AZAPP Blog

Steven H. and Tammy H. v. Arizona Dept. of Econ. Security (8/19/2008):  Supreme Court Holds That A Party Seeking Foster Care Placement of An Indian Child Under The Indian Child Welfare Act Must Present Qualified Expert Testimony Regarding The Likelihood of Future Harm to The Child, But Such Testimony Need Not Explicitly Parrot the Language of The Statute

Matthew and Savannah are the biological children of Tammy and the adopted children of Steven.  Matthew and Savannah are of Indian descent.  Child Protective Services (CPS) had many interactions with the family concerning allegations of abuse by Tammy and Steven of the two children.  A guardian ad litem filed a petition requesting that the court find Savannah and Matthew dependent as to the parents under A.R.S. § 8-201(13)(a)(i) (defining a dependent child as one “in need of proper and effect parental care and control and who has no parent or guardian . . . willing to exercise or capable of exercising such care and control.”).  Because of the Indian descent of the children, the custody proceedings were subject to the requirements of the Indian Child Welfare Act (“ICWA”).  Under ICWA, before a state court judge may order foster care placement of an Indian child, the judge must make “a determination, based on clear and convincing evidence, including testimony of qualified expert witnesses, that the continued custody of the child by the parent or Indian custodian is likely to result in serious emotional or physical damage to the child.”  25 U.S.C. § 1912(e).

The juvenile court held hearings and heard evidence from expert witnesses about the behavioral, emotional, and psychological dysfunction of Matthew and Savannah, demonstrating that the children’s condition resulted from abuse they had suffered over the years.  However, the experts did not specifically opine as to whether continued custody would likely result in serious emotional or physical damage.  The juvenile court found that the children were dependent under A.R.S. § 8-201(13) and that continued custody would result in serious emotional or physical damage to the children.  The court ordered that the children be made wards of the court and placed under the control of DES.  The parents appealed, and the court of appeals vacated the dependency order.  The court of appeals concluded that § 1912 required explicit expert testimony that “continued custody of the children would likely have resulted in serious emotional or physical damage to them.”  The guardian ad litem petitioned for review.

Reviewing de novo, the Supreme Court vacated the court of appeals’ decision and remanded.  The Court noted that neither side disputed that ICWA requires expert testimony; rather, the issue was what type of testimony the statute requires.  Finding that the statute was “forward looking – relating to the likelihood of future harm to the child,” the Court found that expert testimony solely referring to past harms cannot suffice.  The Court then examined the plain language of the statute and considered non-binding (but persuasive) Bureau of Indian Affairs ICWA guidelines in concluding that nothing in the statute requires that the necessary expert testimony “recite the specific language of § 1912(e)” or that “such testimony be expressed in a particular way.  “As long as the testimony addresses likelihood of future harm, it will suffice.”

Justine Ryan authored the opinion for a unanimous Court.

Lofts at Fillmore Condo. Ass’n. v. Reliance Commercial Construction, Inc. (8/19/2008):  Arizona Supreme Court Holds That Residential Homebuyers May Bring Suit for Breach of the Implied Warranty of Workmanship and Habitability Against a New Home Builder Who Is Not Also the Vendor of the Home.     

Developer contracted with Reliance Commercial Construction, Inc. (“Reliance”) to convert a building owned by Developer into condominiums.  Developer then sold condominium units to individual buyers, who formed The Lofts at Fillmore Condominium Association (“the Association”).  The Association subsequently brought claims against Reliance asserting breach of the implied warranty of workmanship and habitability.  The trial court granted summary judgment for Reliance and the Court of Appeals affirmed, finding that the implied warranty claim was barred because the Association had no contractual relationship with Reliance, i.e., there was no privity.  The Association appealed. 

In a unanimous decision, the Arizona Supreme Court vacated the Court of Appeals opinion and reversed the trial court judgment.  The Court first held that a builder who is not also the vendor of a new home impliedly warrants that construction has been done in a workmanlike manner.    Citing Columbia Western Corp. v. Vela, 122 Ariz. 28, 33, 592 P.2d 1294, 1299 (App. 1979), and Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 678 P.2d 427 (1984), the Court explained that “the implied warranty arises from the construction of a new home, whether or not the builder is also a vendor of the home.”   Quoting Richards, the Court also explained that the policy underlying the implied warranty is “to protect innocent purchasers and hold builders accountable for their work.”  139 Ariz. at 245, 678 P.2d at 430.  Based on these principles, the Court concluded that the implied warranty arises from construction of a new home, regardless of the identity of the vendor.

The Court next held that the Association could bring an action against Reliance for breach of the implied warranty, despite the lack of privity between the parties.  Citing Richards again, the Court explained that the policies underlying the implied warranty would not be furthered by limiting the warranty to situations in which the homebuyer had privity with the builder.  The form of the business deal chosen by the builder and vendor should have no bearing on an innocent buyer’s ability to seek redress.

