Arizona Court of Appeals Division One holds that when a contractor for a public entity timely exercises its contractual option to require non-binding mediation with a public entity after exhausting its administrative remedies, the time to file a notice of claim is tolled under A.R.S. § 12-821.01(C) until the mediation fails.

The department of transportation hired a company to construct a pathway for a city.  Under the contract, dispute resolution would proceed under a sequential process, culminating in review by the state engineer.  If the company was not satisfied, it could proceed to litigation or arbitration depending on the amount of controversy, but prior to filing either, the company had a unilateral right to request non-binding mediation.  Here, a dispute arose, and the company was not satisfied with the decision of the state engineer, which was reached on June 9, 2017.  The company timely requested mediation, which failed on November 30, 2017.  On May 21, 2018, the company filed a notice of claim and on November 29, 2018, commenced a breach of contract action against the state and the department, which the city joined as an intervening defendant.  The government defendants filed a motion to dismiss, arguing that the notice of claim and lawsuit were untimely under A.R.S. § 12-821 and -821.01 when measured from the engineer’s decision, rather than the mediation’s failure.  The superior court agreed and dismissed the lawsuit.  The company appealed.

The Court of Appeals reversed.  A.R.S. § 12-821 requires a party to file a complaint against a public entity within one year of when the cause of action accrues, and A.R.S. § 12-821.01 requires the party to first file a notice of claim within 180 days of when the cause of action accrues.  But A.R.S. § 12-821.01(C) tolls these deadlines and provides that a claim “shall not accrue” when a claim must be submitted to a binding or nonbinding dispute resolution process, or an administrative claim process, pursuant to a contractual term until these processes reach a final disposition.  Here, the contract provided that the company participate in an administrative claim process and required the state engineer to arrange a non-binding mediation at the company’s option.  This falls within the tolling provision, and therefore the claim did not accrue until the mediation failed on November 30, 2017.  The notice of claim and complaint were both timely when measured from that date.

Chief Judge Swann delivered the unanimous opinion of the court.  Judges Cruz and Winthrop joined.