AZAPP Blog

Mobilisa, Inc. v. Doe 1 (11/27/2007): Arizona Court of Appeals Division One Holds That Compelling Discovery of an Anonymous Internet Speaker’s Identity Requires Showing that (1) the Speaker Has Been Given Notice and a Reasonable Opportunity to Respond, (2) the Cause of Action Could Survive a Motion for Summary Judgment on Elements Unrelated to the Speaker’s Identity, and (3) the Balance of Interests Favors Disclosure.

Nelson Ludlow, Mobilisa, Inc.’s founder and CEO, used his Mobilisa email account to send an intimate message to a woman with whom he was having a relationship. Six days later, Mobilisa’s management team and others received an email containing the content’s of Ludlow’s email from an anonymous sender with an address from theanonymousemail.com, which is owned by The Suggestion Box, Inc. (“TSB”), an Arizona corporation. The subject line stated “Is this a company you want to work for?”

Mobilisa filed suit against John Does 1-10, claiming that defendants had accessed Mobilisa’s protected computer systems and email accounts without authorization, and subpoenaed TSB to disclose the identity of the person who sent the anonymous email. After objecting to the subpoena, TSB contacted Doe, who agreed to be represented by TSB’s counsel. The superior court ultimately granted Mobilisa’s request to proceed with the subpoena after applying the two-part test set forth in Doe v. Cahill, 884 A.2d 451 (Del. 2005). Doe/TSB appealed.

In a split decision, the Arizona Appeals Court remanded. The Court first set forth the standard to apply in balancing an anonymous internet speaker’s First Amendment right to engage in free speech against the need for discovery. After discussing different tests various courts have adopted, the Court adopted the first two prongs of the test set forth in Cahill, which requires the party requesting disclosure to (1) make efforts to notify the anonymous speaker of the discovery request and provide the speaker a reasonable opportunity to respond and (2) show its cause of action can withstand a motion for summary judgment on elements within its control. 884 A.2d at 460-61, 464. In addition, the Court added a third prong: the requesting party must also show that the balance of the parties’ interests favors disclosure. After setting forth the standard, the Court determined that the superior court had correctly resolved the first two prongs in favor of Mobilisa, but remanded so the superior court could apply the third prong.

Judge Barker dissented, arguing that the adoption of a balancing test was inappropriate when the requesting party has already established that a genuine issue of material fact other than identity exists, and the anonymous speaker is the party-defendant.

Judge Timmer, joined by Judge Ehrlich, authored the majority opinion. Judge Barker dissented.

Posted by azapp @ Fri, Nov 30, 2007

Diana H. v. Rubin (11/21/2007): Arizona Court of Appeals Division Two Holds That the Parent of a Child Who Has Been Adjudicated Dependent Has the Right to Prohibit State-Directed Immunization of the Child on the Grounds of the Parent’s Religious Beliefs.

On March 26, 2007, the Child Protective Services division of the Arizona Department of Economic Security (ADES) took temporary custody of Diana’s nine-month-old daughter, Cheyenne, after the child’s pediatrician expressed concern for her health. Before Cheyenne was adjudicated dependent, Diana requested in writing that ADES exempt Cheyenne from the immunization requirements that apply to children in State child-care facilities on religious grounds. ADES filed a motion seeking authorization to immunize Cheyenne over her mother’s objections, arguing that the immunizations were in Cheyenne’s best interests and were medically necessary. Following an evidentiary hearing, Judge Rubin granted the motion filed by ADES, declaring the immunizations to be medically necessary and in Cheyenne’s best interests. Diana filed a special action.

