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Tuesday, October 30, 2007
Bell-Kilbourn v. Bell Kilbourn (10/23/2007): Arizona Court of Appeals Division One Holds That Real Property Acquired During a Marriage Is Not a Community Asset If, at the Time the Property Was Acquired, One Spouse Executed an Enforceable Deed Disclaiming an Interest in the Property
Husband and Wife purchased a house while they were married. In order to obtain financing, the house was purchased as Wife's sole and separate property and Husband executed a disclaimer deed renouncing any interest in the house. Husband later filed for dissolution of the marriage. The family court ruled that the house was a community asset in light of the parties' intent.
Citing Bender v. Bender, 123 Ariz. 90, 597 P.2d 993 (App. 1979), the Arizona Appeals Court vacated in part, holding that Husband’s disclaimer deed was sufficient to rebut the presumption that the house was community property. "[M]arried couples are free to determine the status of their property,” and absent fraud or mistake, disclaimer deeds are enforceable. The court rejected Husband’s argument that in addition to the execution of the disclaimer deed, Wife was required to show contemporaneous conduct demonstrating Husband’s intent to convey his property interest. The contemporaneous conduct requirement did not apply because, unlike cases where one spouse conveys a property interest to the other spouse, Husband never had an interest in the house to begin with. The court also rejected Husband’s argument that the house was community property because community funds were used to acquire the house. In fact, community funds were not used to purchase the house, however they were used to pay the mortgage and maintain, repair, and/or improve the property. Because those subsequent payments gave the community an interest in the house’s equity, the Court remanded so the family court could determine the extent to which Husband was entitled to share in the house’s equity.
Judge Timmer authored the opinion; Judges Barker and Orozco concurred.
Husband and Wife purchased a house while they were married. In order to obtain financing, the house was purchased as Wife's sole and separate property and Husband executed a disclaimer deed renouncing any interest in the house. Husband later filed for dissolution of the marriage. The family court ruled that the house was a community asset in light of the parties' intent.
Citing Bender v. Bender, 123 Ariz. 90, 597 P.2d 993 (App. 1979), the Arizona Appeals Court vacated in part, holding that Husband’s disclaimer deed was sufficient to rebut the presumption that the house was community property. "[M]arried couples are free to determine the status of their property,” and absent fraud or mistake, disclaimer deeds are enforceable. The court rejected Husband’s argument that in addition to the execution of the disclaimer deed, Wife was required to show contemporaneous conduct demonstrating Husband’s intent to convey his property interest. The contemporaneous conduct requirement did not apply because, unlike cases where one spouse conveys a property interest to the other spouse, Husband never had an interest in the house to begin with. The court also rejected Husband’s argument that the house was community property because community funds were used to acquire the house. In fact, community funds were not used to purchase the house, however they were used to pay the mortgage and maintain, repair, and/or improve the property. Because those subsequent payments gave the community an interest in the house’s equity, the Court remanded so the family court could determine the extent to which Husband was entitled to share in the house’s equity.
Judge Timmer authored the opinion; Judges Barker and Orozco concurred.
Posted date: Tue, Oct 30, 2007
Tuesday, October 23, 2007
Cullen v. Koty-Leavitt Insurance Agency, Inc. (10/18/2007): Arizona Court Of Appeals Division Two Endorses The Pleading Standard Adopted By The United States Supreme Court In Bell Atlantic Corp. v. Twombly, And Holds That Trial Court Properly Dismissed A Claim For Insurance Benefits Because The Plaintiff Failed To Plead Facts Sufficient To Show That He Was Covered Under The Policy Or Had A Reasonable Expectation Of Coverage.
Michael Cullen “was injured while riding as a passenger in a vehicle owned by a third party.” A separate vehicle, which Cullen’s family used, had an underinsured motorist insurance policy. The vehicle, however, was owned by a company and the policy was solely in the company’s name. After the insurance company denied Cullen’s claim for benefits under the policy, he brought suit against the insurance company “alleging it had breached the insurance contract and had acted in bad faith by denying benefits to Cullen.” The trial court granted the insurance company’s motion to dismiss because Cullen “‘was not traveling in an automobile that was covered under the . . . policy when he was injured and the policy . . . did not offer ‘portable’ [underinsured motorist] coverage.’” Cullen appealed.
The Arizona Appeals Court affirmed the trial court’s dismissal. First, the Court upheld the trial court’s refusal to convert the insurance company’s motion to dismiss into a motion for summary judgment notwithstanding the fact that the trial court considered the underlying insurance contract when ruling on the motion. The Court held that a “contract central to the plaintiff’s claim . . . is not a ‘matter[] outside the pleadings’ for purposes of Rule 12(b)(6).” The Court further held that, “although Cullen submitted additional affidavits and a statement of facts, it was within the trial court’s discretion under Rule 12(b)(6) to disregard those materials and instead consider the sufficiency of the complaint, in light of the contract at issue.”
