AZAPP Blog

Lowe v. Pima County (3/13/2008):  Arizona Court of Appeals Division Two Holds That Public Acceptance of a Common Law Dedication of Land May Be Established by General Public Use

This case involves property once owned by the Marks, who signed and recorded a deed of dedication conveying a 60-foot strip of land for public use (the “disputed property”).  The Marks later sold four parcels adjoining the disputed property.  By the time the Lowes purchased one of the four parcels, a previous owner had constructed a fence on the parcel.  Pima County determined that the fence was built on the public right-of-way and cited the Lowes for constructing and maintaining a fence without a permit.  A county enforcement hearing officer entered a judgment in favor of the county.  The Pima County Board of Supervisors, sitting as the Zoning Enforcement Board of Appeals, upheld the hearing officer’s decision.  The Lowes appealed to the superior court, (1) alleging that the hearing officer’s decision was contrary to law and (2) seeking a declaratory judgment to quiet title, claiming they had acquired possession of the disputed property by adverse possession.  The superior court granted summary judgment in favor of the county on both counts and this appeal followed.

The Arizona Appeals Court affirmed the superior court’s grant of partial summary judgment in favor of the county on the Lowes’ equitable estoppel defense, finding that the Lowes failed to meet their burden in proving the elements of the defense.  The Court of Appeals reversed the superior court’s grant of summary judgment as to the ownership of the disputed property.  The Court of Appeals agreed with the Lowes’ argument that the deed of dedication alone was insufficient to dedicate the disputed property for public use because the deeds of the adjacent parcels did not reference the dedication.  The Court held, however, that public acceptance of a dedication may be established by use.  The Court found that the record reflected questions of fact on whether there had been any general public use of the property described in the deed of dedication, making summary judgment inappropriate.

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

Pueblo Sante Fe Townhomes Owners’ Ass’n v. Transcontinental Ins. Co. (3/13/2008): Arizona Court Of Appeals Division One Holds That (1) Claimant Who Contracts For The Rights Of The Insured Pursuant To A Morris Agreement May Assert The Insured’s Equitable Estoppel Claims And (2) Insurance Company Was Equitably Estopped From Denying Coverage Because It Waited Eighteen Months To Notify The Insured That It Was Reserving Its Rights To Deny Indemnity Coverage. 

Pueblo filed suit against Palo Verde Plastering for defective stucco work.  Palo Verde was insured by CNA, which hired counsel for Palo Verde and directed the defense against Pueblo’s suit.  CNA delayed approximately eighteen months before notifying Palo Verde that it was reserving its rights to deny coverage for the majority of Pueblo’s damages.  Pueblo and Palo Verde then entered into an agreement pursuant to United Service Automobile Association v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987), whereby Pueblo and Palo Verde agreed to a $1,100,000 judgment and Palo Verde assigned Pueblo “its rights under the insurance policy in exchange for [Pueblo’s] covenant not to execute the judgment against” Palo Verde.    The trial court found the $1,100,000 judgment plus attorneys’ fees reasonable.  The trial court also found that CNA was equitably estopped from denying coverage because it delayed in reserving its rights, which prejudiced Palo Verde. 

The Arizona Appeals Court affirmed, but modified the amounts awarded for prejudgment interest and attorneys’ fees.  First, the court held that the Morris agreement, which explicitly contemplated that Pueblo might have to assert Palo Verde’s equitable estoppel defense, gave Pueblo the right to assert equitable estoppel when CNA attempted to deny coverage.  Second, the court concluded that the trial court correctly applied the doctrine of equitable estoppel to CNA’s coverage denial.  Because CNA failed to notify Palo Verde promptly that it was reserving its rights to deny coverage for the majority of Pueblo’s damages, Palo Verde relied on its assumption that any resulting damages would be covered.  Furthermore, Palo Verde was prejudiced by this reliance because it would have participated in the destructive testing on Pueblo’s townhomes to determine the cause of the stucco problems.  By the time Palo Verde was notified of CNA’s reservation of rights, however, the court-ordered deadline for destructive testing had passed.  Third, the court held that prejudgment interest in Pueblo’s favor was calculated using the wrong start date, namely, the date on which Pueblo entered into the Morris agreement.  Because Morris agreements must be approved by the trial court as reasonable, the judgment amount was not liquidated for prejudgment interest purposes until the trial court’s subsequent approval.  Finally, in light of the reduced amount awarded for prejudgment interest, the court also modified the award of attorneys’ fees pursuant to A.R.S. § 12-341.01(B) because the fee award “may not exceed the amount paid or agreed to be paid.”  Under Pueblo’s contingent fee agreement with its counsel, the “maximum amount payable [to its attorneys] pursuant to that agreement is $469,831,” which was less than the trial court’s award of $536,500.

