AZAPP Blog

Coplan v. Ariz. State Bd. Of Appraisal (10/22/2009): Arizona Court of Appeals Division One Holds That a Court Reviewing Agency Action Was Insufficiently Deferential When It Concluded That an Agency’s Decision Was “Shocking to One’s Sense of Fairness.”

In a license disciplinary matter, the Arizona State Board of Appraisal (“Board”) sanctioned Coplan for various violations of state law and certain standards licensed appraisers are supposed to meet.  After a series of administrative hearings and appeals, the Board put Coplan on probation, requiring Coplan to satisfy fifteen continuing education hours and forcing Coplan to complete a certain number of appraisals under the supervision of a certified mentor.  Coplan appealed to the superior court.  Although the superior court agreed that Coplan violated appraiser standards, the court reduced the sanctions, finding that the Board’s sanctions were “shocking to one’s sense of fairness.”  The Board appealed.

A unanimous Court of Appeals reversed, holding that the superior court’s “shocking” standard was an improper standard to apply to the Board’s sanctions.  The Court noted that the Administrative Review Act imposes a deferential standard: a reviewing court should affirm agency action unless “the court concludes that the action is not supported by substantial evidence, is contrary to law, is arbitrary and capricious or is an abuse of discretion.”  A.R.S. § 12-910(E).  Relying on Maricopa County Sheriff’s Office v. Maricopa County Employee Merit System Commission, 211 Ariz. 219, 119 P.3d 1022 (2005), the Court explained that the “shocking” standard did not accurately define the standard outlined in A.R.S. § 12-910(E).  The Court reasoned that the standard was insufficiently deferential to the Board.

Applying the correct standard of review, the Court upheld the Board’s sanctions.  First, the Court concluded that the Board correctly found Coplan had committed errors warranting sanctions.  Second, because the sanctions the Board imposed were “consistent with those that are recommended” for violations of the type Coplan committed, the Court saw no reason to second guess the Board’s decision.

Judge Hall authored the opinion; Judges Thompson and Barker concurred.

Practice Note:

The superior court awarded Coplan attorneys’ fees for the Board’s administrative hearing and the appeal to the superior court.  The Court vacated the award of fees because Coplan was no longer the prevailing party under A.R.S. § 41-1007(A) and A.R.S. § 12-348(A)(2). 

In Re MH 2008-002596 (10/20/2009): Arizona Court of Appeals Division One Holds There is No Requirement for a Minimum Number of Encounters or Time of Acquaintance to Qualify as an Acquaintance Witness in a Hearing for Involuntary Mental Health Treatment.

A petition was filed seeking involuntary mental health treatment for the appellant, who had a history of substance abuse and had been receiving psychiatric treatment since 1990. The appellant had called the Crisis Recovery Network explaining that he had consumed alcohol and overdosed on a variety of prescription medications. Under A.R.S. § 36-539(B), “two or more witnesses acquainted with the patient at the time of the alleged mental disorder” must testify at a hearing for involuntary treatment. Pursuant to this requirement, the Crisis Specialist who spoke with the appellant on the phone (identified by the court as E.G.) testified regarding their phone conversation. The court found that the appellant was suffering from a mental disorder and was a danger to himself. It ordered that he undergo inpatient and outpatient treatment for up to a year.

The patient appealed the court’s decision, arguing that E.G. did not qualify as an acquaintance witness because their contact was limited to one fifteen-minute conversation by telephone. The Arizona Appeals Court affirmed the treatment order, holding that there was no statutory requirement for a minimum level of frequency of contact to qualify as an acquaintance witness, and that the witness only needs to be acquainted with the patient at the time of the mental disorder. The Court held that the only requirements applicable to acquaintance witnesses are those that are generally applicable to witnesses. The Court thus held that an acquaintance witness must have personal knowledge relevant to the issue at hand, which in this case was “whether the patient has the mental defect alleged.” Because E.G. fulfilled these requirements, the Court held that she was qualified under the statute to testify as an acquaintance.

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

Grosvenor Holdings, L.C. v. Superior Court: Arizona Court of Appeals Division Two Holds that Parties Cannot Submit Disputes to Judicial Proceedings Under the Administrative Review Act Without Statutory Authorization.

A developer entered into a five-year agreement with Pinal County for the development of a residential project.  The agreement prohibited the assessment of impact and other fees for the project.  Under the agreement, the developer could request an additional five-year term extension, which could not be “unreasonably withheld, conditioned or delayed by the County.”  The agreement provided for dispute resolution by a hearing before the County Board of Supervisors (the “Board”) and Superior Court review of the Board’s decision pursuant to the Administrative Review Act, A.R.S. §§ 12-901, et. seq. (“ARA”).

