AZAPP Blog

In re Newman (6/12/2008):  Arizona Court of Appeals Division One Holds That a Prior Court Order is a Necessary Prerequisite to an Award of Double Damages Under A.R.S. § 14-3709(D), That an Individual Who Violates Arizona’s Vulnerable Adults Statute Automatically Forfeits All Benefits in the Decedent’s Estate, and That There is No Jury Trial Right For a Breach of Fiduciary Duty Claim Made in Connection with Probate Proceedings.

Celia Newman died in August 2004.  Her three children, Ilana, Adina, and Max survived her.  As administrator of Celia’s estate, Adina discovered several questionable financial transactions between Celia and Max, including use of Celia’s money for a down payment on a house and withdrawal of over $300,000 from Celia’s IRA.  Max subsequently refused to cooperate with the administration of the estate.  As a result, Adina brought claims against Max for return of property and documents, breach of fiduciary duty, violation of Arizona’s Vulnerable Adults Statute, conversion, and reformation.  Following trial, the trial court found that Max breached his fiduciary duties and entered judgment in an amount exceeding $700,000, including $278,000 for double damages under A.R.S. § 14-3709(D).  The Court also found that Max violated Arizona’s Vulnerable Adults Statute and thus forfeited the benefits he would have otherwise received under Celia’s will.  This appeal followed.

The Arizona Appeals Court first held that a prior order with regard to the decedent’s property is required in order for double damages to be assessed under A.R.S. § 14-3709(D).  Subsection (D) states that an order of disclosure is prima facie evidence of the personal representative’s right to the property, thereby implying that an order of disclosure must precede a double damages award under subsection (D).  The Court clarified, however, that a violation of an order is not required prior to a double damages award; the issuance of an order itself is sufficient.  Because no order of disclosure existed prior to the trial court’s double damages award against Max, the Appeals Court vacated that portion of the judgment.

The Court next concluded that an individual who occupies a position of trust and confidence with regard to a vulnerable adult and breaches a duty of trust to that adult thereby automatically forfeits any benefits from the decedent’s estate.  Here, Max breached his duty by “failing to keep clear and accurate records, commingling funds, and engaging in transactions that benefited him without advising Celia to seek” independent advice.

Finally, the Court held that there is no jury trial right with regard to a breach of fiduciary duty claim in the probate context because such a claim is equitable in nature and no jury trial right existed for equitable claims at the time of the adoption of Arizona’s Constitution.

Judge Barker authored the opinion in which Judges Irvine and Johnsen concurred.    

Hetherington v. Hetherington (6/19/2008): Arizona Court of Appeals Division One Holds Employee Benefits That Reduce Personal Living Expenses Can Qualify As Income In Calculating Child Support

Following the marriage dissolution of Therasa Leigh Hetherington and Thomas Hetherington, Therasa appealed the family court’s method of dividing Thomas’s retirement plan, dividing proceeds from the marital residence sale, calculating Thomas’s income, and ordering that Therasa reimburse Thomas for half of the child custody evaluator’s fee.

Therasa argued that the family court abused its discretion in dividing Thomas’s retirement plan pursuant to a Domestic Relations Order, instead of awarding Therasa a lump sum of the present cash value.  Relying on Miller v. Miller, 140 Ariz. 520, 683 P.2d 319 (App. 1984), Division One of the Court of Appeals found Therasa had failed to provide competent evidence of the plan’s present cash value, so the court did not abuse its discretion in refusing to award a lump sum.

Therasa next argued the family court erred in requiring her to reimburse Thomas for a reduction in the sales price of their marital home.  The parties originally listed the property for $850,000; however, the potential buyer only offered $830,000 due to a construction defect in the garage.  Therasa initially refused the offer, but accepted it after Thomas agreed to deduct the $20,000 from his share of the proceeds.  The family court found Therasa’s refusal to accept the reduction in price was unreasonable, and ordered her to reimburse Thomas $10,000.  The Court of Appeals agreed, holding the issue is not whether they had a binding agreement, but whether the agreement was fair and equitable.