Second, relying heavily on the United States Supreme Court’s recent decision in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1965 (2007), which clarified the pleading standard in federal court, the Court concluded that, to survive a motion to dismiss, Cullen must have alleged facts in the complaint sufficient “‘to raise a right to relief above the speculative level.’” Turning to the facts, the Court held that Cullen was not covered because he was not listed on the policy; only a company was listed as the insured in these circumstances. Consequently, the Court concluded that Cullen had failed to allege a viable claim for a reasonable expectation of coverage because (in short) that “doctrine necessarily applies to the reasonable expectations of the contracting parties, not to the reasonable expectations of the hopeful insured, such as Cullen, who is a stranger to the insurance contract.” Finally, the Court declined the insurance company’s attorneys’ fees requests under A.R.S. § 12-341.01.
Judge Brammer authored the opinion; Judge Howard and Chief Judge Pelander concurred.
Michael Cullen “was injured while riding as a passenger in a vehicle owned by a third party.” A separate vehicle, which Cullen’s family used, had an underinsured motorist insurance policy. The vehicle, however, was owned by a company and the policy was solely in the company’s name. After the insurance company denied Cullen’s claim for benefits under the policy, he brought suit against the insurance company “alleging it had breached the insurance contract and had acted in bad faith by denying benefits to Cullen.” The trial court granted the insurance company’s motion to dismiss because Cullen “‘was not traveling in an automobile that was covered under the . . . policy when he was injured and the policy . . . did not offer ‘portable’ [underinsured motorist] coverage.’” Cullen appealed.
The Arizona Appeals Court affirmed the trial court’s dismissal. First, the Court upheld the trial court’s refusal to convert the insurance company’s motion to dismiss into a motion for summary judgment notwithstanding the fact that the trial court considered the underlying insurance contract when ruling on the motion. The Court held that a “contract central to the plaintiff’s claim . . . is not a ‘matter[] outside the pleadings’ for purposes of Rule 12(b)(6).” The Court further held that, “although Cullen submitted additional affidavits and a statement of facts, it was within the trial court’s discretion under Rule 12(b)(6) to disregard those materials and instead consider the sufficiency of the complaint, in light of the contract at issue.”
Second, relying heavily on the United States Supreme Court’s recent decision in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1965 (2007), which clarified the pleading standard in federal court, the Court concluded that, to survive a motion to dismiss, Cullen must have alleged facts in the complaint sufficient “‘to raise a right to relief above the speculative level.’” Turning to the facts, the Court held that Cullen was not covered because he was not listed on the policy; only a company was listed as the insured in these circumstances. Consequently, the Court concluded that Cullen had failed to allege a viable claim for a reasonable expectation of coverage because (in short) that “doctrine necessarily applies to the reasonable expectations of the contracting parties, not to the reasonable expectations of the hopeful insured, such as Cullen, who is a stranger to the insurance contract.” Finally, the Court declined the insurance company’s attorneys’ fees requests under A.R.S. § 12-341.01.
Judge Brammer authored the opinion; Judge Howard and Chief Judge Pelander concurred.
Posted date: Tue, Oct 23, 2007
Grafitti-Valenzuela v. City of Phoenix (9/27/2007): Arizona Court Of Appeals Division One Holds That The City Of Phoenix Was Not Negligent In Failing To Prevent A Sexual Assault At One Of Its Bus Stops.
On January 6, 2003, eleven-year-old Tiana Grafitti-Valenzuela was abducted from a City of Phoenix bus stop and raped. Her mother, Marie Grafitti, brought suit on her behalf against the City of Phoenix for negligently designing and maintaining the bus stop and failing to protect and warn Tiana “against the foreseeable criminal acts of third parties at the Bus Stop.” The trial court granted summary judgment for the City because “there was no question of material fact for the jury on the issues of duty and breach because Tiana’s abduction and sexual assault were unforeseeable as a matter of law.” Plaintiff appealed.
The Arizona Appeals Court affirmed the summary judgment on two grounds. First, it held that, although “as a matter of law . . . the City owed Tiana, as a user of the Bus Stop, a duty to keep the Bus Stop reasonably safe for Tiana’s use,” the City did not breach that duty: “Under the circumstances of this case, where there was no evidence that prior crimes had occurred at the Bus Stop, a reasonable jury could not find that the City breached the duty of care it owed Tiana because it did not install a $10,000 shelter and lighting at the Bus Stop.” Furthermore, even though crime had occurred at other Phoenix bus stops, the City did not have to warn Plaintiff because no crime had occurred at the bus stop in question. Second, the court held, in the alternative, that Plaintiff could not prove causation; “a reasonable jury could not find that [the rapist] would not have abducted Tiana if the City had installed a light and a shelter at the Bus Stop.”
Judge Barker authored the opinion; Judges Norris and Thompson concurred.
On January 6, 2003, eleven-year-old Tiana Grafitti-Valenzuela was abducted from a City of Phoenix bus stop and raped. Her mother, Marie Grafitti, brought suit on her behalf against the City of Phoenix for negligently designing and maintaining the bus stop and failing to protect and warn Tiana “against the foreseeable criminal acts of third parties at the Bus Stop.” The trial court granted summary judgment for the City because “there was no question of material fact for the jury on the issues of duty and breach because Tiana’s abduction and sexual assault were unforeseeable as a matter of law.” Plaintiff appealed.
