Opinion
No. 1 CA-CV 12-0539
02-18-2014
MICHAEL A. and BETTY A. JOHNSON, husband and wife, Plain tiffs/Appellan ts/Cross-Appellees, v. STATE FARM FIRE AND CASUALTY COMPANY, a foreign corporation, Defendan t/Appellee/Cross-Appellan t. and STATE FARM MUTUAL INSURANCE COMPANY, a foreign corporation; MICHAEL TURNER, an Arizona resident; BRIAN and JANE DOE GARRETT, Arizona residents; MICHAEL and JANE DOE BOGE, Illinois residents, Defendants/Appellees.
Treon & Shook, PLLC, Phoenix By Daniel B. Treon, Stephen E. Silverman Counsel for Plaintiffs/Appellants/Cross-Appellees Broening Oberg Woods & Wilson, PC, Phoenix By James R. Broening, Robert T. Sullivan, Brian W. Purcell Counsel for Defendants/Appellees and Defendant/Appellee/Cross-Appellant
NOTICE: NOT FOR PUBLICATION.
UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
Appeal from the Superior Court in Maricopa County
No. CV2010-014063
The Honorable John Christian Rea, Judge
AFFIRMED
COUNSEL
Treon & Shook, PLLC, Phoenix
By Daniel B. Treon, Stephen E. Silverman
Counsel for Plaintiffs/Appellants/Cross-Appellees
Broening Oberg Woods & Wilson, PC, Phoenix
By James R. Broening, Robert T. Sullivan, Brian W. Purcell
Counsel for Defendants/Appellees and Defendant/Appellee/Cross-Appellant
MEMORANDUM DECISION
Presiding Judge Maurice Portley delivered the decision of the Court, in which Judge John C. Gemmill and Judge Kent E. Cattani joined. PORTLEY, Judge:
¶1 Michael and Betty Johnson appeal the judgment dismissing the complaint for failure to state a claim upon which relief may be granted against State Farm Fire and Casualty Company ("State Farm Fire"), State Farm Mutual Automobile Company ("State Farm Mutual"), Michael Turner, Brian Garrett, and Michael Boge. State Farm Fire cross appeals the trial court's ruling denying State Farm Fire's request for attorneys' fees. For the reasons that follow, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 Following a fire that destroyed their second home and a separate incident involving water damage to their primary residence, the Johnsons filed a lawsuit ("Johnson I") against their insurance carrier, State Farm Fire, alleging breach of contract and breach of covenant of good faith and fair dealing. State Farm Fire filed an answer and counterclaim, and subsequently made an offer of judgment pursuant to Arizona Rule of Civil Procedure ("Rule") 68. The Johnsons accepted the offer and judgment was entered in favor of the Johnsons on their claim and State Farm Fire's counterclaim.
Johnson v. State Farm Insurance Companies, et al., CV2006-007109.
¶3 The Johnsons subsequently filed a new lawsuit against State Farm Fire, State Farm Mutual, and three individuals, Michael Turner, Brian Garrett, and Michael Boge, who were alleged to be employees of State Farm Mutual. The Johnsons alleged that the defendants were liable for malicious prosecution because they were all responsible for the counterclaim that was filed in Johnson I, and that State Farm Fire and State Farm Mutual breached their duty of good faith and fair dealing.
¶4 State Farm Fire, State Farm Mutual, Turner, and Garrett filed motions to dismiss pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Boge also filed a motion to dismiss, but pursuant to Rule 12(b)(2) for lack of jurisdiction over the person. The Johnsons filed a response and, after oral argument, the superior court dismissed all the defendants based on Rule 12(b)(6). The Johnsons filed this appeal and State Farm Fire filed a cross-appeal on the denial of their request for attorneys' fees.