After the Board denied a requested extension of the agreement, the developer filed a complaint in Superior Court seeking declaratory relief.  The County treated the complaint as a notice of review under the ARA, which provides for judicial review to determine whether agency decisions are illegal, arbitrary, capricious, or an abuse of discretion.  See A.R.S. § 12-910(E).  The developer sought partial summary judgment that the ARA did not apply.

The Superior Court denied the motion, finding that the County could voluntarily submit its decisions to ARA review.  But, because there had been no hearing before the Board, and no final administrative order to review, the Superior Court remanded the matter to the Board for further proceedings.  The developer petitioned for special action review.

The Court of Appeals accepted jurisdiction and granted relief. 

The ARA does not apply to decisions by a “political subdivision or municipal corporation” or their agencies.  A.R.S § 12-901(1).  The County conceded that its decisions were not subject to ARA review as a matter of right, but argued that it could nonetheless voluntarily subject its decisions to ARA review.

The Court of Appeals, however, concluded that the County could not invoke the ARA absent statutory authorization.  Parties cannot, by agreement, confer subject matter jurisdiction on the Superior Court.  Similarly, parties cannot by agreement limit the court’s jurisdiction, which would be the effect of treating the developer’s de novo complaint as a request for judicial review under the ARA.  The development agreement’s invocation of judicial review under the ARA was therefore void.  The appeals court vacated the order denying partial summary judgment and directed the Superior Court to process the complaint as a de novo complaint.

Presiding Judge Espinosa wrote the opinion; Judges Brammer and Eckerstrom concurred.

Grand  v. Nacchio, et al. (9/29/2009): Division Two of the Arizona Court of Appeals Holds That a Private Plaintiff Brining Claims for Secondary Liability Under the Arizona Securities Act Must First Establish Primary Liability Under A.R.S. § 44-2003(A).

Plaintiff filed a securities fraud action against Defendants, seeking to rescind its stock purchases pursuant to A.R.S. § 44-2001(A) of the Arizona Securities Act (the “Act”), under theories of direct and secondary liability.  Defendants separately moved to dismiss the complaint, and the trial court granted the motions but only as to the allegations regarding the purchase of shares outside the initial public offering (“IPO”).  Plaintiff ultimately agreed to dismiss with prejudice the remaining claims concerning the IPO shares.  Plaintiff timely appealed, alleging all three claims asserted in the complaint were sufficiently pled.

The Arizona Appeals Court affirmed the dismissal.  The Court first discussed Plaintiff’s claim of direct liability under A.R.S. §§ 44-1991(A), 44-2001(A) and 44-2003(A). Under § 44-1991(A)(3), it is a fraudulent practice to “engage in any transaction, practice or course of business which operates or would operate as a fraud or deceit” in connection with the sale or purchase of securities.  Section 44-2001(A) allows a purchaser of securities injured by a violation of § 44-1991(A) to bring a private cause of action for rescission or damages.  Section 44-2003(A) identifies the individuals against whom an action pursuant to § 44-2001 may be brought, limiting such actions to persons who “made, participated in or induced the unlawful sale or purchase” of securities.  Plaintiff argued that the complaint sufficiently alleged that Defendants had “participated in” the stock purchases by providing Plaintiff with written communications including misleading press releases, favorable analyst reports and other information regarding market conditions, and by providing Plaintiff with information about a broker.  The Court held that the complaint failed to sufficiently demonstrate that Defendants had participated in Plaintiff’s purchases of stock for purposes of § 44-2003(A).  The Court noted that Plaintiffs disclaimed any reliance on inducement liability, though many of the allegations made in the complaint seemed more akin to inducement liability than participation liability.

Turning to the claims of secondary liability under control person and aiding and abetting theories, the Court similarly held that Plaintiff had failed to sufficiently plead these claims.  The Court upheld the trial court’s determination that the requirements of § 44-2003(A) apply to both control person and aiding and abetting liability.  The Court explained that to be entitled to relief under a control person theory of liability, a private plaintiff must establish liability under the “Fraudulent Practices” portion of the Act (which includes §§ 44-1991 and 44-1999) as well as comply with the “Civil Remedies” portion of the Act (which includes § 44-2003).  Thus, a plaintiff must allege that the controlled person “participated in” the purchases of stock, an allegation missing in this case.  With regard to the aiding and abetting claim, the Court declined to decide whether Arizona law continues to recognize such a cause of action because Plaintiff had failed to adequately plead the cause of action. The Court explained that like control person liability, aiding and abetting liability requires a showing of primary liability under § 44-2003(A).  Because the complaint failed to sufficiently allege that the primary violator “participated in” the purchase, the claim for aiding and abetting also failed.       

