrawal provision from the balance of the Shareholder Agreement, which would require that Ridenour repurchase Fearnow's share for his original subscription price.

Justice Bales dissented. He would have struck down the financial disincentive provision under ER 5.6, but he agreed with the majority that Fearnow's remedy was limited to repurchase of the share at the original subscription price.

Justice Hurwitz authored the opinion for the majority.

An article about Schwager v VHS Acquisition.

An article on azcentral.com dicusses the courts ruling that Arizona's workers' compensation law covers off-duty work injuries including those of "lent" employees.

Fry v. Garcia (07/03/06): Division One Holds That Superior Court Is Not Divested of Jurisdiction Over Grandparent Visitation Matter By Marriage of Child’s Parents

Appellant was the mother (“Mother”) of a child born out of wedlock. Pursuant to A.R.S. § 25-409(A)(3), the paternal grandparents (“Grandparents”) had filed a petition for visitation rights based in part on the fact that the child was born out of wedlock. The parties had agreed upon a visitation schedule, which was approved by the superior court. When Grandparents later sought to enforce the visitation order, however, Mother filed a Rule 60(c) motion to set aside the superior court order based on an alleged misrepresentation by Grandparents’ counsel. The superior court denied the motion as untimely. On appeal from that denial, Mother asserted that, because the Grandparents’ statutory visitation rights were based in part on the child being born out of wedlock, the superior court was divested of jurisdiction by the later marriage of the child’s Mother and natural father (“Father”). Division One rejected the argument and held that the superior court had properly denied the Mother’s motion as untimely. The superior court was not divested of jurisdiction because the relevant question under the statute was the marital status of the Mother and Father at the time of the child’s birth. Because the legislature did not explicitly declare an intent to divest the superior court of jurisdiction upon the later marriage of Mother and Father, the Court applied the general rule that jurisdiction is established according to the facts existing at the time an action is filed, and is not lost by subsequent events.

Judge Kessler wrote the opinion for the unanimous panel.

Schwager v. VHS Acquisition Corp/Vanguard Health Management (07/03/06): Division One Holds That the Workers’ Compensation Act’s “Lent Employee Doctrine” Applies to an Employee Who Was Injured While Attempting to Leave Her Place of Employment After Completing Her Shift

Cynthia Schwager worked for InteliStaf which provided medical personnel to hospitals on a contract basis. Schwager suffered an injury at a hospital that contracted with InteliStaf while she was leaving work after completing her shift. In addition to filing a claim with and receiving benefits from InteliStaf’s workers’ compensation carrier, Schwager sued the hospital and the hospital employee who allegedly caused her injury. The Court explained that the “lent employee doctrine” applies when a general employer, such as InteliStaf, lends an employee to a special employer like the hospital. Pursuant to the doctrine, if the special employer is obligated to provide workers’ compensation coverage to the lent employee – as the hospital was here – the doctrine extends immunity to the special employer from suit brought by the lent employee (whether or not the employee seeks to recover benefits from the special employer). Moreover, the “lent employee doctrine” applies even though Schwager was “off duty” when the accident occurred because Arizona cases have consistently defined employment for purposes of workers’ compensation coverage as including that period in which an employee is leaving the employer’s premises after having clocked out. Accordingly, Schwager could not sue the hospital.

The Court also held that A.R.S. § 23-1022(A) prevents employees who are provided with coverage under the Act from suing their co-employees for accidents arising from their employment. The Court distinguished its decision in Inmon v. Crane Rental Services, 205 Ariz. 130, 67 P.3d 726 (App. 2003), which had held that the “lent employee doctrine” did not apply to the facts in that case.

Justice Snow authored the decision. Judges Lankford and Timmer concurred.

Andresano v. County of Pima (06/30/06): Division Two Holds that AIDS Walk Participant is a “Recreational User.”

Plaintiff slipped and fell in a drainage culvert during an AIDS walk on property owned by Pima County, breaking her ankle. She sued the County, alleging that it had acted negligently in failing to maintain the property or to warn her of dangerous conditions on it. The County moved for summary judgment, arguing that it had immunity pursuant to A.R.S. 33-1551, which limits property owners’ liability to “recreational users” injured on their property to situations involving willful, malicious, or grossly negligent conduct. The trial court granted the motion, and plaintiff appealed, arguing that she was not a “recreational user” when she was injured. The Court of Appeals affirmed. Examining the definition of “recreational user” set forth in Section 33-1551, the Court noted that it included a “person to whom permission has been granted or implied without the payment of an admission fee or any other consideration” to engage in certain activities on particular property. Because plaintiff herself did not pay a fee to enter onto the property, notwithstanding the fact that the entity that organized the event had paid a fee, the Court concluded that plaintiff was a “recreational user.” The Court distinguished a case in which a fee paid by a company sponsoring a softball team served to exempt the members of the team from “recreational user” status, noting that the “connection between the payment and the plaintiff” in the instant case was more “attenuated.”

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