Judge Johnsen authored the opinion; Judges Barker and Irvine concurred. 

Mining Inv. Group, LLC v. Roberts (3/11/2008):  Arizona Court of Appeals Division One Holds that Buyer’s Failure to Fund Escrow on Date Called for In Purchase Contract Was Material Breach.

Mining Investment Group (the “Buyer”) entered into a purchase contract for vacant land with Roberts (the “Seller”).  The contract contained language stating that “time was of the essence” and requiring the Buyer to deposit a total of $40,000 in escrow on or before October 12, 2005.  The parties agreed once to extend the deadline to October 14, 2005.   By close of business on Friday October 14, 2005, the Buyer had deposited only $10,000 (the initial earnest money).  The Seller then faxed a cancellation notice removing the property from escrow.  On Monday October 17, 2005, the Buyer then wired the missing $30,000 to the escrow account.

On October 24, 2005, the Buyer sued for specific performance and recorded a Lis Pendens.  Both parties subsequently moved for summary judgment, with the Seller contending that the Buyer had recorded a groundless lis pendens, and that its failure to timely fund the escrow constituted a material breach pursuant to the contract’s “time of the essence” clause.  The Buyer maintained that the short delay was an immaterial breach.  The Superior Court granted the Seller’s motion for summary judgment as to the materiality of the contract breach, and ordered the earnest money paid to Roberts, along with liquidated damages and attorneys’ fees.  However, the Superior Court, found the lis pendens was not groundless when recorded.

   On appeal, the Buyer argued that summary judgment was inappropriate because there was a question of fact as to the “materiality” of its breach.  Rejecting that claim, the Arizona Appeals Court relied heavily on the plain language of the purchase contract to hold the breach material.  The Court similarly relied on the contract’s language in awarding the earnest money to Roberts as liquidated damages and in awarding attorneys’ fees.  The Court further emphasized the difference between a purchase contract and a lease contract, and distinguished Foundation Development Corp. v. Loehmann’s, Inc., 163 Ariz. 438, 788 P.2d 1189 (1990), which held in the landlord-tenant context that a late payment did not constitute a material breach notwithstanding a “time of the essence” clause.

Judge Orozco authored the decision in which judges Barker and Timmer joined.

Arizona Water Company v. Arizona Corporation Commission (3/13/2008): Arizona Court of Appeals Division One Holds That the First-In-the-Field Doctrine Does Not Require the Arizona Corporation Commission to Award a CC&N to an Existing Utility Company Over a Start-Up Company

Two water utility companies filed competing applications for a certificate of convenience and necessity (CC&N) to provide water service for a community in Pinal County.  An administrative law judge found the applications of “relatively equal merit.”  The Arizona Corporation Commission (the “Commission” or “ACC”) awarded the CC&N to Woodruff Water Company, a start-up company that had not previously provided service in Pinal County.  Plaintiff Arizona Water Company filed a complaint in superior court to modify or set aside the ACC order on the grounds that Plaintiff had a superior right to provide service to the area under the first-in-the-field doctrine (which entitles a utility able, willing, and holding a certificate of convenience and necessity to extend its service to new customers who reside in the field of the utility’s existing service area) and under a balancing of relevant factors.  The superior court affirmed the ACC decision, finding that the first-in-the-field doctrine did not apply, and that the Commission’s decision was neither unlawful nor unreasonable.  Plaintiff appealed.

The Arizona Appeals Court affirmed and declined to adopt the first-in-the-field doctrine.  Although the Arizona Supreme Court’s opinion in Arizona Corporation Commission v. Fred Harvey Transportation Co., 95 Ariz. 185, 388 P.2d 236 (1964), contains a statement apparently embracing the first-in-the-field doctrine, the statement was mere dictum and thus without precedential value.  As for the merits, the Court reasoned that adopting the first-in-the-field doctrine might be contrary to the public interest – the controlling factor in the ACC determination.  Moreover, an Arizona statute already provides certain rewards for existing public service corporations similar to those recognized by the first-in-the-field doctrine.  See A.R.S. § 40-281(B).  (Plaintiff did not assert preferential rights under the statute.)  The Court also agreed that the ACC’s balancing of relevant factors was neither arbitrary nor capricious, and thus within the Commission’s “wide discretion” in making its determination.    