Therasa next argued the family court erred in failing to include Thomas’s employment benefits in his annual income for the purpose of calculating child support.  The Court of Appeals recognized this as an issue of first impression in Arizona, and found that most other jurisdictions include employment benefits as income if the benefits reduce the parent’s living expenses.  The Court found this standard congruent with the intent of the Arizona Supreme Court in establishing child support guidelines, which were designed to “establish a standard of support for children consistent with the reasonable needs of children and the ability of parents to pay.”  The Court remanded this issue to the family court to evaluate whether Thomas’s benefits reduced his living expenses and should therefore be included in his income.

Therasa finally argued the family court erred in requiring her to reimburse Thomas for custody evaluation fees that Thomas’s mother had paid.  In an order, the family court conditioned Therasa’s reimbursement on Thomas submitting an affidavit that either he had paid the fees or he had reimbursed his mother, but the family court did not include this condition in the final decree.  The Court of Appeals held it was an abuse of discretion to require Therasa to reimburse Thomas for fees paid by his mother, and remanded this issue to the family court to modify the decree to make Therasa’s reimbursement conditional on Thomas providing evidence he had paid for the fees.

Presiding Judge Ehrlich authored the opinion, with Judges Hall and Snow concurring.

Rackmaster Systems, Inc. v. Patrick Maderia (6/24/2008):  Arizona Court of Appeals Division One Holds That A.R.S. § 25-214(C)(2) Protects the Substantive Rights of the Non-signing Spouse to a Guaranty and Bars Collection of a Guaranteed Debt From a Community’s Property

Patrick Maderia signed a personal guarantee on a third-party credit agreement with Rackmaster.  His wife, Jane, did not sign the guarantee.  The third party defaulted on its obligation, Rackmaster filed suit in Minnesota against Patrick, and a Minnesota court entered a default judgment against Patrick.  Rackmaster domesticated the judgment in Arizona and applied for a writ of garnishment.  The Maderias objected to Rackmaster’s attempt to garnish the marital community’s bank account.  The trial court concluded that Rackmaster could garnish the community bank account, finding that Minnesota does not require both spouses to sign a guaranty to bind the marital community, that Minnesota need not follow Arizona’s joinder statutes, and that if the couple had lived in Minnesota, the judgment could have been collected against both of them.  The trial court denied Jane’s subsequent motions to quash the garnishment and for a rehearing.  This appeal followed.

Judge Weisberg, writing for a unanimous panel, reversed the trial court’s decision, holding that A.R.S. § 25-214(C)(2), which requires both spouses to sign a guaranty in order to bind their community, is substantive (versus procedural) in nature and barred collection of the guaranteed debt from the Maderia’s community property.  The Court of Appeals rejected Rackmaster’s argument that Secton 25-214(C)(2) is virtually identical to Section 25-215(D), which Arizona courts have held is a procedural statute.  The Court explained that substantive law like Section 25-214(C)(2) creates and defines rights, while procedural law like Section 25-215(D) prescribes the method of enforcing substantive law.  In his analysis, Judge Weisberg refused to consider the reasoning of a contrary memorandum decision of the court, noting that it was improper argument and could not be cited to the court of appeals pursuant to ARCAP 28(c).

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

Penn-America Insurance Company v. Sanchez (6/17/2008):  Arizona Court of Appeals Division One Holds That Genuine Issue of Material Fact Exists as to Whether an Insurer Who Unequivocally Defended an Insured For Ten Months, Without a Reservation of Rights, and Who Issued a Reservation of Rights After the Close of Discovery, Waived Its Right to Deny Coverage.

Plaintiffs in the underlying litigation brought suit for wrongful death arising out of an automobile accident involving an independent owner-operator of a truck transporting goods between Phoenix and Tucson on behalf of Inside Arizona Delivery Leasing, Inc. (“Inside Arizona”).  Plaintiffs alleged Inside Arizona was vicariously or jointly liable under a number of theories.  Inside Arizona notified its insurance agent, which in turn tendered the defense to Penn-America, Inside Arizona’s commercial general liability (“CGL”) carrier.  Notwithstanding exclusions in the Penn-America policy for liability arising out of “ownership, maintenance, use or entrustment to others” of an automobile, Penn-America initially defended Inside Arizona without a reservation of rights.