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

Hammoudeh v. Jada (10/9/2009): Arizona Court of Appeals Division Two Holds That When It Is Apparent from the Record That Discovery Violations Are the Fault of the Party, As Opposed To the Party’s Attorney, Court Need Not Hold Evidentiary Hearing Prior to Sanctioning Party with Dismissal or Entry of Default Judgment.

Jada and Hammoudeh agreed to the sale of Hammoudeh’s 2003 Mercedes to Jada.  After a dispute,  Hammoudeh refused to undo the deal, and Jada failed to make further payments.  Hammoudeh repossessed the vehicle and filed a complaint for breach.  Jada counterclaimed, alleging fraud, conversion, and racketeering. 

During litigation, Jada filed two sets of discovery requests, first in July 2007 and again in November 2007.  He also filed his Rule 26.1 initial disclosure statement.  After Hammoudeh failed to respond to either discovery request or make any initial disclosure statement, Jada filed a motion to compel discovery and for attorney’s fees.  In February 2008, just before a hearing on the motion to compel, Hammoudeh responded to the discovery requests.  The trial court awarded attorney’s fees to Jada based on the untimely responses.  In May 2008, Jada gave notice to the court that Hammoudeh’s responses were inadequate.  Jada then moved to strike Hammoudeh’s complaint and his answer to Jada’s counterclaim.  Hammoudeh did not respond.  During the September 2008 hearing on Jada’s motion, the trial court rejected Hammoudeh’s request for an evidentiary hearing, granted Jada’s motion to strike Hammoudeh’s pleadings, and subsequently held a default hearing regarding damages.  Hammoudeh appeared only on the first day of the two day damages hearing, which resulted in a default judgment awarding Jada over $20,000 in damages, plus costs and attorney’s fees.

In a unanimous decision, the Court of Appeals affirmed the trial court’s decision to deny Hammoudeh’s request for an evidentiary hearing prior to entering default judgment.  Hammoudeh argued that the trial court should have held a hearing to determine whether Hammoudeh’s attorney, not Hammoudeh personally, caused the failure to comply with discovery requests.  The Court explained that Rule 37(b)(2), Arizona Rules of Civil Procedure, gives a court power to strike pleadings or enter a default judgment as sanctions against a party for failure to comply with discovery orders.  To issue a harsh sanction such as dismissal, the court must find that the party, not only the party’s attorney, obstructed discovery.  The Court noted that, although an evidentiary hearing “may often be necessary” to make such a finding, one was not required here because the “facts are apparent from the record.” 

After examining Hammoudeh’s pattern of incomplete and delayed discovery responses, the Court concluded that the record demonstrated that the trial court was within its discretion to conclude that an evidentiary hearing was not necessary in this case.

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

American Family Mutual Insurance Company v. Hon. Larry Grant (10/08/2009):  Arizona Court of Appeals Division One Vacates Superior Court’s Order Requiring Insurance Company’s Expert Physician to Produce Extensive Documentation In Response to Subpoena Duces Tecum

In connection with a car accident that resulted in an underinsured motorist (“UIM”) claim to American Family, American Family retained orthopedic surgeon Jon Zoltan, M.D.  He reviewed the claim, and determined that the claimant and insured, Lauren Allo, had preexisting health issues, and that those issues, rather than her car accident, explained her medical issues. 

Allo sued American family.  She alleged that American Family breached the terms of the insurance contract and acted in bad faith by, inter alia, retaining Dr. Zoltan because it knew he was biased against personal injury plaintiffs.  During discovery, Allo issued a subpoena duces tecum (“SDT”) to Dr. Zoltan, requiring the production of extensive documentation.  After an objection byDr. Zoltan, a motion to compel by Allo, and a motion to quash by American family, the superior court ordered Dr. Zoltan to produce substantial information, including copies of all medical review reports and IME reports provided to insurance companies or their attorneys from 2000 to the present, the financial information requested regarding his total revenues from the insurance industry and their lawyers’ from 2000 to present, including fee information for cases from 2000 to present. 

Accepting special action jurisdiction, the Court began by noting that litigants are generally entitled to present evidence that tends to show bias on the part of experts.  While Allo must have “some latitude” in discovering evidence of bias, such latitude is “not unfettered.”  This need must be balanced against competing interests, including the right of witnesses to be free from unduly intrusive inquiries and the need to prevent “broad-ranging discovery forays that serve to increase the cost, length and burden of litigation. . . .”   Addressing the superior court’s discovery order, the Court easily reversed the time frame set forth by the superior court.  Although Allo’s subpoena included requests for documents going back three to five years, the court’s order required Dr. Zoltan to produce documents going back nine years.  There was no basis in the record for this “significantly expanded order,” and the Court noted that a nine-year span would rarely be appropriate. 

