AZAPP Blog

Bohreer v. Erie (8/16/07): Arizona Court of Appeals Division One Holds that Arizona Has General Personal Jurisdiction Over a Foreign Corporation That Had Ceased Doing Business in Arizona, but Had Not Withdrawn Its Appointment of the Director of Insurance as an Agent for Service of Process Until After It Had Been Served With the Complaint.

Pursuant to A.R.S. § 20-221(A), Arizona has general personal jurisdiction over a foreign corporation which, at the time of the events leading to a lawsuit, had ceased doing business in Arizona but had not withdrawn its appointment of the Director of Insurance as an agent for service of process until after it had been served with the complaint. The exercise of such jurisdiction comports with due process under Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917).

Judge Kessler authored the opinion; Judges Portley and Irvine concurred.

Neonatology Associates, Ltd. v. Phoenix Perinatal Associates Inc. (8/21/2007): Arizona Court of Appeals Division One Holds that Doctor Group’s Referral of Patients to Out-of-Network Insurance Provider Does Not Constitute Intentional Interference with the Network Provider’s Contract.

A group of perinatologists joined with a group of neonatologists to form Obstetrix. After forming Obstetrix, the perinatologists began referring their neonatal patients to Obstetrix neonatologists, an out-of-network provider, and Obstetrix neonatologists would treat patients without compensation if the patients’ plan refused to pay for Obstetrix neonatologist services. Neonatology Associates, Ltd, the in-network group of neonatologists to which these patients were referred before the formation of Obstetrix, sued for intentional interference with NAL’s contract with the relevant health care plans.

The trial court granted summary judgment to Obstetrix, and the Arizon Appeals Court affirmed, finding no reasonable inference in the record that Obstetrix perinatologists’ practice of routinely referring their patients to Obstetrix neonatologists was improper. Applying Miller v. Hehlen, 209 Ariz. 462, 104 P.3d 193 (App. 2005), the Court rejected NAL’s argument that Obstetrix’s motives were improper because its self-referral practice was business driven, concluding that acting in economic self-interest is not, in and of itself, improper.

Opinion authored by Judge Ehrlich, with Presiding Judge Winthrop and Judge Weisberg concurring.

West Valley View, Inc. v. Maricopa County Sheriff’s Office (8/16/2007): Arizona Court Of Appeals Division One Holds That The Maricopa County Sheriff’s Office Violated The Arizona Public Records Law By Failing To Honor Newspaper’s Requests For Copies Of Future Press Releases.

The Maricopa County Sheriff’s Office routinely distributes press releases to several media outlets via e-mail. The MCSO removed the West Valley View newspaper from its e-mail distribution list after the newspaper failed to cover the events mentioned in the press releases. After the MCSO refused to place the newspaper back on the e-mail distribution list, the newspaper requested copies of all future press releases pursuant to the Arizona Public Records Law, but MCSO ignored the requests. The newspaper then filed a special action pursuant to A.R.S. § 39-121.02(A).

The superior court accepted jurisdiction, and held that that, although the MCSO did not have to reinstate the newspaper on its e-mail distribution list, it had to provide copies for pickup or mailing on the same day that it distributes the press release. The superior court refused to award attorneys’ fees to the newspaper, however, because it was debatable whether the law applied to prospective records requests at the time of the MCSO’s refusals.

The Arizona Court of Appeals affirmed that the MCSO had violated the Arizona Public Records Law. The MCSO did not dispute that the press releases were public records subject to disclosure. It did dispute, however, that the law applied prospectively to future press releases. The Court of Appeals disagreed, citing cases from other jurisdictions enforcing future requests under public records laws. It held that A.R.S. § 39-121.01(D) “does require the Sheriff to provide the newspaper with hard-copy printouts of its press releases the day they are mailed to other media.” The court rejected a construction of the statute that would “require the submission of separate seriatim requests for copies of each successive record when what the requester wants is within a clearly articulated and defined category of records that a public agency creates over time.” The court agreed with the superior court that “such a prospective request is the only feasible way for a media outlet with time-sensitive deadlines to . . . obtain press releases in a timely manner.” Moreover, the MCSO did not claim that promptly providing copies of the press releases would result in any hardship or undue burden.