The Arizona Appeals Court affirmed the summary judgment on two grounds. First, it held that, although “as a matter of law . . . the City owed Tiana, as a user of the Bus Stop, a duty to keep the Bus Stop reasonably safe for Tiana’s use,” the City did not breach that duty: “Under the circumstances of this case, where there was no evidence that prior crimes had occurred at the Bus Stop, a reasonable jury could not find that the City breached the duty of care it owed Tiana because it did not install a $10,000 shelter and lighting at the Bus Stop.” Furthermore, even though crime had occurred at other Phoenix bus stops, the City did not have to warn Plaintiff because no crime had occurred at the bus stop in question. Second, the court held, in the alternative, that Plaintiff could not prove causation; “a reasonable jury could not find that [the rapist] would not have abducted Tiana if the City had installed a light and a shelter at the Bus Stop.”
Judge Barker authored the opinion; Judges Norris and Thompson concurred.
Posted date: Tue, Oct 23, 2007
Callen v. Rogers (10/18/2007): Arizona Court Of Appeals Division One Holds That AHCCCS is Permitted by the Federal Medicaid Program to Provide Coverage Only For Emergency Dental Services.
Under the federal Medicaid program, the federal government provides matching funds to partially pay for state programs that provide medical assistance to qualifying recipients. Arizona Health Care Cost Containment System (“AHCCCS”) is Arizona’s Medicaid program. Callen sought approval from AHCCCS for a surgical procedure to extract all of her remaining teeth. The AHCCCS Director approved coverage for the extraction of some, but not all of Callen’s teeth, based on testimony from its dental consultant that while removal of all of Callen’s teeth was medically necessary, only eight of the teeth required “emergency” extraction. Because AHCCCS only provides coverage for emergency dental services, the Director denied coverage for the remaining extractions. The superior court affirmed, and Callen timely appealed.
On appeal, Callen argued that, pursuant to Medicaid, once Arizona decides to provide some dental coverage under AHCCCS, it is required to provide all necessary dental care to qualified recipients. The Arizona Appeals Court disagreed. The Court explained that Medicaid mandated that participating states provide coverage for certain categories of medical assistance, but designated other categories as “optional.” For those optional services, such as dental care, states are given substantial discretion to select the level of coverage, if any, they wish to provide, and to limit that coverage according to the state’s financial ability to provide such coverage and the degree of need of the recipient. This is in accordance with a primary purpose of the Medicaid program, to provide flexibility and discretion to states to choose the mix of services if offers its eligible population. Thus, Arizona is free, under Medicaid, to provide optional dental services only to those who have an emergency need for them.
Judge Snow authored the opinion; Judges Winthrop and Portley joined.
Under the federal Medicaid program, the federal government provides matching funds to partially pay for state programs that provide medical assistance to qualifying recipients. Arizona Health Care Cost Containment System (“AHCCCS”) is Arizona’s Medicaid program. Callen sought approval from AHCCCS for a surgical procedure to extract all of her remaining teeth. The AHCCCS Director approved coverage for the extraction of some, but not all of Callen’s teeth, based on testimony from its dental consultant that while removal of all of Callen’s teeth was medically necessary, only eight of the teeth required “emergency” extraction. Because AHCCCS only provides coverage for emergency dental services, the Director denied coverage for the remaining extractions. The superior court affirmed, and Callen timely appealed.
On appeal, Callen argued that, pursuant to Medicaid, once Arizona decides to provide some dental coverage under AHCCCS, it is required to provide all necessary dental care to qualified recipients. The Arizona Appeals Court disagreed. The Court explained that Medicaid mandated that participating states provide coverage for certain categories of medical assistance, but designated other categories as “optional.” For those optional services, such as dental care, states are given substantial discretion to select the level of coverage, if any, they wish to provide, and to limit that coverage according to the state’s financial ability to provide such coverage and the degree of need of the recipient. This is in accordance with a primary purpose of the Medicaid program, to provide flexibility and discretion to states to choose the mix of services if offers its eligible population. Thus, Arizona is free, under Medicaid, to provide optional dental services only to those who have an emergency need for them.
Judge Snow authored the opinion; Judges Winthrop and Portley joined.
Posted date: Tue, Oct 23, 2007
Plaintiff Keonjian relied on her lawyer, Defendant Olcott, to draft a deed for property she bought with a third party and advise her regarding a gift letter related to the property. Plaintiff learned about errors in the deed and problems with the gift letter in July 2002 and filed suit against Defendant in September 2005. The trial court granted summary judgment in Defendant’s favor, ruling that the two-year statute of limitations for tort actions barred Plaintiff’s malpractice claim, and that Plaintiff had no claim for breach of contract.
The Arizona Appeals Court affirmed, noting that legal malpractice claims are generally governed by the statute of limitations for tort claims in A.R.S. § 12-542. In determining when the statute of limitations accrued, the court distinguished malpractice claims that arise in the course of litigation because such cases involve an injury that is not ascertainable until the appellate process is complete. In contrast, this case involved various transactions that resulted in immediate injury. The court found that under ordinary accrual principles the statute of limitations accrued in July 2002 when Plaintiff knew or should have known that Defendant caused her harm.