The Court went on to find that litigants should “first pursue less intrusive discovery before resorting to broad demands” like those at issue here.  The Court found that Allo already had “substantial information about Dr. Zoltan . . . and his purported bias” and that this was not a “case of a recalcitrant expert,” as American Family had conceded that Allo may take Dr. Zoltan’s deposition to demonstrate bias.  On the issue of financial documents, the Court declined to adopt any “bright-line” standard, but agreed that courts have “gone too far in permitting burdensome inquiry into the financial affairs of physicians.”  The production of exhaustive financial documentation such as that sought by Allo “is appropriate only in the most compelling of circumstances, and only after less intrusive means of obtaining bias-related evidence has been explored.”

Division One vacated the superior court’s order and remanded for further proceedings, including an assessment of whether Allo has explored less intrusive discovery, and if so, whether she can demonstrate good cause for more expanded inquiries.

Judge Downie authored the opinion, with Judge Portley, Presiding Judge, and Judge Brown concurring.

In re MH 2008-001795 (9/29/09):  Arizona Court of Appeals Division One Holds that a Psychiatric Resident Physician with a One-Year Training Permit Qualifies as a “Licensed Physician” for the Purpose of Completing a Petition for Court-Ordered Evaluation.

Appellant’s legal guardian filed an application for involuntary evaluation, after which a first-year psychiatric resident holding a one-year training permit petitioned the trial court for an involuntary mental health evaluation.  After two physicians performed evaluations, the mental health center filed a petition for court-ordered treatment.  Appellant filed a motion to dismiss, arguing that the psychiatric resident was not qualified to petition the court for an involuntary mental health evaluation.  The trial court denied Appellant’s motion and this appeal followed.

The Arizona Appeals Court held that a first-year psychiatric resident holding a one-year training permit is a “licensed physician” and thus is qualified to complete a petition for court-ordered evaluation.  Under the applicable statutes and regulations, a petition for court-ordered evaluation must be completed by “a psychiatrist, or other licensed physician experienced in psychiatric matters.”  Because a temporary permit grants a qualified license to practice when the resident physician is properly supervised by a licensed physician, a temporary permit holder qualifies as a “licensed physician.”  Consequently, where, as here, the psychiatric resident works under the supervision of the medical director, the resident may complete a petition for court-ordered evaluation.

Judge Winthrop authored the opinion; Judges Swann and Brown concurred.

A Tumbling-T Ranches v. Flood Control Dist. of Maricopa County (10/08/09): Arizona Court of Appeals Division One Holds That Inverse Eminent Domain Claims Must Demonstrate an Increased Risk of Sufficient Magnitude, and a Depreciation in Property Value

 In 1993, the Gila River flooded. The floodwaters breached the Gillespie Dam, releasing considerable amounts of sediment. The sediment clogged the riverbed downstream, damaging downstream properties and making future floodwater flow in erratic patterns that are unpredictable. Downstream landowners (the “Farmers”) sued the Flood Control District of Maricopa County (the “District”), alleging that its upstream flood control project contributed to the dam’s failure, and that it also led to the downstream sedimentation. At trial, the jury found the District negligent, apportioning 10% of the liability to the District.

The Farmers appealed, challenging the trial court’s denial of their motion for judgment as a matter of law on an inverse eminent domain claim, arguing that a public entity should be liable for any damage caused by a public improvement. The Appeals Court affirmed, holding that to prevail on an inverse eminent domain claim, the party must prove that the increased risk caused by the public improvement “has caused a substantial interference with private property rights,” that the increased risk was of “sufficient magnitude,” and that the risk caused a depreciation in “the value of the plaintiff’s property.”

The District cross-appealed, asserting that the Farmers had failed to prove the District’s negligence. The District also argued that the trial court had erred in denying the District’s motion for judgment as a matter of law on the basis of governmental immunity, and had improperly granted summary judgment on the issues of the Farmers’ failure to obtain permits for floodplain activities and whether the Farmers could seek permanent damages for land within the confines of a navigable river. The District also asserted that the trial court had given improper jury instructions on diminished land values as a measure of damages, assumption of risk, and assigning fault to the U.S. Army Corps of Engineers. The Court of Appeals affirmed the trial court on all the issues raised by the District’s cross-appeal.

Judge Brown authored the opinion; Judges Barker and Downie concurred.