Finally, the court reversed and remanded the superior court’s denial of attorneys’ fees under A.R.S. § 39-121.02(B). The court concluded that the MCSO’s refusals to respond to the newspaper’s requests and its “petty” reason for removing the newspaper from the e-mail distribution list were arbitrary or capricious, or in bad faith, thereby warranting an award of attorneys’ fees under the statute. The court also awarded the newspaper its attorneys’ fees on appeal pursuant to Rule 21(c) of the Arizona Rules of Civil Appellate Procedure.

Judge Johnsen authored the opinion; Judges Hall and Winthrop concurred.

State of Arizona v. Mabery Ranch, Co., L.L.C. (8/16/2007): Arizona Court of Appeals Division One Holds that a Plaintiff Is Not Required to Comply With the Arizona Notice of Claims Statute to Maintain Suit Against a Public Entity for Injunctive Relief

A lawsuit between the Arizona State Parks Board (“State Parks”) and a private limited liability company (“Mabery”) over disputed rights to an easement near Dead Horse Park in Yavapai County proceeded to a jury trial. The jury found that State Parks had unconstitutionally taken Mabery’s property and had interfered with Mabery’s right to the use of Tuzigoot Road. The jury awarded damages against State Parks for violation of A.R.S. § 33-420 (improper recording of an interest in real property), which damages the trial court trebled pursuant to § 33-420(A). The jury declined to award any damages for State Parks’ interference with Mabery’s use of Tuzigoot Road. State Parks appealed on numerous issues, and Mabery cross-appealed.

State Parks argued that the trial court had erred by failing to dismiss Mabery’s claim regarding its use of Tuzigoot Road because Mabery failed to comply with the notice of claims statute, A.R.S. § 12-821.01 (requiring formal notice before bringing suit against a public entity). Deciding an issue of first impression in Arizona, the Court of Appeals rejected State Parks’ argument, concluding that the statute applies only to claims for damages. Because the jury declined to award damages in connection with this claim, the statute was not implicated by the injunctive relief awarded by the trial court. Cf. Martineau v. Maricopa County, 207 Ariz. 332 (App. 2004) (holding § 12-821.01 inapplicable to a claim for declaratory judgment).

The trial court erred, however, by granting summary judgment to Mabery on its claimed interpretation of its ambiguous Easement Agreement with State Parks. Factual disputes precluded summary judgment on the issue, and the trial court incorrectly resolved any ambiguity in Mabery’s favor under the mistaken belief that construing the Easement Agreement in favor of State Parks would amount to a taking of Mabery’s property rights. Likewise, the trial court improperly denied State Parks’ motion to dismiss Mabery’s counterclaim for inverse condemnation allegedly resulting from State Parks’ filing of a declaratory judgment action for interpretation of the Easement Agreement. Because a declaratory judgment action by definition seeks only a determination of existing property rights, it cannot as a matter of law constitute a taking. The Court of Appeals therefore directed that judgment be entered in favor of State Parks on this counterclaim.

Other counterclaims were time-barred for failure to comply with A.R.S. § 12-821 (providing that an action against a public entity must be brought within one year after the cause of action accrues). The Court of Appeals reversed judgment and directed a verdict for State Parks on the improper recording claim brought by Mabery under § 33-420. Mabery’s argument that it was not aware of its damages until a later date was contradicted by a March, 3, 2000 letter that it had sent threatening to sue for damages based on the alleged improper recording. The Court of Appeals rejected Mabery’s argument that § 33-420 contemplated a new claim accruing each day for statute of limitations purposes.