In a split decision, the Arizona Appeals Court reversed. The Court explained that the State’s interest in the health and welfare of Arizona children must be weighed against a parent’s right to determine the religious upbringing of their child. Under A.R.S. § 8-531(5), ADES acquires a number of rights and responsibilities when it is awarded legal custody of a dependent child, including providing medical care. Medical care, however, is “subject to the residual parental rights and responsibilities.” The Court concluded that these residual parental rights include a parent’s right to determine the religious upbringing of his or her child. Therefore, the Court held, an adjudication of dependency does not eliminate a parent’s right to control his or her child’s religious upbringing. Applying the analysis of Wisconsin v. Yoder, 406 U.S. 205, 213-14 (1972), the Court explained that to override this parental right, the State must demonstrate a compelling interest in the child’s health. Although usually the State’s interest in protecting the health and welfare of children would override a parent’s right to guide their child’s religious upbringing, in the instant case the State’s interest was not compelling. This is demonstrated by A.R.S. §§ 36-883(C) & 15-873(A)(1), which reflect a legislative judgment that allows parents to seek a religious exemption from school and child-care facility immunization requirements.

Judge Espinoza dissented, declaring the Yoder test inapplicable. Specifically, Judge Espinoza argued that Yoder was factually distinguishable because unlike the parental decision in Yoder, which did not jeopardize the health or safety of the child, Diana’s decision put Cheyenne medically at risk. Additionally, in Yoder, the interests in conflict were those of the State and of the parent, but the conflicting interests in this case include not only the State’s and the parent’s, but also the child’s. Citing case law from other jurisdictions, Judge Espinoza also contended that when a conflict arises between a parent’s religious belief and the state’s interest in providing medical care, the state’s interest should prevail. Finally, Judge Espinoza took issue with the majority’s conclusion that exemptions from immunizations based on a parent’s religious beliefs found in other statutes have any relevance to the statute effecting dependent children.

Judge Eckerstrom, joined by Judge Vásquez, wrote the majority opinion for the Court; Judge Espinoza dissented .

Posted by azapp @ Tue, Nov 27, 2007

In re Jesse M. (11/08/2007): Arizona Court of Appeals Division One Holds That an Individual Can Waive the Right to Counsel During an Involuntary Commitment Hearing, But a Trial Court May Deny the Right Upon Finding That the Waiver Is Not Knowing and Voluntary

Following Jesse’s arrest on October 5, 2006 and an involuntary evaluation shortly thereafter, the Coconino County Superior Court set an involuntary commitment hearing and appointed counsel to represent Jesse. At the outset of the involuntary commitment hearing, however, Jesse requested to proceed without counsel. The trial court denied Jesse’s request, citing his attorney’s experience and Jesse’s inability to represent himself. Jesse subsequently objected, saying “this is totally unfair. This is a set up. This is crooked.” The court took exception to these comments and ordered the court reporter not to take down any more of Jesse’s comments. The court eventually found Jesse to be in need of treatment and committed him for inpatient and outpatient treatment. This appeal followed. On appeal, Jesse made two arguments: the trial court erred in refusing to allow him to represent himself and in directing the court reporter to stop transcribing the proceedings.

As pertains to Jesse’s right to counsel, the Arizona Appeals Court held that the right could not be properly waived in this case. The Court explained that due process and Arizona’s statutes governing involuntary committals undoubtedly require legal representation. In the Court’s view, however, the right to legal representation is subject to knowing, intelligent and voluntary waiver. In other words, the right to counsel during involuntary commitment proceedings is waivable so long as the person waiving the right is competent to do so and the record supports the trial court’s decision to allow the person to proceed without counsel. In making its decision, the trial court should do the following: advise the patient of the right to counsel and the consequences of waiving that right; ascertain the reason why the patient desires to represent himself; inquire as to the patient’s education, skill, or training; explore the extent to which the patient understands the involuntary commitment process; and consider any other facts pertinent to the waiver issue. The trial court must then make factual findings supporting the grant or denial of the waiver. In Jessie’s case, the Appeals Court held that although the trial court had failed to make sufficient factual findings, the record independently supported its decision to refuse Jesse’s attempted waiver.

