AZAPP Blog

Amtrust Bank v. Fossett (12/15/2009): Arizona Court of Appeals Division One Holds That a 1099-C Cancellation of Debt Form Is Prima Facie Evidence of Cancellation of a Debt That May Be Rebutted by Evidence Showing that the Lender Did Not Intend to Forgive the Debt

A car belonging to the Appellants, the Fossetts, was repossessed and sold in January 2003 by Appellee, Amtrust Bank, because the Fossetts had ceased making payments on their car loan. The sale of the car left a deficiency of $19,727.86 on the loan. In February 2005, Amtrust sent to the Fossetts a form 1099-C, a federal tax form titled “Cancellation of Debt.” The 1099-C listed $17,594 in a box labeled “Amount of debt cancelled.” Believing that their debt had been canceled, the Fossetts listed the amount as discharged debt in their tax filing for the year. Amtrust later sued the Fossetts in superior court, alleging breach of the loan agreement and seeking repayment of the deficiency. The Fossetts moved for summary judgment, arguing that the 1099-C form had cancelled the debt. The superior court denied the Fossetts’ motion and entered judgment for Amtrust.

The Arizona Appeals Court affirmed the denial of the Fossetts’ motion for summary judgment, but reversed the superior court’s judgment in favor of Amtrust. A.R.S. § 47-3604(A)(2) states that debt is discharged when the lender “agree[s] not to sue or otherwise renounce[s] rights against the party by a signed writing.” Amtrust argued that sending the 1099-C form to the Fossetts did not constitute a signed writing renouncing its rights. Instead, Amtrust argued that it issued the 1099-C form because federal regulations required that the form be issued after a certain time period and that federal regulations allow a lender to issue the form without actually canceling the underlying debt. The Court held that while the 1099-C form was prima facie evidence that Amtrust had discharged the debt under A.R.S. § 47-3604(A)(2), Amtrust could rebut the evidence by showing that it did not intend to cancel the debt. The Court held that the record before the superior court presented questions of fact that precluded it granting judgment in favor of Amtrust. Some of these questions of fact were whether federal law required that Amtrust issue the 1099-C form when it did, and Amtrust’s policies and practices regarding debt cancellation.

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

Posted by: James K. Rogers

In re MH 2008-002393 (12/17/2009): Arizona Court of Appeals Division One Holds that Prior Involuntary Detention in Violation of Statute Does Not Constitute Grounds for Dismissal of Subsequent Involuntary Mental Health Treatment Proceeding

A mental health patient threatening suicide was involuntarily detained for several weeks pursuant to a series of applications for emergency admission for involuntary evaluation.  Because of facilities shortages, the patient did not receive a mental health evaluation within seventy-two hours of hospitalization.  Acting on a petition for court-ordered treatment, the trial court subsequently held a hearing and ordered the patient to undergo a combination of inpatient and outpatient treatment.  The patient appealed the treatment order on the basis that he had been detained without an evaluation in excess of the statutorily permitted time period.

The Court of Appeals affirmed the treatment order.  The Court agreed that A.R.S. § 36-531(D) requires that a person detained involuntarily for inpatient evaluation “shall be released within seventy-two hours” unless the individual consents to treatment or a petition for court-ordered treatment is filed.  The appropriate remedy for violations of the statute, however, is “to seek release of the patient during the period of improper detention, not to request dismissal of a later-filed petition that complies with the statutory requirements.”  The patient could have sought release through a writ of habeas corpus but did not.  When new petitions are filed for court ordered evaluation and treatment, the ensuing treatment order should not be dismissed unless the patient demonstrates that he did not receive a fair hearing because of his illegal detention. 

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

Posted By: Mark P. Hummels

Lebaron Properties, LLC v. Jeffrey S. Kaufman, LTD (12/15/2009):  Division One of the Arizona Court of Appeals Holds That, Under A.R.S. § 33-420, a Sanction for Recording an Invalid Notice of Lis Pendens May Not Exceed $5,000, Unless the Property Owner Suffers Actual Damages.