The Court further rejected Plaintiff’s argument that her malpractice claim involved a breach of contract. The court distinguished between a tort malpractice claim, which involves malfeasance (i.e., violation of a duty to represent a client in accordance with an applicable standard of care) and a breach of contract malpractice claim, which involves nonfeasance (i.e., nonperformance of a specific promise). The underlying facts in this case involved malfeasance, and thus Plaintiff’s claim sounded in tort, not contract.
Judge Vásquez authored the opinion; Judges Eckerstrom and Espinosa concurred.
Posted date: Tue, Oct 23, 2007
Thursday, October 11, 2007
Nolan v. Starlight Pines Homeowners Association (10/9/2007): Arizona Court of Appeals Division One Holds That Homeowners Association is Not Obligated to Make Certain Common Areas of Its Development Accessible to Disabled Homeowners
The Nolans own two lots in the Starlight Pines subdivision. The Nolans alleged that Starlight had not done enough to make its community building accessible to Mr. Nolan, who is wheelchair-bound, and had made the neighboring greenbelt areas inaccessible to Mr. Nolan by installing gates, moving boulders and failing to properly grade the surface area. Based on these allegations, they sued Starlight for violations of Arizona Fair Housing Act, Arizona with Disabilities Act, and the Declaration of Covenants, Conditions and Restrictions recorded on the Nolans’ property. The trial court granted Starlight’s motion for summary judgment; the Nolans appealed.
The Arizona Appeals Court affirmed the trial court’s grant of summary judgment in Starlight’s favor, finding that (1) the ADA does not apply to the Starlight common areas into which the general public is not invited because they are not public accommodations; (2) the Nolans did not state a claim under the FHA because they had not made any reasonable accommodation requests, as required by A.R.S. 41-1491.19; (3) there was no breach of the CC&Rs because the Nolans’ right to use and “enjoy” their property did not obligate Starlight to make whatever accommodations might be required to access the common areas (and, in fact, Starlight had made several requested accommodations); and (4) the Nolans had not presented any evidence that the new gates in the fence abutting the greenbelt substantially and unreasonably interfered with their use and enjoyment of their property. The Arizona Appeals Court also affirmed the award of attorneys’ fees to Starlight.
Presiding Judge Johnsen authored the opinion, with Judges Hall and Judge Snow concurring.
The Nolans own two lots in the Starlight Pines subdivision. The Nolans alleged that Starlight had not done enough to make its community building accessible to Mr. Nolan, who is wheelchair-bound, and had made the neighboring greenbelt areas inaccessible to Mr. Nolan by installing gates, moving boulders and failing to properly grade the surface area. Based on these allegations, they sued Starlight for violations of Arizona Fair Housing Act, Arizona with Disabilities Act, and the Declaration of Covenants, Conditions and Restrictions recorded on the Nolans’ property. The trial court granted Starlight’s motion for summary judgment; the Nolans appealed.
The Arizona Appeals Court affirmed the trial court’s grant of summary judgment in Starlight’s favor, finding that (1) the ADA does not apply to the Starlight common areas into which the general public is not invited because they are not public accommodations; (2) the Nolans did not state a claim under the FHA because they had not made any reasonable accommodation requests, as required by A.R.S. 41-1491.19; (3) there was no breach of the CC&Rs because the Nolans’ right to use and “enjoy” their property did not obligate Starlight to make whatever accommodations might be required to access the common areas (and, in fact, Starlight had made several requested accommodations); and (4) the Nolans had not presented any evidence that the new gates in the fence abutting the greenbelt substantially and unreasonably interfered with their use and enjoyment of their property. The Arizona Appeals Court also affirmed the award of attorneys’ fees to Starlight.
Presiding Judge Johnsen authored the opinion, with Judges Hall and Judge Snow concurring.
Posted date: Thu, Oct 11, 2007
Monday, October 8, 2007
Sun Valley Masonry, Inc. v. Industrial Commission of Arizona (10/04/2007): Arizona Court of Appeals Division One Holds that Higher Showing of Causation Required to Reopen a Workers’ Compensation Claim Based on a Subsequent Injury Does Not Apply Where the Subsequent Injury Is a Deterioration Linked to the Initial Injury
Employee was a stone mason who injured his knee on the job and received workers’ compensation benefits. After he returned to work, his knee gave out and he quit working. He filed a petition to reopen his prior claim, alleging a new, additional, and/or previously undisclosed condition relating to that claim. Following a hearing, the administrative law judge (ALJ) granted reopening and summarily affirmed the award upon administrative review. Employer filed a special action, arguing that the ALJ erred by reopening the case without proof that the subsequent injury was a “direct and natural result” of the previous injury with a “substantial causal relationship” to the previous injury.