Lastly, the Arizona Appeals Court rejected Jesse’s argument that the trial court committed reversible error when it directed the court reporter to cease taking down Jesse’s comments. While the Court agreed that trial courts do not possess discretion to ignore A.R.S. § 36-539(E)’s mandate to create a verbatim record, and that the trial court in Jessie’s case violated this mandate, the Court deemed the error harmless because Jesse failed to object to the violation, to seek a new trial, and to argue that the court reporter omitted one or more pertinent statements from the record.

Judge Portley authored the opinion; Judges Thompson and Ehrlich concurred.

Posted by azapp @ Tue, Nov 27, 2007

Scheehle v. Justices of the Arizona Supreme Court (11/15/2007): Ninth Circuit Upholds Arizona’s Mandatory Arbitrator Appointment System.

The Ninth Circuit has upheld the Arbitrator Appointment System of the Maricopa County Superior Court against a challenge to the system as an unconstitutional taking, That system requires experienced attorney serve as an arbitrator for up to two days a year with minimal compensation. Following a decision by the Arizona Supreme Court that the Appointment System was permissible under Arizona law, the district court reaffirmed its grant of defendants’ motion for summary judgment. The Ninth Circuit then affirmed, holding that constitutional challenge to the Appointment System is properly considered under the regulatory takings test set forth in Penn Central Transportation Company v. City of New York, 438 U.S. 104 (1978). Under that test, the Ninth Circuit held, the impact of the Appointment System on the plaintiff did not amount to a taking for which he was entitled to compensation under the Fifth Amendment.

Circuit Judge Callahan authored the opinion and was joined by Circuit Judge Thomas and the Honorable Jane R. Roth, Senior United States Circuit Judge for the Third Circuit, sitting by designation.

Posted by azapp @ Fri, Nov 16, 2007

Law v. Verde Valley Medical Center (11/13/2007): Arizona Court of Appeals Division One Holds UCATA Does Not Change Common Law Vicarious Liability; Dismissal of Employee With Prejudice Relieves Employer of Vicarious LiabilityPlaintiff’s Decedent.


Phillip Law, died after treatment at the Verde Valley Medical Center (“VVMC”). Plaintiff Dee Ann Law sued VVMC and two doctors who treated the decedent, alleging medical malpractice. Before trial, the trial court dismissed both doctors with prejudice. VVMC moved for summary judgment on its potential vicarious liability for the negligence of the two doctors. Based on DeGraff v. Smith, 62 Ariz. 261, 157 P.2d 341 (1945), VVMC argued dismissal of their employees relieved them from any vicarious liability: “where the master’s liability is based solely on the negligent acts of his servant, a judgment in favor of the servant relieves the master of any liability.” Id. at 265-70, 157 P.2d at 343-45. The trial court granted summary judgment in favor of VVMC, and Plaintiff appealed.

Plaintiff argued on appeal that DeGraff was no longer good law due to the abolition of joint and several liability under the Uniform Contribution Among Tortfeasors Act (“UCATA”). A.R.S. §§ 12-2501 to -2509 (2003). Plaintiff argued that under UCATA, a plaintiff could still sue the employer, even if the court dismissed the employees from the suit, and the employer’s remedy would be to seek contribution from the employees.

The Arizona Appeals Court affirmed the summary judgment. While UCATA did abrogate joint liability for most tortfeasors, the Court did not believe that UCATA changed the common law of vicarious liability. In DeGraff, the Supreme Court of Arizona held that vicarious liability and joint liability are separate doctrines. DeGraff, 62 Ariz. at 264, 157 P.2d at 343. Joint liability applies to those who commit a wrong through concerted action, and “active participation” in the negligence is required. In contrast, vicarious liability makes an employer derivatively liable for the negligence of an employee, even though the employer was not actually negligent. The Supreme Court affirmed this distinction in Wiggs v. City of Phoenix, 198 Ariz. 367, 371, 10 P.3d 625, 629 (2000). Therefore, UCATA’s change regarding joint liability did not change common law vicarious liability, and the decision in DeGraff remains good law.