The Court of Appeals also reversed portions of the judgment establishing and delineating a prescriptive easement in favor of Mabery because the trial court erred by not instructing the jury to interpret the Easement Agreement in deciding the scope and location of the easement providing access to Tuzigoot Road. The trial court also erred in awarding an easement along Tuzigoot Road because the jury chose not to delineate such an alignment, a decision inconsistent with the jury’s finding that Mabery had established its right to a prescriptive easement “to use” Tuzigoot Road.

Judge Johnsen wrote the opinion for the unanimous panel; Judges Orozco and Snow concurred.

Belliard v. Becker (8/23/2007): Arizona Court of Appeals Division One Holds That Plaintiff Is Entitled To Remand for Partial Retrial on Punitive Damages Because Evidence of Defendant Driver’s Pre-Crash Alcohol Consumption Was Improperly Ruled Irrelevant and Precluded at Trial on Basis that Defendant Was Not Charged With Driving Under the Influence

The Defendant left the scene of a single-vehicle highway accident despite knowing that a road-side cable was still attached to his vehicle. He dragged 1200 feet of the cable down the highway before his vehicle came to a second stop. Plaintiff was a passenger in another vehicle, which became entangled in the cable and crashed. Plaintiff incurred minimal immediate medical expenses, but later developed new symptoms and required exploratory surgery and other treatments. Plaintiff sued. Defendant admitted negligence and liability, leaving for trial only the issues of compensatory and punitive damages.

The trial court granted Defendant's motion in limine to preclude evidence that Defendant tested positive for a breath alcohol content of 0.031 shortly after the crash. The Defendant argued the evidence was irrelevant and unfairly prejudicial, and that Plaintiff had failed to present any evidence to rebut the statutory presumption that Defendant was not under the influence. See A.R.S. § 28-1381(G)(1) (presumption that a driver was not under the influence if found to have a breath alcohol concentration of 0.05 or less within two hours of driving). Plaintiff argued that the evidence of alcohol consumption was relevant to the Defendant’s recklessness, which in turn was relevant to the issue of punitive damages. The jury awarded Plaintiff $3,600 in compensatory damages — approximately three time the medical bills from her initial medical treatments — and no punitive damages. Plaintiff appealed.

The Court of Appeals held that the trial court improperly concluded that evidence of Defendant’s alcohol consumption was irrelevant. (The Court of Appeals expressly declined to opine on whether the evidence could be nonetheless excluded for risk of undue prejudice.) The evidence was relevant to the jury’s decision whether to award punitive damages. The Court declined to remand for retrial regarding the amount of compensatory damages, finding that the jury's “modest” award of compensatory damages clearly resulted from a finding that the accident did not cause Plaintiff’s subsequent injury, not because of the exclusion of evidence of Defendant’s drinking. The Court therefore remanded for a partial retrial limited to punitive damages, resolving a question of first impression in Arizona whether such a limited remand is permissible.

Judge Orozco wrote the decision; Judges Johnsen and Snow concurred

Owens v. M.E. Schepp Limited Partnership (8/23/2007): Arizona Court of Appeals Division One Holds That an Oral Partition Agreement Is a “Sale” of an Interest in Real Property For Purposes of the Statute of Frauds, But the Doctrine of Part Performance May Apply as a Defense to the Statute.

In a suit for statutory partition of three lots owned by Plaintiff and Defendant as tenants in common, Defendant counterclaimed alleging breach of an oral partition agreement. The trial court granted partial summary judgment to Plaintiff finding no legal partition agreement had been entered into by the parties. Plaintiff timely appealed, and a split panel of the Arizona Appeals Court reversed and remanded. The majority first determined that a question of fact existed as to whether the parties had entered into a reasonably certain and definite oral partition agreement. The facts presented tended to show that the parties agreed to divide the lots held by them as tenants in common, but disagreed as to the amount of an equalization payment to the party taking the less valuable property. The Court held that, although the equalization payment was a material term, it could be added by a court in an enforcement proceeding, thus the agreement could be enforceable.