The Court rejected Reliance’s argument that eliminating the privity requirement would expose residential homebuilders to expanded liability and would negatively impact the Arizona economy, noting that homebuilders have long been subject to such liability.  The Court also rejected the argument made by Reliance that the failure to require privity would chill attempts between developers and builders to allocate responsibility for contract damages arising out of construction defects.  Nothing in the Court’s opinion prevents or discourages such agreements. 

Justice Hurwitz authored the unanimous opinion.

Bee v. Day et al.  (8/22/2008):  Arizona Supreme Court, in Division, Holds Violation of ARCAP 8.1(c) is Not Jurisdictional and Reaffirms “Substantial Compliance” Standard for Nomination Petitions’ Conformity with Statutory Requirements.

Keith Bee is seeking the Republican nomination for justice of the peace in Pima County precinct 5.  When the superior court invalidated his nomination petitions and struck his name from the ballot, he appealed to the Supreme Court, which reversed in an earlier order.  Justice Bales, sitting in division with Vice Chief Justice Berch and Justice Ryan, issued this opinion explaining the Court’s earlier order.

Arizona Rule of Appellate Procedure 8.1, which the Supreme Court recently adopted, governs appeals in expedited election matters.  Subsection 8.1(c) requires appellants in expedited election matters to file a copy of the notice of appeal and other materials in the appellate court “[n]ot later than the next business day after filing the notice of appeal in the superior court.” ARCAP 8.1(c).   In contrast to the requirement that an appeal be timely filed, the failure to timely file a copy of the notice of appeal in accordance with Rule 8.1 is not a jurisdictional defect to an expedited election appeal.  Accordingly, the Supreme Court explained, because Bee’s notice of appeal was timely filed with the Superior Court, Bee’s failure to file a copy of his notice of appeal with the Supreme Court until 3 days after the deadline imposed by ARCAP 8.1(c) did not require the dismissal of his appeal.

On the merits, Bee’s challenger, Kent, argued that the Superior Court properly struck Bee’s name from the ballot because his nominating petitions failed to state that the term for which he is running was an unexpired vacant term, as required by A.R.S. § 16-314(D).  Rejecting this argument and reversing the superior court, the Court reiterated that nominations are evaluated for “substantial compliance” with statutory provisions.  The Court explained that because there was only one seat for the office being contested, and because Bee’s petitions listed the office sought they posed no risk of confusion to voters and substantially complied with the statutory requirements.

Vice Chief Justice Berch and Justice Ryan concurred.

Jenkins v. Hale  (8/19/2008):  Arizona Supreme Court Holds That Signatures on a Nominating Petition That Provide Only a Post Office Box Address Are Not Invalid As a Matter of Law.

 Albert Hale sought his party’s nomination for state senator from Legislative District Two.  To qualify Hale was required to collect 522 valid signatures on his nominating petition.  Hale submitted more than 800 signatures from electors in Apache, Coconino and Navajo Counties.  Royce Jenkins, a qualified elector, challenged 513 of Hale’s signatures alleging, primarily that the signatures were invalid because the electors only provided a post office box address.  The County Recorder’s of Navajo and Coconino automatically disqualified any signature that only contained a post office box address; however, the Apache County Recorder validated those signatures containing post office box addresses so long as it could verify that the signer was a registered voter.  Ultimately, the superior court granted summary judgment in favor of Hale, finding that he had submitted 523 valid signatures.  Jenkins timely appealed directly to the Supreme Court.

The controversy before the Supreme Court centered on the statutory requirement that a nominating petition be divided into four columns: “signature; printed name; actual residence address or description of place of residence, city, town or post office; and date of signing.”  A.R.S. § 16-315(A)(4).  While the statute only describes the form of the petition rather than the substance, the Court concluded that the legislature likely intended to require an elector to identify a residence address rather than a post office box.  However, no statute instructs election officials to automatically invalidate nominating petition signatures that contain only a post office box address.  Rather, the intent of the address requirement is to afford a convenient method of checking whether the person signing the petition is a qualified elector.  Thus, a signature indicating only a post office box address is not invalid per se.  Instead, if challenged, such a signature loses its presumption of validity, and the proponent must demonstrate to the trier of fact that the challenged signature is of a qualified elector.

Vice Chief Justice Berch authored the opinion, joined by Justice Bales and Judge Irvine sitting by designation pursuant to Article 6, Section 3 of the Arizona Constitution. 

NOMINEES FOR COURT OF APPEALS ANNOUNCED

The Commission on Appellate Court Appointments has recommended four candidates to Governor Janet Napolitano for two vacancies on Division I of the Arizona Court of Appeals, created by the recent retirement of Judge Susan Ehrlich and Judge G. Murray Snow’s appointment to the United States District Court.

