Chapman v. The Westerner (9/22/2008)

September 30, 2008

Arizona Court of Appeals Division Two Holds that an Independent Appraiser May Change His Opinion About a Property’s Value After He Has Issued an Initial Appraisal Report.

In 2003, The Westerner Partnership (the “Partnership”) agreed to purchase Chapman’s 12.57% interest in its assets.  After the parties could not come to terms on a buy-out price, they agreed to hire KB Real Estate Apppraisers (“KB”) to determine the value of the Partnership’s principal asset, the Westerner building.  KB initially set the value of the building at $520,000, but after Chapman aired several concerns about KB’s methodology, KB set the value of the building at between $1.2 and $1.4 million.  The Partnership refused to recognize this second value and Chapman filed suit.  The Partnership thereafter moved for partial summary judgment, arguing that the first appraisal bound the trial court as a matter of law.  The trial court agreed with the Partnership, concluding that “parties who agree to have value affixed by an appraisal are not entitled to a second appraisal absent fraud or bad faith.”  This appeal followed.

The Arizona Appeals Court first explained that the primary case relied upon by the trial court, Hirt v. Hervey, 118Ariz. 543, 578 P.2d 624 (App. 1978), does not stand for the proposition that parties who agree to be bound by an independent valuation are stuck with an appraiser’s first appraisal.  Rather, the case merely held that judicial review of appraisals is limited to review for fraud, corruption, or other prejudicial misconduct.  The Court clarified that when parties agree to be bound by an independent appraiser, and in so doing also implicitly agree to be bound by standard appraisal practices, they are bound to the appraiser’s final appraisal, which may or may not be the first appraisal.  This is because, “as a standard practice, appraisers must and do revise erroneous appraisals.”  Consequently, the Court reversed the trial court’s grant of partial summary judgment to the Partnership and remanded the case for the trial court to determine whether Chapman procured KB’s second appraisal with undue influence or fraud.

Judge Eckerstrom authored the opinion; Judges Espinoza and Vasquez joined.