DISCUSSION
I. State Farm Fire
¶5 Initially, we determine whether we should review State Farm Fire's motion to dismiss as one for summary judgment. See Frey v. Stoneman, 150 Ariz. 106, 109, 722 P.2d 274, 277 (1986) (finding that because the trial court considered extrinsic evidence to the pleading in coming to its decision, "the motion to dismiss should have been treated as one for summary judgment"). A motion to dismiss pursuant to Rule 12(b)(6) converts into a motion for summary judgment when the defendant disputes the sufficiency of the plaintiff's claim with extrinsic evidence that the court does not exclude. Brosie v. Stockton, 105 Ariz. 574, 576, 468 P.2d 933, 935 (1970); Ariz. R. Civ. P. 12(b) (stating that a motion to dismiss under Rule 12(b)(6) is treated as a motion for summary judgment when "matters outside the pleading are presented to and not excluded by the court").
¶6 Here, State Farm Fire attached the Johnsons' home insurance policy and various pleadings from Johnson I to its motion to dismiss. Although the Johnsons did not file a separate motion to strike the extrinsic evidence, their response included a request that the court strike the extrinsic evidence. Because the record does not indicate a specific ruling, we assume the court denied the Johnsons' motion and considered the extrinsic evidence. See Pearson v. Pearson, 190 Ariz. 231, 237, 946 P.2d 1291, 1297 (App. 1997) (stating that the trial court's "failure to rule implies that the respective motions . . . were denied"). As a result, because the court considered the extrinsic evidence, we treat State Farm Fire's motion as a motion for summary judgment.
¶7 We review the grant of summary judgment de novo and make all reasonable inferences in the light most favorable to the non-moving party. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 482, ¶ 13, 38 P.3d 12, 20 (2002). We will affirm a grant of summary judgment if "no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law." Id. at 482, ¶ 14, 38 P.3d at 20 (citing Ariz. R. Civ. P. 56(c); Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990)).
A. Malicious Prosecution
¶8 The Johnsons' malicious prosecution claim against State Farm Fire was dismissed because the superior court found as a matter of law that the Rule 68 judgment from Johnson I was "not a favorable outcome on the merits sufficient to support a malicious prosecution case." The Johnsons argue that a Rule 68 judgment is a favorable termination on the merits. We agree.
¶9 In 4501 Northpoint LP v. Maricopa County, our supreme court stated that a Rule 68 judgment was a favorable adjudication on the merits. 212 Ariz. 98, 102-03, ¶¶ 24, 28, 128 P.3d 215, 219-20 (2006). There, the county made an offer of judgment pursuant to Rule 68 to resolve a disputed property tax assessment. Id. at 99, ¶¶ 2-3, 128 P.3d at 216. Northpoint accepted the offer and subsequently requested attorneys' fees. Id. at 99, ¶ 6, 128 P.3d at 216. The tax court ruled that Northpoint's Rule 68 judgment was not an adjudication on the merits and denied Northpoint's request for attorneys' fees. Id. at 99, ¶ 7, 128 P.3d at 216. The supreme court specifically addressed whether "a judgment entered pursuant to Rule 68 is an adjudication on the merits." Id. at 101, ¶ 19, 128 P.3d at 218 (internal quotation marks omitted). The court stated that "[a] Rule 68 judgment . . . ends the case on its merits" and, when a party makes an offer of judgment pursuant to Rule 68, it must accept the consequence of acceptance — "the entry of judgment in favor of [the opposing party]." Id. at 102-03, ¶¶ 24, 28, 128 P.3d at 219-20.
¶10 We agree that a Rule 68 judgment is a favorable adjudication on the merits. Northpoint, however, is procedurally distinguishable from this case because the defendant in that case never filed a counterclaim against the plaintiff. Here, we need not analyze whether a Rule 68 judgment is a favorable adjudication on the merits regarding State Farm's counterclaim because the judgment in Johnson I stated that "[o]n [the Johnsons'] Amended Complaint and [State Farm Fire's] Counterclaim, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the judgment is entered in favor of [the Johnsons] against [State Farm Fire] in the amount of $250,000 inclusive of all costs and attorney fees." The Johnsons, therefore, received a judgment on the merits in their favor against State Farm on the counterclaim.