 The nominees are Margaret H. Downie, 49, Democrat, of Phoenix, a Maricopa County Superior Court judge; Robert C. Houser, Jr., 59, Republican, of Scottsdale, a Maricopa County Superior Court judge; Judith R. Schaffert, 50, Republican, of Phoenix, a staff attorney for the Arizona Supreme Court; and Peter B. Swann, 43, Democrat, of Phoenix, a Maricopa County Superior Court judge. 

 Governor Napolitano will appoint the new judges.  

Arab Monetary Fund v. Jafar Hashim and Maryam Salass, husband and wife (8/12/2008):  Arizona Court of Appeals Division One Holds That an Attorneys' Fees Award Arising From a Lawsuit Against the Husband Relating to His Premarital Conduct Was a Premarital Separate Debt, Even Though the Attorneys' Fees Were Incurred After the Marriage. 

In 1988, the Arab Monetary Fund ("AMF") sued Dr. Jawad Hashim in London, England alleging that Dr. Hashim had embezzled approximately $80 million from the AMF during his tenure as its director general from 1977 to 1982.  In May 1989, the AMF added Jafar Hashim ("Jafar") to the English lawsuit, alleging that Jafar had received properties that had been purchased with money unlawfully taken from the AMF.  Later in 1989, Jafar married Maryam Salass.  The English lawsuit was litigated between 1988 and 1993.  In 1994, the English court entered a judgment finding Dr. Hashim liable for damages to the AMF and further finding that Jafar had received money and property that could be traced to AMF monies.  The English court also awarded attorneys' fees, referred to as “costs” in the English legal system, to the AMF as the prevailing party.

Jafar and Maryam Salass had moved to Arizona in 1992.  In the fall of 1994, when the AMF sought to domesticate the judgment against Dr. Hashim in Arizona, Jafar filed for bankruptcy.  In 2003, the bankruptcy court denied Jafar's bankruptcy discharge and the AMF sought to domesticate its English costs award against Jafar and his marital community in Maricopa County Superior Court.  The AMF took the position that the costs award was a post-marital obligation because the costs were incurred after the couple had been married.  Jafar and the marital community took the position that the costs award was a premarital obligation because the costs award related to Jafar's pre-marital receipt of money and property that could be traced back to AMF monies.  The trial court granted summary judgment in favor of the AMF.

The Court of Appeals reversed.  It held that “treating the litigation costs resulting from defense of a claim arising out of premarital acts as a postmarital obligation would be inconsistent with the statutory scheme establishing limits on community liability for premarital debt.”  It noted that Arizona's community property statutes provide that the community is liable for the premarital separate debts of one spouse to the extent of that spouse's contribution to the community.  Thus, “[t]reating the costs imposed for defending premarital conduct as a separate postmarital debt would expand the liability of the community for premarital activities beyond that authorized by statute.”  The Court further reasoned that the trial court's ruling would “have the unfortunate consequence of forcing a person faced with litigation for a premarital act to refrain from marrying if not yet married, refrain from mounting a defense even if the defense was meritorious, or put at risk the marital assets of his or her spouse who was otherwise not liable for those premarital acts.”  The Court also held that the English costs award was “inextricably linked” to Jafar's premarital conduct and could not therefore be a post-marital obligation.

Judge Portley authored the opinion of the Court, and Judges Weisberg and Norris concurred. 

NEWS COVERAGE: An article  on Az Central discusses how the Arizona Supreme Court has refused to stop investigations by the State Bar of Arizona into allegations of professional misconduct in the Maricopa County Attorney's Office. The oder can be found here.

Yollin v. Glendale (8/5/2008) Arizona Court of Appeals Division One Holds that Arizona’s Notice of Claim Statute is Satisfied When a Claimant Provides the Government with a Definite and Exact Amount for Which the Government’s Liability can be Satisfied and an Explanation of How Past Events Have Harmed the Claimant.

Yollin filed a notice of claim against Glendale, alleging that he suffered personal injury after slipping on fluid that a City of Glendale vehicle allegedly left on a sidewalk.  Yollin’s notice of claim, which was two pages in length, demanded a specific sum of $150,000 to settle his claim and attached nearly one hundred pages of medical records.  The trial court dismissed Yollin’s claim on grounds that Yollin failed to satisfy A.R.S. § 12-821.01(A) by not including a sum certain demand nor sufficient facts to support the amount claimed.  This appeal followed.

Arizona’s notice of claim statute requires that “[t]he claim shall also contain a specific amount for which the claim can be settled and the facts supporting that amount.”  The Arizona Appeals Court first explained that “[a]s the long as the claimant states a definite and exact amount, and the government may completely satisfy its liability by paying that sum, the claim letter satisfies the sum certain requirement.”  Yollin satisfied this requirement by specifically requesting $150,000 and noting that he would fully release the City for that amount.  The $150,000 demand passed muster despite that Yollin stated that he was making the offer in order to comply with the notice of claim statute.  The Appeals Court next explained that the notice of claim statute requires only “a recitation of how past events harmed the claimant and led to his offer.”  Yollin’s demand letter satisfied this requirement by explaining the nature and circumstances of his injury and disclosing his medical records. 