Jeffrey S. Kaufman represented five defendants in an action filed against them by Lebaron Properties alleging breach of a contract to purchase real property.  Kaufman filed an answer and counterclaim on behalf of his clients, but, before he did so, he recorded a notice of lis pendens with the Maricopa County Recorder.  Because it predated the answer and counterclaim, the notice of lis pendens was improper. 

Pursuant to A.R.S. § 33-420, Lebaron moved to quash the lis pendens and asked for a sanction of $25,000 ($5,000 per defendant) plus attorneys’ fees and costs.  That statute allows the owner of a property to recover “not less than five thousand dollars, or . . . treble the actual damages caused by the recording, whichever is greater” plus attorneys’ fees and costs from a person who causes the recording of an invalid notice of lis pendens, knowing or having reason to know that the notice is invalid.  The trial court awarded Lebaron the sum it requested, ordering that the sanction be paid by Kaufman, not his clients.

The Court of Appeals concluded that a sanction against Kaufman was appropriate, but that the amount awarded by the trial court was not permitted by the statute.  The Court rejected Lebaron’s argument that the statute gave a trial court discretion to award in excess of $5,000 even if no actual damages had been suffered.  The Court also rejected Lebaron’s alternative argument that, because there were five defendants, it was entitled to $25,000 under the statute, $5,000 for each defendant.  According to the Court, “when only one violation or violator and property owner is involved, sanctions may not exceed $5000 unless actual damages are shown.”  In this case, the “violator” was Kaufman, not his clients because they had no reason to know that an invalid notice of lis pendens was recorded.  The Court affirmed the judgment of the trial court, but modified the amount of the award.

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

Posted By: Kathleen O'Meara 

Katan v. City of Prescott (12/3/09):  Court of Appeals Division One Holds that Where a City Charter Provides that the City Must List the Top Six Candidates From the Primary Election on the General Election Ballot, the City is Not Required to List Those Candidates Who Were Not Among the Top Six Vote Getters Even If One of the Top-Six Vote Getters Eventually Drops Out of the Race. 

The City of Prescott (“the City”) held a primary election for three vacant City Council seats.  The City listed eight candidates on the ballot.  According to the City Charter, a candidate receiving a majority of all votes cast is elected.  Otherwise, a general election is required, in which the top six vote getters from the primary election (twice the number of offices to be filled) are listed.  No candidate received a majority of all votes cast.  Paul Katan (“Katan”) received the seventh most votes, and Bob Bell (“Bell”) received the fifth most votes.  After the primary, Bell informed the City Clerk that he would not continue to run for the City Council position.  Katan demanded that his name be placed on the general election ballot because he was now one of the six candidates receiving the highest number of votes in the primary.  The City refused to list Katan, who, as a result, filed a special action complaint in the superior court.  The superior court concluded that Katan should be listed on the ballot and ordered the City to do so.  This appeal followed.

The Arizona Appeals Court first rejected the City’s argument that A.R.S. § 16-673, which requires a court contest to be filed within five days of the declaration of election results, deprived the Court of jurisdiction.  The Court explained that § 16-673 is inapposite because Katan was challenging the City’s compliance with its Charter, and not the results of the primary election.

The Court next held that the City was not required to include Katan on the general election ballot.  The Court reasoned that following the primary election Katan was not one of the top six vote getters, and thus he was eliminated from the race and not eligible to be listed on the ballot.  Whether Bell was listed on the ballot or not, Katan’s right to be listed could not be restored once he was not among the top six vote getters.  The Court concluded that the language of the City Charter “plainly prevents anyone not among the top six in the primary from being listed on the general election ballot.”  The Charter contained no mechanism for replacing one of the top six vote getters in the primary, and the Court refused to create one by judicial fiat. 

Judge Irvine authored the opinion; Judges Gemmill and Thompson concurred.

Posted By: Michael S. Catlett

Home Builders Ass’n of Cent. Ariz. v. City of Goodyear (12/08/2009):  Arizona Court of Appeals Division One Holds That A.R.S. § 9-463.05(B)(4) Requires Municipalities Imposing Development Impact Fees to Consider Only Those Future Revenues Paid by Development Property Owners That Will Be Applied to Growth-Related Capital Costs.   