Judge Gemmill authored the opinion, with Judges Kessler and Timmer concurring

Posted by azapp @ Fri, Nov 16, 2007

Sheehan v. Flower (11/13/2007): Arizona Court Of Appeals Division One Holds That Grandparents Are Not Entitled To Rights Under A.R.S. § 25-408 To Object To A Custodial Parent’s Out Of State Relocation.

Kiley Sheehan “was awarded sole legal custody and primary physical custody of her minor child.” The child’s grandmother, Lou Ann Flower, was granted visitation. When Sheehan told Flower that she would be moving out of state with the child, Flower filed a motion with the superior court to prohibit Sheehan’s move. Flower relied upon A.R.S. § 25-408, which grants procedural protections to the nonmoving “parent” of the child. The superior court denied the motion because it concluded that “A.R.S. § 25-408 does not apply to grandparent visitation rights . . . .” Flower appealed.

The Arizona Appeals Court affirmed the superior court’s determination that A.R.S. § 25-408 does not protect grandparents. It concluded that, “on its face, the statute requires that advance notice and related rights be afforded only to a ‘parent’ whose custody or ‘parenting time’ will be impacted by a custodial parent’s relocation.” It reasoned that the ordinary meaning of the term, similar statutes, and case law all define “parent” as distinct from, or expressly excluding, “grandparent.” Therefore, the plain language of “[s]ection 25-408 does not apply to grandparent visitation and [Flower] was not entitled to enforce her visitation rights under it.”

Judge Norris authored the opinion; Judges Irvine and Weisberg concurred.

Posted by azapp @ Fri, Nov 16, 2007

McCloud v. State of Arizona (11/9/2007): Arizona Court of Appeals Division Two Reaffirms Narrow Breadth of Equitable Tolling Based on Lawyer’s Illness But Holds Complaint Was Sufficient to Survive Dismissal Where it Raised Issue as to Whether Tort was Committed Within the Scope of DPS Officer’s Employment.

Plaintiff McCloud was rear-ended by Defendant Kimbro, an Arizona DPS officer. At the time of the accident, Kimbro was on his lunch break driving his patrol car to a restaurant. As a result of several personal and family illnesses, McCloud’s counsel failed to file the Complaint within the one year statute of limitations applicable to claims against state employees for torts within the scope of their employment. See A.R.S. § 12-821. The Complaint was, however, filed within the two year limitations period generally applicable to tort claims against private individuals.

On the State’s Motion to Dismiss on limitations grounds, Plaintiff argued equitable tolling (on account of her attorney’s illnesses). On Kimbro’s motion to dismiss claims against him individually, Plaintiff contended that the accident was not within the scope of Kimbro’s employment, because it occurred on his lunch break, and thus a two year limitations period was applicable. The Superior Court granted both motions, and McCloud appealed.

The Arizona Appeals Court affirmed in part and reversed in part. As to equitable tolling, the Court first canvassed conflicting persuasive authorities as to the appropriate standard of review, before applying the rationale of the Second Circuit in Belot v. Burge, 490 F.3d 201, 205-06 (2d Cir. 2007). In Belot, the court explained that where the trial court “has understood the governing law correctly, and has based its decision on findings of fact which were supported by the evidence…,” the proper standard for appellate review is abuse of discretion. The Court of Appeals held that because the Superior Court had properly held that equitable tolling was available for extraordinary cases of attorney illness, but simply declined to find this case sufficiently extraordinary to merit tolling, the decision should be reviewed for abuse of discretion. Applying that standard, the Court of Appeals affirmed.

The Arizona Appeals court reversed and remanded, however, the question of whether Kimbro’s tort occurred within the scope of his employment. The Court first held that A.R.S. § 12-821 can only be reasonably interpreted to apply to acts within the scope of state employment. The Court then explained that whether a tort falls within the scope of employment is generally a question of fact. The Court concluded that because the facts in the complaint did not compel the conclusion that Kimbro’s accident occurred within the scope of his employment, the trial court had erred in dismissing the complaint.