Judge Timmer wrote the opinion; Judges Barker and Orozco concurred.

Obregon v. Indus. Comm’n of Ariz. (2/28/2008):  Arizona Court of Appeals Division One Holds That A.R.S. § 23-1028 Only Prevents a Workers’ Compensation Claimant from Receiving Those Benefits Obtained Fraudulently, Not All Benefits.

In 2003, Alfonso Obregon filed a workers’ compensation claim for an injury suffered at work.  He initially received temporary total and temporary partial disability benefits, and ultimately was awarded permanent partial disability benefits of $167.30 per month.  In May 2006, he was found guilty under A.R.S. § 23-1028 for making false statements in order to obtain temporary partial disability benefits in 2004.  The State Compensation Fund (“SCF”) subsequently suspended all of Obregon’s benefits, including those that he had obtained without fraud, citing A.R.S. § 23-1028.  The ICA agreed with the SCF’s interpretation of the statute, and Obregon petitioned for special action review.

The Arizona Appeals Court set aside the ICA’s decision, holding that A.R.S. § 23-1028 only applies to benefits fraudulently obtained.  That statute states that an individual who makes a false statement in order to obtain “compensation, benefit or payment” is guilty of a class 6 felony and “shall . . . forfeit all right to such compensation, benefit or payment.”  The Court found that “such compensation, benefit or payment” refers only to those benefits obtained by fraud, because interpreting the statute otherwise would fail to give any meaning to the word “such.”  The Court also explained that “[a]bsent specific statutory language, we will not construe a statute to require a forfeiture of workers’ compensation benefits to which a claimant is otherwise entitled.”  The Court did not find any language in A.R.S. § 23-1028 clearly expressing a legislative intent that all benefits be forfeited.  Finally, the Court rejected the SCF’s argument that the legislature’s statement of intent supported its interpretation of the statute, explaining that the statement of intent was unrelated to the forfeiture aspect of the statute. 

Chief Judge Gemmill authored the opinion; Presiding Judge Weisberg and Judge Hall concurred.

City of Scottsdale v. CGP-Aberdeen, L.L.C. (3/06/2008):  Arizona Court of Appeals Division One Holds That the Statutory Valuation Date for Condemned Property Under A.R.S. § 12-1123 Does Not Always Represent the Date of the Taking for Purposes of Determining Just Compensation Under the Fifth Amendment.

On January 13, 2003, the City of Scottsdale (“ Scottsdale”) filed a summons and complaint to condemn an undeveloped parcel of land owned by CGP-Aberdeen, L.L.C. (“CGP”).  The trial court entered an order for immediate possession on July 15, 2004, more than 18 months later.  During this time, the value of the CGP property had increased substantially.  Scottsdale paid CGP an amount equal to its estimated value for the property on the date the complaint was filed.  CGP moved to require Scottsdale to pay the value of the property on the date of the order of immediate possession.  The trial court denied CGP’s motion, and the parties entered into a stipulated agreement preserving CGP’s arguments regarding the constitutionality of the compensation.  CGP then brought an inverse condemnation action claiming Scottsdale had taken its property without just compensation.  The trial court dismissed CGP’s inverse condemnation action, and CGP timely appealed.

The Arizona Appeals Court reversed and remanded for a determination of the date of the taking and the value of the property as of that date.  In so holding, the Court rejected Scottsdale’s position that the date of the summons and complaint serves as the date of the taking for just compensation purposes.  First, Scottsdale argued that A.R.S. § 12-1123, which provides that condemned property is to be valued as of the date of the summons, establishes the summons date as the taking date as a matter of Arizona law.  The Court rejected that argument, explaining that although the statute establishes a valuation date for the typical condemnation proceeding, the text of the statute does not envision that the mere institution of a condemnation proceeding constitutes a taking for purposes of complying with the constitutional requirement of just compensation.  See Kirby Forest Indus., Inc. v. United States, 467 U.S. 1 (1984), (“No matter how reasonable or pragmatic it is to select a precise statutory valuation date, just compensation requires the payment of the fair market value possessed by the property on the date of the taking.”).

Second, the Court rejected Scottsdale’s argument that the Arizona Supreme Court established the initiation date of a condemnation proceeding as the taking date in Calmat of Arizona v. State ex rel. Miller, 176 Ariz. 190, 859 P.2d 1323 (1993).  Although Calmat indicated that the value of the condemned property on the statutory valuation date may often be presumed to represent its value on the date of the taking due to the close proximity of those dates, it also held that when the date on which the government actually takes possession of the property becomes too distant from the valuation date, the trial court must determine the actual date of the taking and the value of the property on that date.