Having found a triable issue of fact regarding the existence of an oral partition agreement, the Court next held that such agreements were subject to the statute of frauds. Specifically, the Court held such an agreement constituted an “agreement for . . . the sale of real property or an interest therein.” A.R.S. § 44-101(6). The Court also noted, however, that the equitable doctrine of “part performance” may serve to remove an agreement from the statute of frauds. In this case, the majority held that a genuine issue of material fact existed as to whether an act of part performance had occurred that as a matter of law would refer unequivocally to the alleged oral agreement, such that it would not be subject to the statute of frauds.

On the question of part performance, Judge Timmer split from the majority. Judge Timmer argued that the majority’s ruling improperly expanded the partial performance defense. The majority based its holding primarily on the Plaintiff’s act of removing trees from the lots allegedly partitioned to Plaintiff and on the Defendant’s lack of intervention and partial payment for that removal. Judge Timmer argued that the part performance defense must be founded solely on the act itself, and should not refer to any act or explanation on the part of the party attempting to enforce the agreement. Thus, Judge Timmer did not find the act of tree removal taken in isolation, to be “unequivocally referable” to the alleged oral partition agreement. Such an action would also be consistent with tenancy in common. Thus, Judge Timmer would have affirmed the trial court on the ground that the alleged oral agreement violated the statute of frauds.

Judge Barker authored the majority opinion, joined by Presiding Judge Hall; Judge Timmer dissented.

Grynberg v. Shaffer (8/21/2007): Arizona Court Of Appeals Division One Holds That The Applicable Statute Of Limitations Under Arizona’s Uniform Enforcement Of Foreign Judgments Act Begins To Run When The Foreign Judgment Becomes Enforceable.

Jack Grynberg obtained a judgment in Colorado against Timothy Shaffer. Over four years later, Mr. Grynberg registered the outstanding judgment in Arizona in accordance with Arizona’s Uniform Enforcement of Foreign Judgment Act (UEFJA). Mr. Shaffer objected to the registration on the ground “that the registration was time barred under the four-year statute of limitations controlling the registration of foreign judgments in Arizona.” The trial court agreed and vacated Mr. Grynberg’s registration.

The Arizona Appeals Court affirmed, holding that Mr. Grynberg’s registration was time barred. The court rejected Mr. Grynberg’s argument that the statute of limitations does not begin to run until an appeal of the judgment in the foreign jurisdiction has concluded or the time for filing an appeal has passed. It instead concluded that the relevant date for statute of limitations purposes is the date on which the judgment is entitled to full faith and credit, which in turn is the date on which the judgment is enforceable. In reaching this conclusion, the court relied upon this court’s conclusions in Jones v. Roach, 118 Ariz. 146, 575 P.2d 345 (Ct. App. 1977), the apparent intent of the UEFJA and opinions of other jurisdictions.s In Colorado, a judgment not stayed becomes enforceable fifteen days after the judgment is entered, notwithstanding an appeal of that judgment.

Judge Weisberg authored the opinion; Judges Winthrop and Ehrlich concurred.

NEWS COVERAGE: A recent article in the Arizona Capitol Times discusses the Arizona Court of Appeals decision to side with the newspaper in a public records suit against Arpaio.

Banner Health v. Medical Savings Insurance Company, et. al. (08/14/2007): Court of Appeals Division One Holds That The Rate Schedule Filed By A Hospital Pursuant to A.R.S. §§ 36-436 to -436.03 Is Incorporated Into “Conditions of Admission” Forms That Patients Sign Prior To Being Treated, Regardless of Whether the Forms Explicitly Refer To the Rate Schedule

Seven patients (or spouses or parents of patients) received medical services at various hospital facilities operated by Banner, an Arizona non-profit corporation that owns and operates several hospitals throughout the state. Medical Savings Insurance Company (MSIC) is a health insurer that issued group health insurance to each of the patients and their families. Each patient signed a “Conditions of Admissions” (COA) form before Banner provided treatments. Four of the seven patients signed COA forms providing that:

I agree that in return for the services provided to the patient by the hospital . . . , I will pay the account of the patient . . . . I will pay the hospital’s usual and customary charges, which are those rates filed annually with the Arizona Department of Health Services . . . . It is understood that the undersigned and patient are primarily responsible for payment of patient’s bill.