Judge Kessler authored the opinion; Judges Orozco and Portley joined.

Harris v. City of Bisbee (08/04/2008): Arizona Court of Appeals Division Two Holds That in the Absence of a Statement in a Petition Circulator’s Affidavit That the Printed Names and Addresses Were Printed in the Circulator’s Presence, and Alteration to a Printed Name or Address Does Not Result in a False Affidavit, and Therefore, Only the Altered Signatures Are Invalid.

In October 2006, the City of Bisbee passed two ordinances to regulate litter, abandoned vehicles, outdoor storage, junk and dilapidated buildings.  A referendum petition was issued for each ordinance on Harris’ request.  One month later, Harris turned in signature sheets for each ordinance and requested that a referendum election be held.  The City refused to process the signature sheets, indicating that on a number of signatures sheets, the addresses had been corrected not in the presence of the signers in violation of A.R.S. § 19-112(A) and (C).  The City removed these signature sheets as invalid.  The City also removed another signature sheet because the affidavit accompanying it was not notarized.  Harris filed a special action for each of the referendum petitions, asking that the City be ordered to accept and process them. 

The trial court found legally insufficient all of the signatures on the un-notarized signature sheet.  It also found invalid all signatures for which the address or printed name had been altered outside of the signer’s presence and without the signer’s permission.  The court noted however that in such a case only the altered signature was invalid and all others on the sheet were to be counted.   The City appealed; Harris cross-appealed. 

On appeal the City argued that the trial court erred by invalidating only the altered signatures, rather than the entire signature page on which an altered signature was found, and by finding the two petitions legally sufficient under A.R.S. § 19-112.  Harris argued that § 19-112 does not apply to his special action, limiting the Appellate Court’s review to abuse of discretion.   Addressing Harris’ argument first, the Arizona Appeals Court determined that § 19-112 is applicable to the action because the language of § 19-122(A) provides that if the clerk refuses to transmit a petition to the county recorder to be certified, a citizen can apply for a writ of mandamus.  Therefore, the Court found that Harris would only be entitled to relief if the petitions were legally sufficient. 

Turning to the legal sufficiency of the petitions, the Court found that the affidavits accompanying the signature sheets failed to include language affirming that the name and address of each elector was printed in the presence of the elector and the petition circulator on the date indicated, as required by § 19-112(C).  Harris argued that he used the language provided in § 19-112(D) and therefore the affidavits complied with the law.  Citing Western Devcor, Inc. v. City of Scottsdale, 168 Ariz. 426, 814 P.2d 767 (1991), the Court reasoned that despite the use of the sample affidavit in the statute, the affidavit language used by Harris did not strictly comply with the law.  However, the Court explained, a lack of strict compliance only invalidates signatures of a referendum petition if the statute expressly dictates that result; otherwise, it simply destroys the presumption of validity.  Because § 19-122(C) does not expressly state that a failure to comply strictly will result in the invalidation of signatures, Harris was permitted to demonstrate that the printed names and addresses had been written in the presence of the electors and circulator.  Based on the trial court’s findings, sixty-three signatures for one of the petitions and sixty signatures for the other were invalidated.   

The Court further reasoned that because the affidavits did not include a statement affirming that the addresses and printed names had been written in the presence of the elector, the fact that specific addresses and printed names had been altered outside of the electors’ presence would not invalidate the entire signature sheet but only the altered signature.  The Court explained that had the affidavit strictly complied with the law, the alterations would have rendered the certification by the circulator false and all signatures on a page where an alteration was made would have been disqualified. 

After removing all invalidated signatures, the Court determined that 198 valid signatures remained for one petition and 195 valid signatures remained for the other.  Harris had been required to gather 169 valid signatures for each to cause a referendum election, thus, the Court upheld the trial court’s judgment and directed the City to process the petitions. 

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

Town of Gilbert Prosecutor’s Office v. Downie (8/4/2008): Arizona Supreme Court Holds that Restitution Statute Requires Consideration of Any Benefits Conferred on Victim When Determining Criminal Restitution for Violations of Contractor Licensing Statutes

Defendant was found guilty of contracting without a license in violation of A.R.S. § 32-1151.  The municipal court, relying on State v. Wilkinson, 202 Ariz. 27 (2002), ordered Defendant to pay restitution of the full sum paid by the victims to the unlicensed contractor Defendant, disregarding the value of the work done on the victims’ house.  On appeal, the superior court vacated the restitution order and remanded for a determination of the victims’ actual economic loss.  The Town of Gilbert brought a petition for special action.  The Court of Appeals granted jurisdiction, reversed, and re-imposed the prior restitution order.  The victims petitioned for review by the Arizona Supreme Court.