Ten months into the litigation, following the close of discovery and a written demand for settlement by Plaintiffs, Penn-America tendered the defense to Inside Arizona’s automobile insurance company, NAICC.  NAICC did not immediately commit to provide coverage, nor did it deny coverage.  Rather, NAICC expressed concern regarding any prejudice it might have suffered from the late tender of the defense by Penn-America.  Ultimately, Inside Arizona entered into a Morris agreement with the Plaintiffs, stipulating to a substantial judgment and assigning any rights it had against Penn-America to Plaintiffs in exchange for a covenant not to execute.  NAICC also reached an independent settlement with Plaintiffs.

Penn-America then filed a declaratory judgment action seeking a judicial determination as to its coverage obligations.  Following lengthy motion practice and discovery, the parties filed cross-motions for summary judgment.  Penn-America argued that its CGL policy excluded coverage of the underlying automobile accident claim.  Plaintiffs/Counter-Claimants argued that Penn-America was estopped from asserting any coverage defenses because its reservation of rights was untimely.  After oral argument, the trial court granted summary judgment in favor of Penn-America, and Plaintiffs/Counter-Claimants timely appealed.

The Court of Appeals reversed the trial court’s granting of summary judgment and remanded the case for further proceedings.   The Court first set forth the factors to be considered in determining whether an insurer’s failure to timely issue a reservation of rights results in a loss of the insurer’s coverage defenses—unreasonable delay, and prejudice to the insured.  Next, the Court determined that a genuine question of material fact existed as to both of these factors.  With respect to the reasonableness of the delay by Penn-America in reserving its rights and tendering the defense to NAICC, the Court noted that during the ten months preceding Penn-America’s reservation of rights, the parties conducted considerable discovery, and Penn-America learned numerous facts which could have supported the conclusion that NAICC was the proper insurer.  With respect to potential prejudice to the insured, the Court concluded that the record contained sufficient facts to support the conclusion that Penn-America’s unequivocal defense for a period of ten months lulled the insured into a false sense of security, with the result that when discovery closed and Plaintiffs made a demand for settlement, Penn-America’s reservation of rights left the insured in a very vulnerable position.

Finally, the Court rejected Penn-America’s argument that the insured was not actually prejudiced because it had entered into a Morris agreement.  According to Penn-America, as part of the Morris agreement the Plaintiffs had covenanted not to execute their judgment against the insured, thus insulating the insured from any potential harm.  The Court disagreed, holding that the potential prejudice to the insured must be measured after the issuance of the reservation of rights, but prior to any Morris agreement.  To hold otherwise, would discourage plaintiffs from entering into Morris agreements, and thereby undermine the protection available to insureds from such agreements.

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

Seisinger v. Siebel (06/17/2008): Arizona Court of Appeals Division One Holds That A.R.S. § 12-2604(A) Violates the Separation of Powers Provision of the Arizona Constitution.

In August 2004, Seisinger filed a medical malpractice action against Dr. Siebel relating to a spinal epidural.  Seisinger disclosed an expert witness and Siebel filed a motion in limine to preclude his testimony because the expert did not meet the requirements of A.R.S. § 12-2604 which governs the qualifications of expert witnesses in medical malpractice cases.  Seisinger argued that A.R.S. § 12-2604 conflicts with Arizona Rule of Evidence 702, and therefore violates the separation of powers clause of the Arizona Constitution.  The trial court granted Siebel’s motion, ruling that the statute was not unconstitutional.   Seisinger did not produce another expert witness and the trial court granted Seibel’s motion to dismiss.  Seisinger timely appealed.