The other three patients signed a COA form that similarly promised to “pay the account of the patient” and acknowledged that the signer and the patient “are primarily responsible for payment of the patient’s bill.” These three COAs, however, did not include a provision referencing “the rates filed annually with the Arizona Department of Health Services” (DHS). The COA forms constituted the only agreements between Banner and the patients regarding payment of Banner’s charges.

After treatment, Banner billed each of the patients the full amount specified for the provided medical services in its Charge Master Description that was filed with DHS in accordance with A.R.S. §§ 36-436 to -436.03. Banner has no agreements with MSIC, and no insurance company contracts or government programs require Banner to accept reduced payments in satisfaction of billed charges to the patients. MSIC, as the insurer of the patients, reviewed the charges billed by Banner using a methodology it created to “calculate the reasonableness of hospital charges and thus the reimbursement rates paid to medical providers.” MSIC then tendered payment on the seven patients’ bills that ranged from approximately 15 to 43 per cent of the billed charges. Banner refused to negotiate these checks, and sued the patients and MSIC asserting breach of contract for failure to pay.

Banner moved for summary judgment. Patients and MSIC argued genuine issues of fact existed because the amounts billed by Banner were unreasonable, and submitted evidence purporting to show that Banner charged the patients over 400 percent of its cost in providing their care, sought full payment from only 2 percent of its customers, and usually received only 34 per cent of its billed charges from other patients who received treatment similar to that received by the patients. The trial court granted summary judgment to Banner, and MSIC and the patients appealed.

On de novo review, the Court of Appeals affirmed 2-1, holding that the rate schedule Banner filed with DHS is incorporated into the COA forms signed by the patients, regardless of whether the COAs explicitly refer to this rate schedule, because the statutory scheme for capping hospital rates is made part of the COAs “by operation of law.” The patients and MSIC had argued that a “price term” was missing from the COAs, the amounts billed by Banner were unreaonsalbe, and the patients should be responsible only for reasonable charges. But the Court found that “[t]he COA agreements must be interpreted in light of existing Arizona statutes pertaining to hospital rates,” and Arizona has established “comprehensive procedures for the filing, review and disclosure of hospital rates and charges.” Because of this extensive statutory scheme and “the resultant publishing of Banner’s rates and charges, there are no ‘open’ or missing price terms in the COA agreements.”

Having concluded there was no open or missing price term in the COAs, the Court “necessarily reject[ed]” the patients’ argument that a “reasonable” price term should be implied into the contracts. The majority quickly disposed of the patients’ arguments that Banner’s filed (and billed) rates were unconscionable and violated their reasonable expectations. They held that because Banner complied with the statutory process for creating and filing rates, the patients’ reasonable expectations were not violated. The Court likewise held that “as a matter of law, the billed rates and charges are not unconscionable.”

Judge Kessler dissented. He would have held that the filed rates were incorporated only into those COAs that explicitly referred to them and would have reversed and remanded for further proceedings.

As to the COAs that did not refer to the filed rates, Judge Kessler examined the legislative history of A.R.S. §§ 36-436 to -436.03 in an effort to discern the intent of the legislature. That examination led Judge Kessler to conclude that the statutes at issue “specify the time, place and manner by which a hospital must file its schedule of charges with the director, but do not indicate any method of substantive review the director should take concerning those schedules. . . . there are no provisions in [the statutes] under which the director may reject or augment a hospital’s filed rates.” Finding that the statute is “merely a publication vehicle,” but not a mechanism to objectively review rates, Judge Kessler would have held that the filed rates do not constitute a price term incorporated into the COAs that do not directly refer to them.