The Supreme Court granted jurisdiction and, in a split decision, reversed the court of appeals.  Although A.R.S. § 13-603(C) requires restitution to victims “in the full amount of the [victim’s] economic loss,” courts determining such loss must also take into account any value conferred on the victim.  That is why, for example, Arizona courts credit victims with the value of returned property when considering restitution.  Because the Wilkinson Court did not consider whether losses incurred by the victim-homeowners may be reduced by the amount of benefits conferred upon them, the majority did not find the 2002 case dispositive.  The majority therefore reversed the court of appeals, affirmed the judgment of the superior court, and remanded to the Town of Gilbert Municipal Court for further proceedings.

Justice Berch wrote the opinion for the Court; Justices Ryan and Bales concurred.  Justice Hurwitz separately concurred.  Chief Justice McGregor dissented, finding the Wilkinson case controlling and no compelling reason to depart from stare decisis.

Commission Interviewing 9 Applicants August 25.  Of the original 12 applicants for the two Court of Appeals vacancies, the Commission has decided to interview 9 of the applicants: David L. Abney, Paula S. Bickett, Margaret H Downie, Robert C. Houser, Jr., Timothy R. Hyland, Kirby D. Kongable, Sigmund G. Popko, and Judith R. Schaffert. and Peter Swann.  The interviews are scheduled for August 25.  For more information on the applicants and the upcoming process, click here.

Commission Meeting August 5, 2008 to Consider Twelve Court of Appeals’ Applicants:  In light of the vacancies created on Division One of the Court of Appeals by Judges Ehrlich and Snow, the Commission on Appellate Court Appointments is meeting at 10:00 a.m. on August 5, 2008, to screen the applications of the following persons: David L. Abney, Paula S. Bickett, Margaret H. Downie, Jeffrey R. Finley, Robert C. Houser Jr., Timothy R. Hyland, Kirby D. Kongable, Tajudeen O. Oladiran, Sigmund G. Popko, Luane Rosen, Judith R. Schaffert, and Peter B. Swann.  Applications may be reviewed online by clicking here.

Beltran v. Harrah’s Arizona Corporation (7/31/2008):  Arizona Court of Appeals Division Two Holds That Process Under the Arizona Rules of Procedure for the Recognition of Tribal Court Civil Judgments Need Not Be Followed Before Tribal Court Judgment May Be Given Preclusive Effect

In July 2006, Beltran filed a complaint in tribal court against Harrah’s for an injury he suffered in August 2005 at a casino owned and operated by the Ak-Chin Indian Community.  In October, Harrah’s moved to dismiss the complaint on the ground that the Community was an indispensable party, not named in the complaint.  Beltran moved to amend the complaint to add the Community, but Harrah’s opposed the motion, arguing that the one-year statute of limitations for claims against the Community had expired.  The tribal court dismissed the complaint for failure to join the Community, an indispensable party, and entered judgment.  Beltran then filed an identical complaint in Pinal County Superior Court that added the Community as a defendant.  Defendants moved to dismiss the complaint on collateral estoppel and sovereign immunity grounds.  The trial court granted the motion and this appeal followed.

Beltran argued first that the lower court erred by recognizing the tribal court judgment for any purpose because it was not filed with the superior court pursuant to the Arizona Rules of Procedure for the Recognition of Tribal Court Civil Judgments.  Judge Espinosa, writing for a unanimous panel, rejected that argument explaining that Arizona courts have traditionally recognized tribal court judgment as a matter of comity, and that these rules, adopted in 2000 to govern the enforcement of trial judgments, did not change that.  Accordingly, the superior court properly recognized the tribal court judgment even though it had not been filed with the superior court pursuant to the Arizona Rules of Procedure for the Recognition of Tribal Court Civil Judgments.  Second, the Court of Appeals found that the trial court did not abuse its discretion when it rejected Beltran’s due process argument that the tribal court had been “biased” against him.  Third, the Court of Appeals affirmed the trial court’s decision that Beltran was collaterally estopped from raising issues that had been decided by the tribal court.  Finally, the Court found that the Community was immune from suit because Beltran did not comply with the conditions of the Community’s limited waiver of sovereign immunity (i.e., bringing a suit within one year after a cause of action accrues). 

Judge Espinosa authored the opinion; Judges Eckerstrom and Vásquez concurred. 

Strawberry Water Co. v. Paulsen (7/29/2008):  Arizona Court of Appeals Division One Holds Water Owners Can Have Standing for Conversion Claim Concerning Water That Has Become Personal Property, and Treble Damages Are Not a Form of Punitive Damages.

The previous owners of the Paulsen’s property used a pipe from the Strawberry Water Co. to provide water to the property’s pond, but the subsequent owners of the water company were unaware of the property’s use of their water.  When the company discovered the water use, they disconnected service and sued the Paulsens for utility tampering and conversion.  The jury determined the Paulsens had unlawfully diverted Strawberry’s water and awarded $146,925.21 in damages, and the judge then awarded treble damages pursuant to A.R.S. § 40-493 (the utility tampering damages statute).  The Paulsens appealed the issue of Strawberry’s standing to sue, the jury instructions on comparative fault, the awarding of treble damages, and various other issues.

