State ex rel. Darwin v. Arnett – 7/22/2014
Arizona Court of Appeals Division One Holds That a Defendant Cannot Assert Res Judicata to Bar a Subsequent Claim when the Defendant’s Misrepresentation Prevented the Claim from Being Asserted in the Prior Proceeding.
In 1982, William Arnett purchased real property with an underground storage tank. Arnett later incorporated Yellow Cab Company of Tucson, Inc. (“Yellow Cab”), which leased the property and tank from Arnett. In 1988, the tank leaked gasoline. In 1990, Arnett reported the leakage to the Arizona Department of Environmental Quality (“ADEQ”) and repeatedly listed Yellow Cab as the responsible party and owner of the property and tank. Between 1991 and 1995, ADEQ took administrative and legal action against Yellow Cab, resulting in a judgment against Yellow Cab. Throughout these proceedings, Arnett acted on Yellow Cab’s behalf and never informed ADEQ that he, rather than Yellow Cab, owned the property and the tank.
In 2001, ADEQ demanded payment of the judgment from Yellow Cab, which filed for bankruptcy. During the bankruptcy, ADEQ learned that Arnett personally owned the property and tank. In 2010, ADEQ sued Arnett for cleanup costs. The superior court found Arnett liable after a bench trial and entered judgment against him. Arnett timely appealed.
The Arizona Appeals Court affirmed. Generally, res judicata bars a subsequent suit that involves the same parties or their privies as a prior judgment on the merits. See Stearns v. Ariz. Dep’t of Revenue, 231 Ariz. 172, 177 ¶ 25, 291 P.3d 369, 374 (App. 2012). Comment j to Section 26 of the Restatement (Second) of Judgments, however, recognizes an exception if the party asserting res judicata made misrepresentations—negligently or intentionally—that prevented the other party from asserting the claims in the prior proceeding: “A defendant cannot justly object to being sued on a part or phase of a claim that the plaintiff failed to include in an earlier action because of the defendant’s own fraud . . . [or] innocent misrepresentation . . . .” In this case, Arnett repeatedly misrepresented to ADEQ that Yellow Cab owned the property and tank, and thus could not assert res judicata as a defense.
The Court rejected Arnett’s argument that Yellow Cab was in fact the “owner” of the property and tank as that term was defined in a 1997 amendment to the applicable statute, explaining that the amended definition was not in place when the judgment against Yellow Cab was entered in 1995. The Court also rejected Arnett’s argument that his recorded deed gave ADEQ constructive notice that he owned the property, explaining that the deed did not address who owned the tank. The Court also rejected Arnett’s argument that ADEQ did not follow its standard protocol for determining tank ownership as factually incorrect.
The Court upheld the superior court’s ruling that laches did not bar ADEQ from pursuing its claim because laches does not apply against the State or its agencies in matters—like this one—affecting the public interest, absent a statute expressly allowing such a defense. See Mohave County v. Mohave-Kingman Estates, Inc., 120 Ariz. 417, 421, 586 P.2d 978, 982 (1978).
The Court also affirmed the superior court’s denial of Arnett’s request for a jury trial, explaining that “there is no right to a jury trial on statutory claims that did not exist at common law prior to statehood.” In re Estate of Newman, 219 Ariz. 260, 272, ¶ 45, 196 P.3d 863, 875 (App. 2008).
Judge Cattani authored the opinion; Presiding Judge Norris and Judge Thumma concurred.