As to the COAs that did explicitly refer to the filed rates, Judge Kessler found even these “not immune to equitable defenses to contract.” He engaged in a substantive discussion of reasonable expectations and unconscionability, and would have reversed summary judgment and remanded for proceedings to determine (1) an appropriate price term for the COAs that do not refer to filed rates, and (2) finding of facts and conclusions of law as to whether the filed rates are an unconscionable price term.

Judge Gemmill authored the opinion, with Judge Orozco concurring, and Judge Kessler concurring in part and dissenting in part.

White v. Greater Ariz. Bicycling Ass’n (7/12/2007): Divided Panel of the Arizona Court of Appeals Division Two Holds Each Statutory Wrongful Death Plaintiff Must be Awarded Some Damages if No Evidence Contradicts Plaintiffs’ Evidence of Loss

Plaintiffs were the adult children of John White, who died in an accident during a bicycling event sponsored by defendant. A jury found defendant liable for the death and 25% at fault. The jury awarded damages of $250,000 to John’s wife, Elaine, but zero dollars to the children. The children filed a Rule 59 motion for a new trial as to their damages, which the superior court denied. They appealed.

The Majority, relying on the Division One decision in Sedillo v. City of Phoenix, 153 Ariz. 478 (App. 1987), reversed. The Majority noted that here, as in Sedillo, there was no evidence contradicting the childrens’ testimony to their emotional loss. Under such circumstances, the children, statutory beneficiaries, are entitled to “some damages.” The Majority noted that the strength of the childrens’ testimony is relevant to the amount of their damages, but not to the existence thereof.

Because the jury awarded no damages to the children, statutory plaintiffs whose testimony as to their loss was uncontradicted, the Majority reversed and remanded.

Judge Brammer authored the decision in which Eckerstrom joined.

Judge Espinosa dissented. He first argued that Sedillois split decision of Division One, “an outlier” in Arizona law, and thus of diminished precedential value. He also distinguished Sedillo on its facts. Further he criticized the Majority for disregarding the jury’s decision about damages to the children.

Judge Espinosa would rely on the role given to the jury under ARS 12-612(C) and 12-613 to determine and apportion the damages due the children. He would further rely on Hernandez v State, 128 Ariz. 30, 32 (App. 1980) which noted that intangible, emotional losses are within the particular province of the jury to determine.

McDowell Mountain Ranch Community Association, Inc. v. James F. Simons (8/10/07): Arizona Court of Appeals Division One Holds That Court’s Discretion Is Narrowly Circumscribed When the Parties Contractually Agree That a Prevailing Party Shall Be Awarded All Attorneys’ Fees

Appellant challenged the trial court’s award of partial attorneys’ fees in its favor, arguing that its CC&Rs entitled Appellant to “all attorneys’ fees and costs incurred in enforcing compliance with the CC&Rs.” Judge Hall, writing for a divided panel, found that the trial court abused its discretion when it awarded Appellant only one-half of its requested fees. The Court of Appeals held that – pursuant to the plain language of the CC&Rs – Appellant was entitled to receive all its attorneys’ fees except those that were clearly excessive. The Court of Appeals further held that assuming the fees requested were facially reasonable, the losing party had the burden to show that they were clearly excessive. The Court vacated the award and remanded for a hearing on the reasonableness of the fees.

Judge Orozco dissented, noting that a review of the affidavits for attorneys’ fees supported the trial court’s implicit conclusion that the fees were “clearly excessive.” Judge Orozco felt that the trial court must examine the fees application and determine what is reasonable, regardless of whether the losing party objected. She concluded the trial court had not abused its discretion.

Judge Hall authored the opinion, in which Judge Weisberg concurred; Judge Orozco authored the dissent.