On appeal, the Paulsens claim that Strawberry did not present sufficient evidence of ownership of the pipe on their property and the water flowing through it to establish standing to sue.  While the law usually treats water rights as real property, the Court held the water at issue here qualified as personal property because Strawberry had reduced the specific water at issue to their possession and control.  The Court noted that Strawberry did not need to establish ownership of the water or pipe on the Paulsens’ property to prove its utility tampering claims, but only needed to show that it provided water service to the pipe from which the water was diverted.  As to the conversion claim, the Court held Strawberry provided sufficient evidence to show that it owned the wells from which the water at issue was pumped, and it was immaterial whether they also owned the pipe on the Paulsens’ land, because there is a rebuttable presumption that Strawberry owned the water if it came from Strawberry’s wells and the Paulsens received it by bypassing the meter.  Therefore, the Court affirmed the judgment of the trial court on the standing issue.

The Paulsens also argued that the trial court erred by not instructing the jury on the issue of comparative fault on the part of Strawberry and other non-parties, including the previous owners of the Paulsens’ property.  The Court affirmed the trial court as to Strawberry’s comparative fault, holding that the defense of comparative fault is not available against the victim in an intentional tort case.  However, the court held the Paulsens could allege comparative fault against other non-parties, and therefore reversed the trial court on that issue.

The Paulsens further argued that treble damages are a form of punitive damages, and therefore must be awarded by the jury, and not the judge.  The Court disagreed, finding that treble damages are not necessarily punitive, because they can also be awarded to compensate for loss or to encourage private law enforcement.  In addition, the case law does not show that treble damages require clear and convincing evidence or an evil mind, as is required for punitive damages.  Therefore, the Court held treble damages are not equivalent to punitive damages, and the judge can decide the issue.

Finally, the Paulsens argued the trial court erred by awarding Strawberry the value of the lost water, instead of just its lost profits.  However, the court dismissed this argument, because the Paulsens provided no evidence that these numbers would have been different.  In light of these rulings, the Court of Appeals affirmed in part, reversed in part, and remanded for a new trial so the trial court could instruct the jury on the comparative fault of non-parties.

Presiding Judge Portley authored the opinion, with Judges Irvine and Kessler concurring.

Cullen v. Auto-Owners Insurance Company. (7/25/2008):  Arizona Supreme Court Declines to Adopt the More Fact-Specific Pleading Standard Adopted By The United States Supreme Court in Bell Atlantic Corp. v. Twombly.

Appellant Michael Cullen was injured in an automobile accident, and brought a bad faith suit against Appellee, Auto-Owners Insurance Company based on an Auto-Owners policy covering a Dodge Caravan owned by Cullen’s mother and listing a third party as the named insured.  Auto-Owners moved to dismiss the Complaint pursuant to Rule 12(b)(6) of the Arizona Rules of Civil Procedure for failure to state a claim upon which relief could be granted.  The trial court granted Auto-Owners’ motion to dismiss.

The Court of Appeals affirmed the trial court’s judgment.  In its opinion, the Court of Appeals relied on Arizona case law setting forth the notice pleading standard governing Rule 8 of the Arizona Rules of Civil Procedure.  The court also then discussed in some detail the decision of the United States Supreme Court in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), interpreting Rule 8 of the Federal Rules of Civil Procedure as establishing a more fact-specific pleading standard.  Cullen timely filed a petition for review alleging that the court of appeals erroneously relied on Twombly to revise Rule 8’s notice pleading requirements. 

The Supreme Court granted Cullen’s petition and held that Arizona has not revised the language or interpretation of Rule 8 in light of Twombly.  The Court held an Arizona procedural rule may only be changed or re-interpreted in one of two ways.  First, because the Supreme Court is the only entity granted authority by the Arizona Constitution to make or revise Arizona’s procedural rules, any revisions or new interpretations of Rule 8 must be made by the Supreme Court.  Second, a member of the public may petition the Court pursuant to Arizona R. Sup. Ct. 28(A)(1) to adopt, amend or repeal a rule of procedure.  Because the Supreme Court has not changed its interpretation of Rule 8 and no Rule 28 petition has been filed, the notice pleading standard previously set forth by the Court continues to apply to Rule 8.

The Court declined, however, to reverse the Court of Appeals’ decision affirming dismissal in the case because it did not believe the lower court relied on the Twombly analysis in its holding.  Rather, the Court determined that the Twombly analysis below was dictum, and it vacated that portion of the Court of Appeals opinion citing to Twombly to “eliminate any confusion.” 

Chief Justice McGregor authored the majority opinion, joined by Vice Chief Justice Berch, Justice Ryan and Justice Bales. 

Justice Hurwitz concurred in part but dissented from that portion of the Court’s opinion affirming the Court of Appeals opinion.  Justice Hurwitz argued that the lower court’s analysis of Twombly was too thorough and extensive to easily be labeled dictum.  Justice Hurwitz would have remanded the case to the Court of Appeals to evaluate the complaint under the appropriate Arizona legal standard.