Finally, the Court rejected Scottsdale’s assertion, that the mere institution of a condemnation proceeding sufficiently damages the property value to constitute a taking on the date the proceeding was initiated.  While such an argument might prove true in some cases, here, there was no evidence that CGP could not use, develop or sell its land after the condemnation proceeding had been initiated, nor any evidence that CGP had been relieved of the burdens of ownership.  In fact, the evidence appeared to indicate that the property increased in value during this time.  Thus, the Court of Appeals remanded to the trial Court to hear evidence on when the taking actually occurred and the property’s value on that date.

Judge Snow authored the opinion; Presiding Judge Ehrlich and Judge Hall concurred.

Villares v. Pineda (3/06/2008) Arizona Court of Appeals Division One Vacates Temporary Orders of the Family Court Issued As Result of Resolution Management Conference Because Orders Addressed Contested Issues of Fact in Violation of Rules of Family Law Procedure

After Wife filed for divorce, Wife and Husband attended a Resolution Management Conference (RMC) the purpose of which is to “encourage the resolution of family law cases using non-adversarial means of alternative dispute resolution.”  Rules of Family Law Procedure (R.F.L.P.) 66(A).  In preparation for the RMC, each party filed proposed resolution statements, but only Wife filed an affidavit of financial information.

At the RMC, the family court issued temporary orders requiring, among other things, the Wife to find employment in order to pay food, gas and miscellaneous living expenses.  The family court also changed the child custody arrangements, and ordered temporary spousal and child support.  Wife objected, noting that Husband had not even filed an affidavit of financial information.  Wife also objected to the temporary orders on due process grounds, arguing that the court should hold an evidentiary hearing.  After the family court rejected Wife’s objections and a subsequent motion for reconsideration, Wife filed a special action.

The Arizona Appeals Court accepted jurisdiction and vacated the orders of the family court.  As for special action jurisdiction, the Court explained that the temporary orders were preparatory in nature as they were made in anticipation of trial, meaning that they could not be challenged by way of an ordinary appeal.  Turning to the merits, the Court noted the limited purpose of the RMC, and further explained that R.F.L.P. 47(d) provides that if issues remain after an RMC, “the court shall then set an evidentiary hearing not later than thirty (30) days thereafter to resolve the remaining issues, unless the parties agree to a different timeframe or procedure.”  Furthermore, the rule states that “the court shall not resolve disputed issues of fact at a pretrial conference or Resolution Management Conference absent agreement of the parties.”  R.F.L.P. 47(d).  Finally, the Court rejected Husband’s claim that the temporary orders were valid under A.R.S. § 25-404(A).  While that statute allows the court to award temporary custody, such an order may only issue “after a hearing, or if there is no objection, solely on the basis of the pleadings.”  Because the custody arrangement was contested at the RMC, the family court should not have issued an order regarding custody without a hearing.

Judge Orozco authored the opinion, with Judges Barker, Presiding Judge, and Timmer concurring.

United Dairyman of Arizona v. Rawlings  (2/28/2008):  Arizona Court of Appeals Division One Holds that Liquidated Damage Provisions in Cooperative Marketing Association Marketing Agreement Are Enforceable Under A.R.S. § 10-2016(D), Without Regard to Reasonableness or Actual Damages.

Pursuant to a cooperative marketing agreement between David Rawlings, a dairy owner and operator, and the United Dairyman of Arizona, Rawlings agreed to deliver all milk he produced to UDA in exchange for UDA’s marketing and distribution of the milk.  The agreement included a provision requiring Rawlings to pay liquidated damages in a sum equal to forty percent of the gross sale price of the milk he produced but did not deliver to UDA.  After Rawlings’ breached the agreement, UDA was awarded liquidated damages by a jury.     

Rawlings argued on appeal that, under common law principles, the liquidated damages provision was an unenforceable contractual penalty.  The Arizona Appeals Court rejected that argument explaining first that A.R.S. § 10-2016(D) expressly permits liquidated damage provisions in cooperative marketing association marketing agreements.  In light of this specific statute, the Court explained, liquidated damage provisions in marketing agreements should be construed in accordance with their terms without regard to common-law principles which might otherwise limit the enforceability of such provisions. 

Presiding Judge Brown authored the opinion, with Judges Kessler and Winthrop concurring.