In 2006, Defendant City of Goodyear (the “City”) adopted ordinances increasing development impact fees.  Plaintiff Home Builders Association of Central Arizona (“HBA”) filed a complaint for special action relief alleging that the City violated A.R.S. § 9-463.05(B)(4) by setting the impact fee amounts without considering future revenues from development property owners that would be used for the same growth-related costs as the impact fees.  HBA moved, and the City cross-moved, for summary judgment.  The trial court held an evidentiary hearing to determine whether the City had considered the future taxes and fees to be collected from development property owners as required by the statute, and found that the City presented substantial evidence that it had complied with the statute.  Accordingly, the court denied HBA’s motion and entered judgment for the City.  HBA timely appealed.

The Arizona Appeals Court affirmed.  The Court first explained that A.R.S. § 9-463.05(B)(4) only requires that an impact fee be “reasonably related” or “roughly proportional” to the actual burden imposed by the development, and thus municipalities only need to “actually account, in some meaningful way, for future revenues to be paid by a development property owner and applied to the growth-related capital costs on which impact fees were calculated.” 

The Court then reviewed the evidence presented at the evidentiary hearing to determine whether it supported the trial court’s finding that the City properly considered future revenues to be used for growth-related costs when calculating the impact fees.  A consultant who had prepared the City’s impact fee plan testified that if future revenues collected from development property owners were to be used to fund growth-related improvements, it would be appropriate to consider those revenues when calculating the impact fees.  Based on his conversations with the City staff, however, the consultant learned that any future revenues from development property owners would not be used for growth-related costs, and thus did not need to be considered.  Based on this evidence, the Court held that HBA failed to satisfy its burden to prove that, in calculating the impact fees, the City failed to account for future tax revenues from the development that would be applied to the costs on which the impact fees were calculated.

The Court rejected HBA’s argument that the City failed to prove that it would not use tax revenues collected from the development for the same growth-related capital costs to be funded by the impact fee, explaining that the consultant’s testimony about what the City staff told him was not inadmissible hearsay, but was instead admissible to show the consultant’s state of mind as he created the City’s plan.  The Court also rejected HBA’s argument that the trial court failed to find that the impact fees bore a reasonable relationship or were roughly proportionate to the burden imposed by the new development, noting that this conclusion was implicit in the trial court’s decision.

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

Wendland v. AdobeAir, Inc. (12/08/2009):  Arizona Court of Appeals Division One Holds That Standards in the Occupational Safety and Health Act Can Be Considered As Some Evidence of the Standard of Care in Negligence Cases Even When The Act Is Not Binding.

Wendland sued AdobeAir for negligence after falling into an open pit on property AdobeAir used as a manufacturing facility.  Wendland was not AdobeAir’s employee, but was a sub-contractor passing through AdobeAir’s building on his way to meet the general contractor.  Before trial, AdobeAir sought to exclude Wendland’s expert who relied on Occupational Safety and Health Act (“OSHA”) standards to support his opinion of AdobeAir’s standard of care.  The trial court allowed the OSHA evidence on the grounds that it was “some” evidence of negligence.  A jury found for Wendland and AdobeAir timely appealed.

In a unanimous opinion, the Arizona Court of Appeals affirmed.  First, AdobeAir argued that OSHA standards were inadmissible as evidence of the standard of care, relying on Pruett v. Precision Plumbing, Inc., 27 Ariz. App. 288, 293, 554 P.2d 655, 660 (1976).  Although some language in Pruett suggested that OSHA evidence was inadmissible to show the standard of care, the Court distinguished that language as dicta because Pruett concerned only what duties OSHA imposed, and therefore did not control the issue whether OSHA standards are relevant to the standard of care in negligence cases. 

Second, the Court rejected AdobeAir’s argument that OSHA could not apply because Wendland was not AdobeAir’s employee.  Following the Restatement and a majority of other courts, the Court held that, although not binding on AdobeAir, OSHA standards could be considered as “some evidence of the standard of care” if there was adequate foundation.  Adequate foundation exists if (1) the OSHA standard is “directly related to the exercise of reasonable care” and (2) there is a “reasonable nexus” between the OSHA standard and the injury.  Applying its reasoning to Wendland’s injury, the Court held that the trial court appropriately allowed the expert to discuss OSHA standards for open pits.  It was clear that the jury was allowed to consider other evidence of the standard of care and was not told that OSHA’s requirements were mandatory.