First American Title Insurance Company v. Action Acquisitions, LLC. (7/25/2008):   Arizona Supreme Court Holds That Title Insurance Policy Exclusion For “Failure to Pay Value” Applies When An Insured Is Not a Bona Fide Purchaser Protected By Recording Statutes And That Exclusion For Risks “Created” By Insureds Applies When An Insured Intends the Act Causing the Defect

At a sheriff’s sale in early 2005, purchasers Action Acquisitions LLC and Free for Now LLC successfully bid $3,500 for a home in Gilbert.   The property was worth between $300,000 and $400,000 and was subject to a $162,000 deed of trust.  The purchasers thus stood to profit more than $130,000 if they resold the home at market value.  The purchasers bought a $400,000 owner’s title insurance policy from Capital Title Agency issued by First American Title Insurance Company.  The policy they purchased excluded coverage for losses resulting from the insured’s “failure to pay value” for the title or from risks “created” by the insured.  The prior homeowner successfully moved to set aside the sheriff’s sale on the ground that the $3,500 price was grossly inadequate.  The purchasers did not appeal the superior court’s judgment and instead made a claim against the title insurance policy.  First American sought a declaratory judgment that it was not liable, and the purchasers counterclaimed.  First American and Capital Title moved for summary judgment, which the superior court granted, finding coverage was properly denied under the “created” risk exclusion.  The court of appeals affirmed, but relied on the “failure to pay value” exclusion.

On de novo review, the Supreme Court affirmed the superior court’s ruling.  First, the Court addressed the “failure to pay value” exception, holding that the exclusion “is most reasonably understood as applying when an insured is not a bona fide purchaser protected by the recording statues.”  Thus, the Court agreed that the policy’s exclusion resulting from the insured’s “failure to pay value” for the title means a loss resulting because the insured has not paid “valuable consideration” and is therefore not protected under the recording statutes.  However, the Court agreed with the purchasers that their $3,500 payment constituted valuable consideration because it represented a “present equivalent” for the title.  Present equivalent has an “expansive meaning” and does not require that the purchaser pay fair market value or even some value that could be characterized as adequate.  Rather, valuable consideration or present equivalent exists “if the purchaser surrenders a right or detrimentally changes a legal position ‘so that if the claim of title fails the purchaser is left in a worse position that he was before.’”  Here, although the $3,500 was a bargain price, the purchasers surrendered the right to money of more than a nominal amount.

The Court went on to address the exclusion for risks “created, allowed, or agreed to by” the insured. The Court held that the exclusion applies “whenever the insured intended the act causing the defect, not only when the insured intended the defect or when the insured engaged in misconduct” (emphasis added).  Here, by bidding $3,500, the purchasers created the risk that resulted in the loss (i.e. the setting aside of the sale) because their bid was an intentional, affirmative act.  Finally, the Court rejected the purchasers’ reasonable expectations argument.  The Court found that the doctrine did not apply in the circumstances because the purchasers’ expectations failed each of the four tests articulated in Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 266, 272-73, 742 P.2d 277, 283-84 (1987).

Justice Bales authored the opinion for a unanimous Court.

Security Title Agency, Inc. v. Pope (7/29/2008): Arizona Court Of Appeals Division One Holds That (1) Sufficient Evidence Supported Title Company’s Liability For Aiding And Abetting A New Employee’s Breach Of Fiduciary Duty Against Previous Employer, A Competing Title Company; (2) Punitive Damages Were Not Improper for Commercial Business Tort, But (3) The Amount Of Punitive Damages Was Unconstitutionally Excessive.

In 2003, First American Title Insurance Company sought to regain its position as the nation’s largest title insurance company from its main competitor, Security Title Agency.  As part of this campaign, First American recruited Linda Pope, a branch manager and officer of Security Title.  Once Pope agreed to join First American, she then sought to recruit over sixty of Security Title’s employees while she was still employed by Security Title.  First American allegedly knew that Pope was trying to bring with her as many of these sixty-plus employees as possible.  First American also met with several of these employees and advised that these employees should come to First American in groups, not all at once, to avoid the appearance of impropriety on First American’s part.  After Security Title discovered Pope’s actions, she was fired, but she managed to convince thirty employees to walk out on Security Title that same day.  Security Title brought a claim against First American for aiding and abetting Pope’s breach of her fiduciary duty to Security Title.  The trial court refused to grant First American judgment as a matter of law, and the jury found for Security Title, awarded six million in compensatory damages, and thirty-five million dollars in punitive damages.  The trial court set aside the award of punitive damages because First American’s conduct was not sufficiently egregious.  Both sides appealed.     