On special action review, the Arizona Court of Appeals affirmed the award. The court held that the higher showing of causation required under the “compensable consequences” cases relied upon by Employer was not required under the facts. Because Employee’s subsequent injury was the result of a gradual deterioration of the condition that caused the original injury, Employee was entitled to reopen the prior claim upon establishing a new, additional, or previously undiscovered condition with a causal link to the initial injury. See A.R.S. § 23-1061(H). The “compensable consequences” doctrine, with its more stringent required proof of causation, applies only when the subsequent injury manifests after a distinct event, accident or disease subsequent to the original injury.
Judge Johnsen wrote the opinion; Judges Thompson and Ehrlich concurred.
Employee was a stone mason who injured his knee on the job and received workers’ compensation benefits. After he returned to work, his knee gave out and he quit working. He filed a petition to reopen his prior claim, alleging a new, additional, and/or previously undisclosed condition relating to that claim. Following a hearing, the administrative law judge (ALJ) granted reopening and summarily affirmed the award upon administrative review. Employer filed a special action, arguing that the ALJ erred by reopening the case without proof that the subsequent injury was a “direct and natural result” of the previous injury with a “substantial causal relationship” to the previous injury.
On special action review, the Arizona Court of Appeals affirmed the award. The court held that the higher showing of causation required under the “compensable consequences” cases relied upon by Employer was not required under the facts. Because Employee’s subsequent injury was the result of a gradual deterioration of the condition that caused the original injury, Employee was entitled to reopen the prior claim upon establishing a new, additional, or previously undiscovered condition with a causal link to the initial injury. See A.R.S. § 23-1061(H). The “compensable consequences” doctrine, with its more stringent required proof of causation, applies only when the subsequent injury manifests after a distinct event, accident or disease subsequent to the original injury.
Judge Johnsen wrote the opinion; Judges Thompson and Ehrlich concurred.
Wednesday, October 3, 2007
Myers v. Hoffman La-Roche, Inc. (10/2/2007): Arizona Court of Appeals Division One Holds That Claims Against Pharmaceutical Company In Connection With Injuries Suffered In Utero Are Not Barred by the “Wrongful Life” Doctrine or the “Learned Intermediary” Doctrine
Plaintiff brought suit against Defendants, seeking damages for personal injuries Plaintiff sustained after her mother took Accutane while pregnant with Plaintiff. The superior court granted Defendants’ motions to dismiss, which asserted that (1) Plaintiff’s complaint constituted a claim for “wrongful life,” which is not allowed under Arizona law; and (2) the warnings about the medication were adequate as a matter of law pursuant to the “learned intermediary” doctrine.
Judge Johnsen, writing for a unanimous panel, reversed and remanded. Regarding the first issue, the Arizona Appeals Court distinguished Plaintiff’s claim from a “wrongful life” claim, in which a child alleges that defendants caused the child’s life by preventing the mother from terminating a pregnancy. In contrast, Plaintiff’s claim asserted that Defendants caused her injuries in utero by negligently adopting and carrying out an inadequate safety program. Thus, Plaintiff’s claim should not have been dismissed.
Regarding the second issue, the court of appeals held that the “learned intermediary” doctrine did not preclude Plaintiff’s claims. The learned intermediary doctrine provides that the manufacturer or supplier of a prescription drug has no legal duty to warn a consumer of the dangerous propensities of a drug, as long as the manufacturer gives “reasonable instructions or warnings” to the prescribing physician. The court found that the adequacy of instructions and warnings ordinarily is a question of fact and, in this instance, a motion to dismiss should not be granted given the lack of a full record in this case.
Judge Johnsen authored the opinion; Judges Orozco and Ehrlich concurred.
Plaintiff brought suit against Defendants, seeking damages for personal injuries Plaintiff sustained after her mother took Accutane while pregnant with Plaintiff. The superior court granted Defendants’ motions to dismiss, which asserted that (1) Plaintiff’s complaint constituted a claim for “wrongful life,” which is not allowed under Arizona law; and (2) the warnings about the medication were adequate as a matter of law pursuant to the “learned intermediary” doctrine.
Judge Johnsen, writing for a unanimous panel, reversed and remanded. Regarding the first issue, the Arizona Appeals Court distinguished Plaintiff’s claim from a “wrongful life” claim, in which a child alleges that defendants caused the child’s life by preventing the mother from terminating a pregnancy. In contrast, Plaintiff’s claim asserted that Defendants caused her injuries in utero by negligently adopting and carrying out an inadequate safety program. Thus, Plaintiff’s claim should not have been dismissed.
Regarding the second issue, the court of appeals held that the “learned intermediary” doctrine did not preclude Plaintiff’s claims. The learned intermediary doctrine provides that the manufacturer or supplier of a prescription drug has no legal duty to warn a consumer of the dangerous propensities of a drug, as long as the manufacturer gives “reasonable instructions or warnings” to the prescribing physician. The court found that the adequacy of instructions and warnings ordinarily is a question of fact and, in this instance, a motion to dismiss should not be granted given the lack of a full record in this case.
Judge Johnsen authored the opinion; Judges Orozco and Ehrlich concurred.
Monday, October 1, 2007
Rand v. Porsche Financial Services (9/18/2007): Arizona Court of Appeals Division One Holds That A Principal Is Responsible For An Independent Contractor's Breach Of The Peace When Repossessing A Motor Vehicle Under The Self-Help Repossession Statute.