The Court of Appeals affirmed the dismissal of claims against the State. The Court reversed and remanded, however, the dismissal of claims against Kimbro individually.

Judge Brammer authored the decision in which judges Howard and Pelander joined.

Posted by azapp @ Tue, Nov 13, 2007

Gravel Resources of Arizona v. Hills (11/6/2007): Arizona Court Of Appeals Division One Holds That a Court May Appoint a Receiver to Protect Rights or Property of the Parties Without a Showing of Irreparable Harm or Lack of Adequate Legal Remedy.

In litigation involving Hills and Jackson, equal partners in a general partnership, Hills sought judicial dissolution of the partnership and appointment of a receiver to wind up the partnership. Jackson opposed the appointment of a receiver. The trial court found that Hills and Jackson had opposing interests and that as equal partners they were essentially deadlocked. Thus, the trial court granted Hills’ application for appointment of a receiver. Jackson timely appealed.

On appeal, Jackson argued that the trial court erred in appointing a receiver because Hills had failed to show that the receiver was needed to prevent irreparable harm to the parties or that an adequate legal remedy did not exist. The Court of Appeals disagreed based on the plain meaning of Arizona’s receivership statute, A.R.S. § 12-1241. Section 12-1241 states that “[t]he superior court or a judge thereof may appoint a receiver to protect and preserve the property or the rights of parties therein, even if the action includes no other claim for relief.” The Court noted that the legislature amended this statute in 1993 to remove language stating that a receiver could only be appointed “when no other adequate remedy is given by law.” By removing this language, the legislature made clear that lack of a remedy at law was no longer a requirement for the equitable remedy of a receiver.

Judge Snow authored the opinion; Presiding Judge Hall and Judge Portley joined.

Posted by azapp @ Fri, Nov 9, 2007

The Lofts at Fillmore Condominium Ass’n v. Reliance Commercial Constr. Inc. (11/06/2007): Arizona Court of Appeals Division One Holds That The Richards v. Powercraft Homes Exception To The Privity Requirement For Implied Warranty of Habitability Claims Applies Only To a Defendant That Is Both A Builder And A Vendor To A Residential End-User

Reliance contracted with William Mahoney and the Lofts at Fillmore (“the Developers”) to perform work on a residential condominium project that the Developers owned and designed. Members of the Lofts at Fillmore Condominium Associations (“Lofts”) purchased condominiums in the project from Developers. The trial court granted summary judgment in favor of Reliance on Lofts’ claim for breach of the implied warranty of habitability and workmanlike construction. The Lofts appealed. The sole issue on appeal was “whether Lofts has an implied warranty claim against Reliance for alleged construction defects when neither Lofts nor its members had a contractual relationship with Reliance for its work on the project.”

On de novo review, the Arizona Appeals Court affirmed the trial court, finding that the implied warranty claim is a contract claim and that Arizona law has long recognized that only parties to a contract may maintain an action on it. The Arizona Supreme Court recognized a narrow exception to this privity requirement for implied warranty claims in Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 245, 678 P.2d 427, 430 (1984). The plaintiffs in Richards had either purchased directly from Powercraft Homes (the builder) or had purchased from previous owners. The only issue in Richards was whether these subsequent purchasers had a claim for breach of the implied warranty. Richards allowed these subsequent purchasers to pursue their implied warranty claim even though they were not in privity with Powercraft Homes, “based on the same policy considerations underlying the imposition of the implied warranty to the first purchaser.” However, Richards emphasized that the exception to the privity requirement “applies only to homebuilder-vendors,” i.e. to a “contractor who sells to a purchaser who will live in the home.”

