Mill Alley Partners v. Wallace – 11/20/2014

December 2, 2014

Arizona Court of Appeals Division One holds that trial courts have no discretion to grant a new trial for erroneously submitting the equitable defenses of laches and estoppel to a jury absent fundamental error.

Mill Alley Partners (“Mill Alley”) leased the second floor of a Tempe building to William Wallace for use as a nightclub.  Wallace sold the nightclub in early 2003 and, in connection with the sale, guaranteed the first 36 months of a new lease between Mill Alley and the new owner. 

The new owner failed to pay rent and ultimately closed the nightclub seven months into the lease.  In October 2009, Mill Alley sued Wallace for breach of his guaranty.  In answering the complaint, Wallace alleged that Mill Alley’s claim was barred by laches, estoppel and the applicable six-year statute of limitations. 

During trial, the superior court instructed the jury that Mill Alley’s claim accrued for purposes of the statute of limitations upon a material breach of the guaranty by Wallace.  Neither party objected to the proposed instructions regarding laches or equitable estoppel, nor to allowing the jury to decide those equitable defenses.  The jury eventually returned a general verdict in favor of Wallace.

A few days later, the superior court notified the parties it was considering ordering a new trial because it had erred by submitting the equitable defenses to the jury rather than deciding them itself.  After further briefing, the trial court granted a new trial on the basis that it had committed fundamental error in submitting the equitable defenses to the jury.  Wallace appealed from the court’s order granting the new trial.

The Arizona Court of Appeals reversed the trial court’s order, holding that Mill Alley was unable to demonstrate that it was prejudiced by the error.  In Arizona, equitable doctrines such as laches and estoppel are matters for the court to decide, not the jury.  Because, however, Mill Alley failed to object to the jury instructions and agreed that the jury would finally rule on those defenses, the trial court had no discretion to grant a new trial absent fundamental error.

A party claiming fundamental error must show prejudice.  The Court of Appeals determined that it did not need to decide whether the trial court’s error in allowing the jury to decide whether Mill Alley’s claim was barred by laches or estoppel was fundamental because Mill Alley was unable to explain how it was prejudiced by having the jury rather than the court decide the equitable defenses.

Judge Johnsen authored the opinion, which Judges Winthrop and Gemmill joined