Plaintiff purchased a Porsche on credit, which was repossessed by a repossession company hired by Porsche Financial Services (“PFS”) after the Plaintiff was in default. Following the repossession of their car, the Plaintiffs sued PFS, alleging that the repossession company allegedly breached the peace, committed trespass, and involved the police to assist with the repossession in a manner that violated the Plaintiff’s civil rights under 42 U.S.C. § 1983. PFS counterclaimed for a deficiency arising out of the Rands breach of the lease agreement with PFS. The trial court granted summary judgment to PFS on all three issues, and awarded PFS its attorneys’ fees. The Arizona Appeals Court affirmed the deficiency judgment, but reversed the remaining issues.
The Arizona Appeals Court held that summary judgment was improperly granted on the Rands’ § 1983 claim because there was a question of fact as to the conduct of the Glendale police present at the repossession. Although a § 1983 requires state action, state action might exist “where an officer arrives at the scene with the repossessor, giving the impression that law enforcement supported the action and intimidating the property owner from exercising his or her right to resist the repossession.” Once PFS acknowledged that the police “permitted” the repossession company to take control of the Rands’ vehicle, police action arguably constituted state action. Because PFS provided no evidence showing that the police involvement was “unarguably benign,” it was not entitled to summary judgment.
The Arizona Appeals Court likewise found summary judgment on the Rand’s trespass claim improper. Generally, an employer is liable for the negligence of its employees under the doctrine of respondeat superior, but not liable for the negligence of an independent contractor. However, an employer may be held liable when the independent contractor breaches a non-delegable duty. Although the repossession company was an independent contactor, Arizona’s self-help statute, modeled on the U.C.C., imposes a nondelegable duty to avoid breaching the peace. Summary judgment on the trespass claim was therefore improper because PFS could be held liable for the independent contractor’s trespass, if any, because PFS had a nondelegable duty to repossess its collateral only if it could do so without breaching the peace.
Judge Weisberg authored the opinion; Judges Kessler and Timmer concurred.
Plaintiff purchased a Porsche on credit, which was repossessed by a repossession company hired by Porsche Financial Services (“PFS”) after the Plaintiff was in default. Following the repossession of their car, the Plaintiffs sued PFS, alleging that the repossession company allegedly breached the peace, committed trespass, and involved the police to assist with the repossession in a manner that violated the Plaintiff’s civil rights under 42 U.S.C. § 1983. PFS counterclaimed for a deficiency arising out of the Rands breach of the lease agreement with PFS. The trial court granted summary judgment to PFS on all three issues, and awarded PFS its attorneys’ fees. The Arizona Appeals Court affirmed the deficiency judgment, but reversed the remaining issues.
The Arizona Appeals Court held that summary judgment was improperly granted on the Rands’ § 1983 claim because there was a question of fact as to the conduct of the Glendale police present at the repossession. Although a § 1983 requires state action, state action might exist “where an officer arrives at the scene with the repossessor, giving the impression that law enforcement supported the action and intimidating the property owner from exercising his or her right to resist the repossession.” Once PFS acknowledged that the police “permitted” the repossession company to take control of the Rands’ vehicle, police action arguably constituted state action. Because PFS provided no evidence showing that the police involvement was “unarguably benign,” it was not entitled to summary judgment.
The Arizona Appeals Court likewise found summary judgment on the Rand’s trespass claim improper. Generally, an employer is liable for the negligence of its employees under the doctrine of respondeat superior, but not liable for the negligence of an independent contractor. However, an employer may be held liable when the independent contractor breaches a non-delegable duty. Although the repossession company was an independent contactor, Arizona’s self-help statute, modeled on the U.C.C., imposes a nondelegable duty to avoid breaching the peace. Summary judgment on the trespass claim was therefore improper because PFS could be held liable for the independent contractor’s trespass, if any, because PFS had a nondelegable duty to repossess its collateral only if it could do so without breaching the peace.
Judge Weisberg authored the opinion; Judges Kessler and Timmer concurred.
ADOR v. Ormond Builders, Inc. (09/11/2007): Arizona Court of Appeals Division One Holds That “Construction Manager” Is A Taxable “Prime Contractor” For Purposes of Transaction Privilege Tax, But Cannot Be Taxed For Amounts It Received To Pay Other Contractors On Behalf of Project Owners
Ormond Builders Inc. entered into “construction management” agreements with the Show Low and Payson Unified School Districts under which it supervised and coordinated school construction projects. These duties included developing time schedules, inspecting the performance of trade contractors, maintaining full-time employees at the sites, processing change orders, and assisting the schools in determining substantial completion of the work. Trade contractors also assisted in the projects, who entered into agreements directly with the schools. The trade contractors submitted their payment requests, however, to Ormond, which processed them The schools then paid Ormond amounts due to trade contractors, and Ormond deposited the funds in its own accounts before disbursing the funds to the trade contractors.