Reliance was not a contractor who sold to a purchaser who will live in the home. Extending implied warranty claims beyond homebuilder-vendors to construction companies like Reliance, the Court noted, is a function for the legislature, not the courts.

Judge Barker authored the opinion, with Judges Portley and Ehrlich concurring.

Posted by azapp @ Fri, Nov 9, 2007

Palmer v. Palmer (11/6/2007):Arizona Court of Appeals Division One Holds that Under A.R.S. § 25-327(B), Spousal Maintenance Payments Terminate Upon Remarriage Unless the Dissolution Decree Contains an Affirmative and Unambiguous Intent to Continue the Payments after Remarriage.

Husband filed a petition to terminate spousal maintenance payment upon remarriage of his former wife (“Wife”) in 2005. The decree of dissolution expressly provided that the term and amount of spousal maintenance payments were “non-modifiable” until October 31, 2008, except that the payments would end upon the death of Wife. A.R.S. § 25-327(B) provides that the obligation to pay future spousal maintenance terminates on the remarriage of the party receiving maintenance unless otherwise “expressly provided in the decree.”

The trial court agreed with Wife that the omission of a remarriage provision in light of language in the Decree terminating payments upon the death of Wife was tantamount to expressly providing that the remarriage would not terminate the payments. Husband appealed.

The Arizona Appeals Court reversed the trial court, holding that the intentional omission of termination language in a dissolution decree is not equivalent to an affirmative, unambiguous statement that is required under A.R.S. § 25-327(B). A dissolution decree lacking express language requiring a spouse to continue maintenance payments after remarriage is not sufficient to prevent automatic statutory termination of the payments upon remarriage.

Chief Judge Gemmill authored the opinion, with Presiding Judge Irvine and Judge Weisberg concurring.

Posted by azapp @ Thu, Nov 8, 2007

Farris v. Advantage Capital Corp. (11/1/2007): Arizona Supreme Court Holds That a Creditor’s Action Under Arizona’s Version of the Uniform Fraudulent Transfer Act to Void a Debtor’s Allegedly Fraudulent Transfer of Real Property Is an Action “Affecting Title to Real Property” Under Arizona’s Lis Pendens Statute.

In 2006, Advantage Capital Corporation (“Advantage”) sued former employee, Charles Bolton, to recover money that had gone missing from its customers’ accounts after his termination. Also named in the suit were Bolton’s wife and Marian Farris, Bolton’s mother. Advantage sought to void the sale of the Boltons’ residence to Farris on the grounds that it was a fraudulent transfer of real property. Advantage also filed a lis pendens against the property pursuant to A.R.S. § 12-1191(A). Farris filed suit to remove the lis pendens, and Advantage removed the case to District Court. In a certified question to the Arizona Supreme Court, the District Court of Arizona asked whether an action under Arizona’s version of the Uniform Fraudulent Transfer Act (“UFTA”), A.R.S. §§ 44-1001 to -1010, to void an allegedly fraudulent transfer of real property, is an action “affecting title to real property” under the Arizona lis pendens statute.

The Supreme Court accepted jurisdiction, and answered the question in the affirmative. Arizona’s lis pendens statute allows parties to an action affecting title to real property to file a notice of the pendency of the action with the recorder of the county where the property is situated. A lis pendens action is therefore proper if the underlying action affects the title to the real property. Under Arizona’s version of the UFTA, a creditor may void a debtor’s fraudulent transfer of real property to satisfy the creditor’s claim. The transfer of real property requires the transfer of title to that property; therefore, an action to void an allegedly fraudulent transfer of real property is an action “affecting title to real property.” A creditor can permissibly file a lis pendens under these circumstances.

Justice Ryan wrote the opinion for the unanimous Court.