Kromko v. Arizona Board of Regents (8/09/2007): Arizona Supreme Court Holds that Issue of Whether Tuition at State Universities Meets Constitutional Mandate to Be "As Nearly Free as Possible" Constitutes a Political Question Not Subject to Judicial Review

Four students at the University of Arizona sued on behalf of a putative class of graduate and undergraduate university students, alleging that the state Board of Regents ("the Board") and the Arizona Legislature violated Article XI, Section 6 of the Arizona Constitution, which requires that instruction at state universities "shall be as nearly free as possible." The complaint alleged that a tuition and fee increase for the 2003-04 academic year violated the constitutional mandate. The superior court dismissed the claims against the Board and the Legislature, finding that both were absolutely immune from suit under A.R.S. § 12-820.01(A). The Arizona Court of Appeals reversed in part, finding that, although the Legislature is absolutely immune from suit for its appropriations decisions, the Board could be sued for equitable and declaratory relief, and for restitution of tuition collected in violation of the constitutional requirement. The Board petitioned the Arizona Supreme Court for review.

The Supreme Court accepted review and held that whether tuition is excessive under the state constitution is a political question not subject to judicial review. The question is nonjusticiable because it is committed by the state constitution to separate branches of government and lacks standards for judicial determination. Tuition levels are influenced by multiple discretionary policy decisions by the Board and Legislature regarding such matters as class sizes, facilities, faculty salary levels, and allocations from the state general fund. There are no judicially discoverable and manageable standards by which to judge these discretionary policy decisions entrusted to the Legislature and the Board. The superior court therefore properly dismissed the claims against the Board. Because it found the issue presented nonjusticiable, the Supreme Court declined to decide whether the Board was immune from suit under A.R.S. § 12-820.01(A).

Justice Hurwitz wrote the opinion for the unanimous Court. Judge Joseph W. Howard of the Arizona Court of Appeals, Division Two, sat in place of Justice Bales, who recused himself from the case.

Tierra Ranchos Homeowners Association v. Kitchukov (8/9/2007): Arizona Court Of Appeals Division One Holds That Homeowners’ Associations Must Act Reasonably In Their Discretionary Determinations, But Homeowners Bear The Burden Of Proof That Associations’ Acts Were Unreasonable; Trial Court Erred In Granting Summary Judgment To Homeowners Who Had Modified Their Design Plans Without Their Association’s Approval Because Association Presented Sufficient Evidence That The Modified Design Would Negatively Impact The Aesthetics Of The Subdivision.

Pursuant to the CC&Rs of the subdivision in which they lived, Todor and Mariana Kitchukov submitted a request to build a garage and guesthouse to their homeowners’ association, Tierra Ranchos Homeowners Association. The association approved the building plan. Without approval, however, the Kitchukovs modified their plan. The original plan called for the garage to be set back eighty-two feet from the northern boundary of their property. The unapproved plan called for only a five-to-fifteen foot setback from their northern property line. The Kitchukovs eventually submitted their modified plan for approval, but the association denied the request. It did so to maintain consistent setbacks throughout the subdivision and preserve the “openness” of the community. When the Kitchukovs continued building, the association brought suit to enjoin the construction. The trial judge granted summary judgment for the Kitchukovs after concluding that the association “disapproved the construction of the garage in an arbitrary, unreasonable, and capricious manner. . . .”

The Arizona Court of Appeals reversed and remanded. It first labored over the proper standard of deference owed to homeowners’ associations’ discretionary determinations. It rejected the minority standard, the business judgment rule. It instead adopted the Restatement (Third) of Property: Servitudes § 6.13 (2000), which requires an association to “act reasonably in the exercise of its discretionary powers including . . . design-control powers,” but places the burden of proving unreasonableness on the homeowner. Turning to the merits, the court reversed and remanded because there were disputes of material fact that precluded summary judgment, including the impact and visibility of the garage in the subdivision and whether the uniqueness of the Kitchukovs’ property warranted an exception to the association’s informal setback policy.

Judge Hall authored the opinion; Judges Johnsen and Winthrop concurred.