The schools’ payments to Ormond fell into three categories: (1) a construction manager fee, (2) payment of certain costs associated with the projects, including wages and salaries of Ormond’s personnel stationed at the sites, costs of permits, etc., and (3) amounts due to trade contractors for work performed pursuant to the trade contracts. The second two categories were in issue.
Arizona imposes a transaction privilege tax on a “prime contractor’s” gross income derived from the business of prime contracting. A.R.S. §§ 42-5008, -5010, -5075 (Supp. 2006). Subcontractors who work for a taxable prime contractor are not taxed. A.R.S. § 42-5075(D).
After conducting an audit, the ADOR issued an assessment against Ormond as prime contractor for unpaid taxes based on all payments received by Ormond from the schools, including amounts paid to Ormond by the schools in order for Ormond to process payment to the trade contractors. After a trial, the tax court upheld ADOR’s assessment.
On de novo review, the Arizona Appeals Court partially reversed, holding that Ormond constituted a prime contractor subject to transaction privilege taxes, but that it could not be taxed for amounts it received from the schools and paid to the trade contractors merely as “a conduit” between the schools and the trade contractors. The Court “easily conclude[d]” that Ormond was a “contractor” because it “entered into contracts with the Schools to personally or through its supervision of others build or alter structures.” A.R.S. § 42-5075(M)(2). Ormond was also a “prime contractor” because it “agreed to do certain tasks and was compensated for doing so, both in the construction management fee and payments to reimburse it for costs it incurred.” A.R.S. § 42-5075(M)(6). The Court noted that Ormond need not be a “general contractor” to constitute a “prime contractor” under the statute.
As to the categories of payments on which it could be taxed, the Court noted that “gross income” does not necessarily include “all monies paid to [the prime contractor] relating to a construction project.” The Court quickly found that Ormond’s gross income included the items paid to it by the schools for various costs (as noted above), and spent the bulk of its analysis on the payments by the schools to Ormond for purposes of paying the trade contractors. The agreements entered into by the parties established that (1) Ormond was not liable to the trade contractors for payment under the trade contractors’ contracts with the schools, (2) Ormond was not a party or signatory to any of Payson trade contracts, but rather each trade contractor contracted directly with Payson, and (3) Ormond did not sign any of the change orders. Ormond thus processed the payments from the schools to the trade contractors but did so “only as agent of the schools.” As such, the amounts simply “flowed through” Ormond’s accounts before being paid to the trade contractors and should not have been included (and taxed) as Ormond’s taxable gross income.
The Arizona Appeals Court also briefly addressed a privilege license tax assessed by the City of Show Low on “construction contracting.” Finding the definition of “construction contracting” at least as broad as the state law definition of “prime contracting,” Division One held that Ormond’s activities constituted construction contracting under Show Low’s municipal code.
Judge Irvine authored the opinion, with Judge Portley, Presiding Judge, and Judge Johnsen concurring.
Ormond Builders Inc. entered into “construction management” agreements with the Show Low and Payson Unified School Districts under which it supervised and coordinated school construction projects. These duties included developing time schedules, inspecting the performance of trade contractors, maintaining full-time employees at the sites, processing change orders, and assisting the schools in determining substantial completion of the work. Trade contractors also assisted in the projects, who entered into agreements directly with the schools. The trade contractors submitted their payment requests, however, to Ormond, which processed them The schools then paid Ormond amounts due to trade contractors, and Ormond deposited the funds in its own accounts before disbursing the funds to the trade contractors.
The schools’ payments to Ormond fell into three categories: (1) a construction manager fee, (2) payment of certain costs associated with the projects, including wages and salaries of Ormond’s personnel stationed at the sites, costs of permits, etc., and (3) amounts due to trade contractors for work performed pursuant to the trade contracts. The second two categories were in issue.
Arizona imposes a transaction privilege tax on a “prime contractor’s” gross income derived from the business of prime contracting. A.R.S. §§ 42-5008, -5010, -5075 (Supp. 2006). Subcontractors who work for a taxable prime contractor are not taxed. A.R.S. § 42-5075(D).
After conducting an audit, the ADOR issued an assessment against Ormond as prime contractor for unpaid taxes based on all payments received by Ormond from the schools, including amounts paid to Ormond by the schools in order for Ormond to process payment to the trade contractors. After a trial, the tax court upheld ADOR’s assessment.
On de novo review, the Arizona Appeals Court partially reversed, holding that Ormond constituted a prime contractor subject to transaction privilege taxes, but that it could not be taxed for amounts it received from the schools and paid to the trade contractors merely as “a conduit” between the schools and the trade contractors. The Court “easily conclude[d]” that Ormond was a “contractor” because it “entered into contracts with the Schools to personally or through its supervision of others build or alter structures.” A.R.S. § 42-5075(M)(2). Ormond was also a “prime contractor” because it “agreed to do certain tasks and was compensated for doing so, both in the construction management fee and payments to reimburse it for costs it incurred.” A.R.S. § 42-5075(M)(6). The Court noted that Ormond need not be a “general contractor” to constitute a “prime contractor” under the statute.