Judge Irvine, writing for a unanimous panel, reversed the trial court’s ruling, holding that § 12-2604(A) conflicts with Rule 702, and therefore violates the doctrine of separation of powers included in the Arizona Constitution.  Under Article 6 §5(5) of the Arizona Constitution, the Arizona Supreme Court is authorized “to make rules relative to all procedural matters in any court.”  Therefore, the legislature cannot limit the Court’s rulemaking powers by statutory enactment.  Because § 12-2604(A) provides additional qualifications for expert witnesses in medical malpractice cases above and beyond those included in Evidence Rule 702, an expert witness qualified under the rule could nonetheless be precluded from testifying under the statute.  Therefore, the statute directly conflicts with the rule and infringes on the Court’s rulemaking authority.  The Court went on to determine that § 12-2604(A) does not establish substantive rights, which the Legislature would have power to do, because it solely prescribes the method by which existing rights can be enforced.

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

Haab v. Maricopa County (6/05/2008):  Arizona Court of Appeals Division One Holds That a Claimant Who Has Filed a Notice of Claim Alleging Wrongdoing by a Public Entity Must Amend His Notice or File a New Notice to Preserve Claims for Subsequent Related but Different Wrongdoing by the Same Entity or Employee

Haab filed a notice of claim against Maricopa County pursuant to A.R.S. § 12-821.01, alleging he had been wrongfully arrested and accused of aggravated assault.  He claimed he was entitled to $1 million in damages under various legal theories.  After Haab filed his notice of claim, the Sherriff’s Office responded to a reporter’s public records request and disclosed certain medical and mental health information it had obtained about Haab.  The notice of claim was denied.  Haab then filed a complaint and a subsequent amended complaint that alleged various theories of recovery related to the County’s acquisition and disclosure of the records (rather than his arrest and incarceration).  The County moved for summary judgment, asserting in its reply brief that Haab’s claims were barred because they had not been included in his notice of claim and that the notice lacked facts required by statute to support the amount necessary to support the claimed damages.  The trial court granted summary judgment and this appeal followed. 

Judge Johnsen, writing for a unanimous panel, affirmed the trial court’s dismissal of Haab’s amended complaint, holding that a notice of claim that alleges one set of wrongs by a public entity or employee does not provide adequate notice of subsequent or related by different wrongs by the same entity or employee.  The Court rejected Haab’s argument that the County “necessarily” would have discovered the subsequent wrongdoing if it had investigated the original wrongdoing.  A claimant must amend his notice or file a new notice to preserve claims based on a second set of acts by the same public entity or employee.

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

In Re MH 2007-000629 (6/3/2008): Arizona Court Of Appeals Division One Holds That Patient May Be Removed From Commitment Hearing For Disruptive Behavior Without Advance Warning.

Nancy M. was “extremely disorganized, loud, aggressive, psychotic, and delusional.”  Therefore, the State petitioned for a hearing to determine whether Nancy’s disabilities warranted involuntary treatment.  During witness examination, Nancy began interrupting the proceeding with seemingly nonsensical yelling.  After asking Nancy “to be quiet,” the court attempted to speak to her four additional times.  Each time, Nancy ignored the court and continued to disrupt the hearing.  The court therefore ordered that Nancy be removed from the hearing.  Nancy appealed.     

The Arizona Appeals Court affirmed.  The Court rejected Nancy’s argument that, before a patient may be removed from a commitment hearing held pursuant to A.R.S. § 36-539, due process requires that a specific warning be given that further disruptive behavior will result in removal.  While the Court agreed that such a warning is “desirable” and “the best practice,” the Court concluded that it is within the trial judge’s discretion whether to issue a warning where, as here, the “court-issued warning may not . . . be recognized or understood by a patient.”         

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

Sanchez v. Old Pueblo Anesthesia, P.C. (5/30/2008):  Expert Disclosure Requirements of A.R.S. §§ 12-2603 & 2604 Apply to Res Ipsa Loquitur Medical Malpractice Cases; But Dismissal with Prejudice Is Not an Appropriate Sanction

Lorenzo Sanchez suffered severe and permanent nerve damage to his leg from knee surgery, and he sued his orthopedic surgeon and anesthesiologist under a theory of res ipsa loquitur.  Sanchez submitted a preliminary expert opinion affidavit from an orthopedic surgeon to support his claim, but not from an anesthesiologist.  Pursuant to A.R.S. §§ 12-2603 & 2604, the trial court dismissed Sanchez’s claim with prejudice against the anesthesiologist, because he failed to submit an expert opinion affidavit specifically from an anesthesiologist to support his claim.  Sanchez appealed.