The Arizona Appeals Court affirmed the trial court’s denial of First American’s motion for JMOL on Security Title’s aiding and abetting claim, vacated the trial court’s order setting aside the punitive damages award, and reduced the amount of punitive damages.  The Court first concluded that sufficient evidence supported the finding that First American aided and abetted Pope’s breach of fiduciary duty by improperly soliciting Security Title’s employees while she was still an officer of the company.  The jury could have concluded that First American was aware of Pope’s conduct, such as offering employees hiring bonuses and improved benefits, and provided Pope with encouragement and assistance by (among other things) providing the money for the hiring bonuses and agreeing to indemnify Pope if Security Title brought suit against her.  Moreover, the evidence was sufficient even if Pope’s breach did not involve making explicit job offers and even if First American did not know every particular of Pope’s tortious conduct.  The Court next concluded that, contrary to the trial court’s order, First American’s conduct justified an award of punitive damages.  The Court then concluded that the jury’s award of thirty-five million in punitive damages was unconstitutionally excessive and reduced the award to six million, which was an amount equal to the compensatory damages awarded to Security Title.  The court concluded that this 1:1 ratio was appropriate because the compensatory damage award was large and the harm caused was economic, not health or safety related, and involved only one or two of the pertinent reprehensibility factors.  The court finally upheld the trial court’s sanction award of attorneys’ fees and costs against Security Title for its failure to disclose the expected testimony of a trial witness, which ultimately resulted in the case having to be retried.    

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

Santa Fe Ridge Homeowners’ Assoc. v. Bartschi (7/29/2008):  Arizona Court of Appeals Division One Holds That a Homeowner’s Association May Not Properly Record a Lis Pendens Under A.R.S. § 12-1191(A) in Connection with an Action to Enforce the CC&Rs Where the Action Would Not Expand, Restrict, or Burden the Property Owner’s Rights as Bestowed by Virtue of the Title to the Property.     

Defendant Bartschi owns a home in the community of Santa Fe Ridge.  Plaintiff Santa Fe filed a complaint against Bartschi seeking permanent injunctive relief due to her failure to maintain her lot.  It also asked that it be entitled to certain “self-help” remedies, for which it could recover expenses from Bartschi, if she failed to comply with any injunctive order imposed by the court.  Four days later, Santa Fe recorded a notice of lis pendens against Bartschi’s property.  Bartschi counterclaimed, alleging wrongful recordation of the lis pendens.  She also moved for partial summary judgment on her counterclaim, which the trial court granted.  Bartschi then moved for statutory damages, attorneys’ fees, and costs pursuant to A.R.S. § 33-420(A), which the trial court awarded.  Santa Fe appealed. 

The Arizona Appeals Court affirmed in part and reversed in part.  It primarily held that Santa Fe improperly filed the lis pendens because the lawsuit it brought against Bartschi did not affect title to real property, as required by A.R.S. § 12-1191(A).  The Court first explained that the purpose of recording a lis pendens is to provide constructive notice to prospective purchasers and lenders of a pending lawsuit that may affect title to real property.  The Court then discussed and distinguished Tucson Estates, Inc. v. Superior Court, 151 Ariz. 600, 729 P.2d 954 (App. 1986), a case holding that a lis pendens may be recorded for an action affecting rights incident to title to real property.  The Court explained that the claim in Tucson Estates affected rights tied to ownership of real property and would bind future property owners, and thus the lis pendens fulfilled the purposes of § 12-1191(A) by providing notice to anyone affected by the outcome, or innocent third parties who might acquire interest in the real property at issue.  Under the Court’s reading of Tucson Estates, “a lawsuit affects a right incident to title if any judgment would expand, restrict, or burden a property owner’s rights as bestowed by virtue of that title.”

The Court found that Santa Fe’s lawsuit did not fall within its narrow reading of Tucson Estates, because any judgment against Bartschi would not have affected rights incident to her title, which was already burdened by the CC&Rs.  Moreover, the Court noted that the purpose of the lis pendens statute was not satisfied because any judgment would have been personal to Bartschi, and would have had no effect on future interest-holders. 

The Court also rejected Santa Fe’s contention that the action affected title to real property because it could have resulted in the imposition of a lien.  It cited Coventry Homes, Inc. v. Scottscom P’ship, 155 Ariz. 215, 745 P.2d 962 (App. 1987), for the proposition that merely asking for the imposition of a lien does not affect title to real property, there must be a basis for such a lien.  Because no such basis existed – Bartschi had not failed to comply with any injunction – the lis pendens was premature.

Finally, the Court affirmed the trial court’s finding that Santa Fe knew or had reason to know that its recordation of the lis pendens was groundless, and that Bartschi was therefore entitled to recover damages, fees, and costs under A.R.S. § 33-420(A).  The Court, however, vacated the trial court’s award of attorneys’ fees because that award included fees Bartschi incurred defending against Santa Fe’s complaint, which was distinct from Bartschi’s counterclaim.  On appeal, attorneys’ fees were awarded to Bartschi.

Judge Timmer authored the opinion; Presiding Judge Johnsen and Judge Thompson concurred.