As to the categories of payments on which it could be taxed, the Court noted that “gross income” does not necessarily include “all monies paid to [the prime contractor] relating to a construction project.” The Court quickly found that Ormond’s gross income included the items paid to it by the schools for various costs (as noted above), and spent the bulk of its analysis on the payments by the schools to Ormond for purposes of paying the trade contractors. The agreements entered into by the parties established that (1) Ormond was not liable to the trade contractors for payment under the trade contractors’ contracts with the schools, (2) Ormond was not a party or signatory to any of Payson trade contracts, but rather each trade contractor contracted directly with Payson, and (3) Ormond did not sign any of the change orders. Ormond thus processed the payments from the schools to the trade contractors but did so “only as agent of the schools.” As such, the amounts simply “flowed through” Ormond’s accounts before being paid to the trade contractors and should not have been included (and taxed) as Ormond’s taxable gross income.
The Arizona Appeals Court also briefly addressed a privilege license tax assessed by the City of Show Low on “construction contracting.” Finding the definition of “construction contracting” at least as broad as the state law definition of “prime contracting,” Division One held that Ormond’s activities constituted construction contracting under Show Low’s municipal code.
Judge Irvine authored the opinion, with Judge Portley, Presiding Judge, and Judge Johnsen concurring.
Boncoskey v. Boncoskey (9/25/2007): Arizona Court Of Appeals Division One Holds That Division of a Community’s Interest in Pension Rights That Have Not Yet Matured Is Governed By Johnson v. Johnson, 131 Ariz. 38, 638 P.2d 705 (1981) and Not Koelsch v. Koelsch 148 Ariz. 176, 713 P.2d 1234 (1986).
In a divorce proceeding governed by a consent decree incorporating the parties’ settlement agreement, a special master was appointed to resolve the sole outstanding issue of how the community’s interest in husband’s pension should be divided. In its order appointing the Special Master, the trial court stated that Koelsch v. Koelsch, 148 Ariz. 176, 713 P.2d 1234 (1986) controlled the valuation and payment of the pension interests. In Koelsch, the Supreme Court established the appropriate method for valuing and paying a community interest in a pension that had matured, where the pensioner desired to continue working past the maturity date. In such circumstances, the Court held that division of the pension must be based on present value when the pension matured, and payoff should either be in the form of a lump sum paid in full or in installments beginning immediately.
Based on the court’s instruction to apply Koelsch, the Special Master determined that husband could take early retirement at age 50 with a reduced benefit. Thus, the Special Master valued the pension as of that maturity date, and recommended husband begin making payments at age 50 to wife of her half of the community interest in the pension. The trial court adopted the Special Master’s report and entered a Domestic Relations Order (“DRO”). Husband timely appealed.
The Arizona Appeals Court vacated the DRO and remanded. The Court held that the superior court erred in instructing the Special Master to apply Koelsch, because husband’s pension rights were not yet mature. Rather, in situations where pension rights are not mature, Johnson v. Johnson, 131 Ariz. 38, 638 P.2d 705 (1981), is the proper controlling authority. Under Johnson, division of pension payments occur “if, as, and when” the pension is paid out. Moreover, Johnson recognized that mature pension rights are unconditional rights to immediate payment. Thus, the court erred in ordering husband to make payments based on early retirement at age 50 because husband will not have acquired an unconditional right to full payment at that time.
Judge Weisberg authored the majority opinion, joined by Presiding Judge Winthrop and Judge Ehrlich.
In a divorce proceeding governed by a consent decree incorporating the parties’ settlement agreement, a special master was appointed to resolve the sole outstanding issue of how the community’s interest in husband’s pension should be divided. In its order appointing the Special Master, the trial court stated that Koelsch v. Koelsch, 148 Ariz. 176, 713 P.2d 1234 (1986) controlled the valuation and payment of the pension interests. In Koelsch, the Supreme Court established the appropriate method for valuing and paying a community interest in a pension that had matured, where the pensioner desired to continue working past the maturity date. In such circumstances, the Court held that division of the pension must be based on present value when the pension matured, and payoff should either be in the form of a lump sum paid in full or in installments beginning immediately.
Based on the court’s instruction to apply Koelsch, the Special Master determined that husband could take early retirement at age 50 with a reduced benefit. Thus, the Special Master valued the pension as of that maturity date, and recommended husband begin making payments at age 50 to wife of her half of the community interest in the pension. The trial court adopted the Special Master’s report and entered a Domestic Relations Order (“DRO”). Husband timely appealed.
The Arizona Appeals Court vacated the DRO and remanded. The Court held that the superior court erred in instructing the Special Master to apply Koelsch, because husband’s pension rights were not yet mature. Rather, in situations where pension rights are not mature, Johnson v. Johnson, 131 Ariz. 38, 638 P.2d 705 (1981), is the proper controlling authority. Under Johnson, division of pension payments occur “if, as, and when” the pension is paid out. Moreover, Johnson recognized that mature pension rights are unconditional rights to immediate payment. Thus, the court erred in ordering husband to make payments based on early retirement at age 50 because husband will not have acquired an unconditional right to full payment at that time.
Judge Weisberg authored the majority opinion, joined by Presiding Judge Winthrop and Judge Ehrlich.