NEWS COVERAGE: A recent article in the Arizona Business Gazette discusses the Arizona Court of Appeals decision that there are circumstances where the US mail may not suffice.

NEWS COVERAGE: A recent article in the Arizona Business Gazette discusses the Arizona Court of Appeals decision that customers must pay certain bills to contractors.

NEWS COVERAGE: A recent article in the Arizona Business Gazette discusses the Arizona Court of Appeals decision that non-licensed contractors may be forced to pay restitution.

Hunt v. Richardson (7/31/2007): Arizona Court of Appeals Division One Holds That When Considering the Propriety of an Interference with an Easement, the Fact Finder Must Consider Whether the Obstruction is Appropriate to the Property’s Use, not Whether the Obstruction is Essential.

Phillip and Julia Richardson erected an automated gate across the public easement running along their property. Adjacent landowners sued for interference with their easement rights. The Richardsons counterclaimed, asking for a judgment declaring that the adjacent owners shared responsibility for maintaining the easement and liability for any future injuries suffered due to poor maintenance of the easement.

The trial court granted summary judgment against the Richardsons and entered a permanent injunction requiring removal of the gate and denied the Richardsons’ counterclaim as non-justiciable.

The Arizona Court of Appeals partially reversed the trial court’s order. Though the appellate court rejected the Richardsons’ claim that there was no public easement, it determined that a material question of fact existed as to whether the gate unreasonably interfered with the adjacent landowners’ rights of ingress and egress across the easement. As a matter of first impression, the court held that an obstruction to an easement need not be “essential” to the use of the servient owner’s property to be permissible but need only be “appropriate” to that use – a material issue of fact in this case. The court also rejected the adjacent landowners’ suggestion that Arizona law presumes that a gate constitutes unreasonable interference with access to an easement and held that the Richardsons’ counterclaim for maintenance – but not future liability – is justiciable.

Opinion authored by Judge Timmer, with Presiding Judge Kessler and Judge Weisberg concurring.

Arizona Department of Revenue v. Questar Southern Trails Pipeline Co. (7/19/07): Arizona Court of Appeals Division One Upholds Decision to Exclude Consideration of Obsolescence From Tax Valuation of Pipeline Under Statutory Formula

On an appeal of a tax valuation, Division One held that the Arizona Department of Revenue correctly declined to factor in alleged obsolescence in applying the statutory valuation set forth at A.R.S. § 42-14204. The statute provides the exclusive method of valuation and does not include obsolescence as a factor. The tax court correctly ordered the taxpayer to pay interest from the date of underpayment.

Judge Irvine wrote the opinion; Presiding Judge Portley and Judge Kessler concurred.

Lee v. State of Arizona (7/12/2007): Arizona Court of Appeals Division One Strictly Construes Notice of Claim Rules to Require Delivery, Not Just Mailing, of Claim.

Plaintiffs sought to bring a claim against the State alleging negligence in designing and maintaining a highway guardrail. Plaintiffs sent a notice of claim via U.S. Mail to the Attorney General on January 20, 2005. The State offered evidence that it did not actually receive the Notice, and moved to dismiss for failure to comply with the Notice of Claim requirements of ARS 12-821.01. The Superior Court granted the motion and Plaintiffs appealed.

In still another decision strictly construing ARS 12-821.01, see infra Burkhamer v. State of Arizona, Division One affirmed. The decision noted that the statute requires a claimant to "file" their claim within 180 days. The Court then engaged in a lengthy treatment of the word "file," ultimately relying on other Arizona cases, analoguous federal tort cases, and the dictionary. The Court concluded that the filing requirement obliges tort claimants in Arizona to actually deliver or ensure the actual delivery of the notice of claim to the proper person within the statutory period. Here, because the State offered evidence that no claim was delivered, and because the plaintiff had no proof of delivery, the plaintiffs' suit was barred.

Judge Weisberg authored the decision in which Judges Winthrop and Ehrlich joined.