Finally, AdobeAir challenged a jury instruction which said that OSHA evidence was introduced “for the limited purpose of suggesting standards to protect others from floor openings.”  The Court held that, though not perfect, the instructions sufficiently explained that the jury could consider other evidence of the standard of care in addition to the OSHA evidence.

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

Richard E. Lambert, Ltd. v. City of Tucson Department of Procurement (12/8/2009): Arizona Court of Appeals Division Two Upholds Assessment of Liquidated Damages Against Contractor Because There was Sufficient Evidence to Support the Procurement Director’s Determination That the Contractor’s Delays Were Not Excusable

Richard Lambert contracted with the City of Tucson to improve a city-owned neighborhood center.   After several delays, Mr. Lambert completed the project nearly one-year after the agreed upon completion date.  Pursuant to the contract, the City assessed Mr. Lambert with liquidated damages of $500 for each day he was late.  Mr. Lambert appealed the assessment to the City Director of Procurement, which appointed a hearing officer to evaluate the assessment.  The officer conducted an evidentiary hearing and concluded that the City was entitled to liquidated damages because Mr. Lambert was responsible for the delays.  The Direct of Procurement affirmed the officer’s findings.  Mr. Lambert filed a special action in superior court, challenging the Director of Procurement’s decision.  The superior court granted Mr. Lambert’s motion for summary judgment, concluding that the Director’s factual findings were arbitrary, capricious, and unsupported by the facts.  This appeal followed.

The Arizona Court of Appeals held that the superior court erred in setting aside the Procurement Director’s determination.  Under construction law and the general law of government contracts, a contractor seeking to justify delays has the burden of proving (1) that there were delays, (2) that the delays were excusable, and (3) that the excusable event caused a delay to the overall completion of the contract.  In this case, although Mr. Lambert identified three circumstances that delayed his project, there was sufficient evidence from which the Procurement Director could have concluded that those delays were either not excusable or did not cause a delay to the overall completion of the contract.  Because the Procurement Director’s determination was not arbitrary and capricious or an abuse of discretion, the court of appeals vacated the decision of the superior court and reinstated the Procurement Director’s decision. 

Judge Howard authored the opinion; Judges Espinosa and Soto concurred.

Schoeneweis v. Superior Court (12/01/2009): Arizona Court of Appeals Division One Holds That Death Certificates Are Not Subject to Public Disclosure Under Arizona Public Records Law; Autopsy Reports Must Be Viewed In Camera to Properly Weigh Privacy Concerns Against the Interests of Public Disclosure.

After the death of his wife, Petitioner was appointed as personal representative of her estate.  Petitioner filed an application with the probate court to prevent the public release of certain documents relating to the cause of death.  After hearing argument, and without an in camera review of the documents, the probate court denied the request in its entirety.  Petitioner filed a petition for special action with the Arizona Court of Appeals, which accepted jurisdiction and granted a stay of the records’ release.

The Court of Appeals held that all of the documents at issue are public records.  The documents include (1) an autopsy report with photographs, (2) investigative records, and (3) a death certificate.  The documents constitute public records because they were created by public officers in furtherance of required official duties.

The probate court erred, however, by finding the death certificate subject to public disclosure.  Under A.R.S. § 36-324 and A.A.C. R9-19-405, only specified groups of persons with a “legal or other vital interest” are authorized to receive copies of death certificates.  Disclosure to the general public is not authorized.

The probate court also erred by failing to conduct an in camera review of the autopsy and investigative reports to properly weigh any privacy concerns against the public interest in disclosure.  The documents did not qualify for “medical records” confidentiality under A.R.S. § 12-2292 because they did not contain communications for purposes of patient diagnosis or treatment.  See A.R.S. § 12-2291(5) (defining “medical records”).  But the probate court could not effectively weigh the relevant public and private interests at issue, to determine whether to allow disclosure, without first reviewing the documents.

Presiding Judge Swann authored the opinion; Judges Downie and Gemmill concurred.