Posted by azapp @ Tue, Nov 6, 2007

Arizona Supreme Court Minutes:



The Arizona Supreme Court granted review in 4 cases:



1. Dodd v. Hon. Akers/Hon. Spencer/State ex rel Thomas

2. Salt River Project v. Miller Park LLC et al

3. Sarah M. Heath v. Hon. William T Kiger/State

4. Dale Joseph Fushek v. State of Arizona

Posted by azapp @ Fri, Nov 2, 2007

Odom v. Farmers Insurance Company of Arizona (10/29/2007): Arizona Court of Appeals Division Two Holds That a Farmer’s Policy Did Not Provide Coverage To a Third Party Who Borrows a Rental Car From an Insured Individual and Then Causes an Accident.

In July 2001, Jay Good, who had previously purchased insurance from Farmers, rented a vehicle from a car rental agency in Oregon. Although Good was the sole authorized driver under the rental agreement, he loaned the vehicle to Roman Orona, who drove the vehicle into a house, resulting in injury to Jeffrey Odom. Odom sued Orona and Good. After Farmers denied coverage to Orona under Good’s policy. Odom then obtained a judgment, and agreed not to execute the judgment in exchange for an assignment of any claims Orona might have against Farmers for denying coverage. In 2005, Odom filed an action against Farmers for breach of contract and bad faith denial of coverage to Orona. The trial court granted summary judgment in favor of Farmers. This appeal followed.

In holding that Orona was not covered under Good’s automobile insurance, the Arizona Appeals Court first looked to the relevant language in Farmers’ policy, which provided that “no vehicle shall be considered as your insured car unless there is sufficient reason to believe that the use is with permission of the owner, and unless it is used by you or a family member.” This Court found this language subject to only one reasonable interpretation: a rental car is not an “insured car” unless the rental car was used by Good or a family member. Lending the rental car to Orona did not constitute “use” by Good. Nor did Orona obtain the rental agency’s permission before driving its vehicle; Orona thus failed to meet the policy’s requirement that use of the vehicle be “with permission of the owner.” The Court also held that Farmers’ policy did not violate Arizona’s Vehicle Insurance and Financial Responsibility Act (FRA), A.R.S. §§ 28-4001 through 28-4153, because the FRA does not mandate that an insurance policy cover non-named individuals driving vehicles not named in the policy.

Chief Judge Pelander authored the opinion; Judges Howard and Brammer concurred.

Posted by azapp @ Fri, Nov 2, 2007

First American Title Insurance Co. v. Action Acquisitions, LLC (10/30/2007): Arizona Court Of Appeals Division One Holds That Title Insurance Policy Specifically Excluded Coverage For Loss Resulting From Purchaser’s Failure To Pay Adequate Value For A Title At A Sheriff’s Sale.

At a sheriff’s sale, two LLCs (“Purchasers”) paid “$3,500 for a home in Gilbert that had been foreclosed upon because of unpaid homeowners’ association assessments totaling $3,000.” The Purchasers then bought title insurance from First American Title Insurance. The former owner of the home eventually moved “to set aside the sheriff’s sale on the ground that the price Purchasers had paid was so inadequate that it shocked the conscience.” The trial court agreed and set aside the sale. Purchasers “then filed a claim under the [title insurance] policy, asserting a loss of $400,000, which they alleged to be the full cash value of the home.” The trial court granted First American’s motion for summary judgment because it concluded that the policy excluded coverage for such loss.

The Arizona Appeals Court affirmed summary judgment in favor of First American. The terms of the policy “excluded loss ‘resulting from . . . failure to pay value for [the] title.’” Reading the word “adequate” into the contract, the court held that the Purchasers had failed to pay “adequate” value for the title at the sheriff’s sale, and therefore, the policy did not cover the resulting loss. According to the Court, neither precedent nor public policy would justify the contrary conclusion, namely, that “a title insurance policy is to protect an insured who purchases at a sheriff’s sale from the possibility that a court will invalidate the purchase for failure to pay adequate value.”

Judge Johnsen authored the opinion; Judges Thompson and Orozco concurred.

Posted by azapp @ Fri, Nov 2, 2007