Sanchez argued the trial court erred because §§ 12-2603 & 2604 do not apply to medical malpractice cases based on res ipsa loquitur.  Division Two of the Court of Appeals disagreed, noting that § 12-2603 applies to “claim[s] against a health care professional… asserted in a civil action” without an exclusion for res ipsa loquitur cases.  Further, the court noted experts are required in res ipsa loquitur actions where it is not a matter of common knowledge that the injury would not have occurred without negligence.

Sanchez also argued the trial court erred by dismissing his claim without a chance to remedy his failure to submit a proper expert affidavit.  While § 12-2603 contains detailed procedures for resolving expert disputes that do not include dismissal with prejudice, Old Pueblo argued they moved for dismissal under § 12-2604, which has no procedural requirements.  The Court agreed with Sanchez, finding there was no support under § 12-2603 to dismiss a claim with prejudice for failing to provide a proper expert affidavit, and that the legislature intended the procedural requirements of § 12-2603 to apply to § 2604 as well.  Further, the Court noted any delay caused by Sanchez’s failure to provide a proper expert affidavit was due to Old Pueblo waiting until the witness-disclosure deadline had passed to object to Sanchez’s expert disclosures.

The Court reversed the dismissal and remanded the case so Sanchez could provide an expert affidavit in compliance with §§ 12-2603 & 2604.

Presiding Judge Eckerstrom authored the opinion, with Judges Espinosa and Vasquez concurring.

In re Pettit v. Pettit (6/3/2008):  Arizona Court of Appeals Division One Holds That a Husband Who Admits He Is the Father of a Child During Divorce Proceedings Is Precluded from Contesting His Paternity in a Later Proceeding.   

The child (“Daughter”) at issue in this case was born in 1996, while Christopher Marc Pettit (“Father”) and Bonnie Sue Pettit (“Mother”) were living together.  They married in 1999, but Mother filed for divorce in 2002.  During the divorce proceedings, Mother alleged, and Father admitted, that Daughter was a child of the marriage, and the decree of dissolution also found that fact before ordering Father to pay child support.  Father did not appeal the decree, but in 2006, sought an order requiring paternity testing and to terminate child support.  The trial court dismissed Father’s motions due to the presumption that Daughter was his child, and Father appealed.

The Arizona Appeals Court affirmed, but on different grounds.  It held that Father’s paternity was established by the dissolution decree and that he therefore was precluded from contesting that fact.  The Court noted that both parties’ agreed that the trial court erred by relying on the presumption that Daughter was Father’s child, but explained that it would affirm based on any legal theory supported by the record.  After setting forth the standard for claim preclusion, and without explicitly applying that standard to the facts of the case, the Court discussed and rejected Father’s arguments that his claim was not precluded. 

First, the Court rejected Father’s argument that the trial court lacked subject matter jurisdiction over the paternity issue, explaining that a trial court’s jurisdiction in a dissolution proceeding is not limited to children born during the marriage, and instead includes children “common to the parties of the marriage.”  A.R.S. § 25-312(4) (2007).  For purposes of this argument, the Court assumed, without deciding, that a party could collaterally attack a former judgment if it was entered by a court lacking subject matter jurisdiction.  Second, the Court rejected Father’s argument that the paternity action is separate and distinct from the divorce proceedings.  It applied the “same evidence” test to find that Father was attempting to relitigate a matter “necessarily adjudicated” in the divorce action.  Third, the Court rejected Father’s contention that claim preclusion did not apply because the issue of paternity was not actually litigated.  Unlike issue preclusion, claim preclusion applies regardless of whether an issue was actually litigated as long as the issue could have been litigated in the first action.  Because father could have raised paternity as an issue in the divorce proceeding, he was precluded from doing so now.

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