¶11 We, however, examine the record to determine if we can affirm the summary judgment "even if the trial court reached the right result for the wrong reason." Aida Renta Trust v. Maricopa Cnty., 221 Ariz. 603, 608, ¶ 5, 212 P.3d 941, 946 (App. 2009) (citation and internal quotation marks omitted). As a result, we look to determine whether the doctrine of res judicata precludes the Johnsons' malicious prosecution claim.
¶12 The Johnsons contend that the doctrine is inapplicable to their malicious prosecution claim. They argue that the res judicata doctrine cannot be invoked because the malicious prosecution claim was not ripe by the conclusion of Johnson I. They also argue that res judicata does not apply because they did not raise the malicious prosecution claim in Johnson I.
¶13 Res judicata bars additional litigation between the same parties where there was a final judgment in the first suit on the merits based on the same cause of action. Corbett v. ManorCare of Am., Inc., 213 Ariz. 618, 624, ¶ 13, 146 P.3d 1027, 1033 (App. 2006) (quoting Montana v. United States, 440 U.S. 147, 153 (1979)). Moreover, res judicata applies to "every point decided [in the first action] and also as to every point raised by the record which could have been decided." Fuller v. Hartford Accident & Indem. Co., 124 Ariz. 76, 78, 601 P.2d 1360, 1362 (App. 1979) (quoting Hoff v. City of Mesa, 86 Ariz. 259, 261, 344 P.2d 1013, 1014 (1959)) (citation omitted) (internal quotation marks omitted).
¶14 In Johnson I, after the Johnsons filed their lawsuit, State Farm Fire filed a counterclaim. The Johnsons filed a response that affirmatively alleged that the counterclaim was an act of malicious prosecution. The litigation was subsequently concluded when the Johnsons accepted State Farm Fire's offer of judgment, "inclusive of all damages, taxable court costs, interest, and attorney fees" and the court entered a final judgment. The Johnsons then sued State Farm Fire a second time. They independently alleged that State Farm Fire's counterclaim in the first case was an act of malicious prosecution. The issue, however, was resolved in the four corners of the judgment in Johnson I. Because the doctrine of res judicata applies to every issue raised in the record, id., 124 Ariz. at 78, 601 P.2d at 1362, the Johnsons' malicious prosecution defense to State Farm Fire's counterclaim was resolved by the final judgment. As a result, the superior court did not err by granting State Farm Fire's motion as to the malicious prosecution claim.
B. Breach of Covenant of Good Faith and Fair Dealing ("Bad Faith")
¶15 The Johnsons next contend that the superior court erred by dismissing their bad faith claim against State Farm Fire based on the doctrine of res judicata. They assert that the bad faith claim was based on a different set of facts than the claim in Johnson I and therefore res judicata was inapplicable. Here, we disagree.
¶16 The Johnsons argue that the judgment in Johnson I was limited to the date they filed the complaint in May 2006 because their amended complaint never added "new claims that accrued after May 2006." They, however, do not support their assertion with any authority.
The fact that the Johnsons did not add new claims to their amended complaint is not dispositive as to whether the judgment was inclusive of conduct after May 2006. See Ariz. R. Civ. P. 15(b) ("When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings."); see also Thomas v. Goudreault, 163 Ariz. 159, 163-64, 786 P.2d 1010, 1014-15 (App. 1989) (finding that a party's failure to amend a complaint did not preclude a judgment inclusive of additional claims based on competent evidence raised at trial).
¶17 Moreover, the argument is contrary to Rule 68. Johnson I was concluded by a Rule 68 judgment and the language of the Rule clearly states that it "allow[s] judgment to be entered in the action" and there is no language limiting the judgment to only the complaint. Ariz. R. Civ. P. 68. Furthermore, the record demonstrates that the Johnsons clearly contemplated litigating conduct that occurred after they filed their complaint in May 2006. In the Johnson I amended complaint, the Johnsons stated that State Farm Fire "continues to fail and refuse [] to perform its obligations under [the Johnsons'] contracts of insurance." Also, in support of their bad faith claim, the Johnsons alleged conduct by State Farm that occurred after May 2006, such as State Farm Fire's filing of its counterclaim and its alleged disclosure of the Johnsons' documents to a third party.
¶18 The Johnsons also argue that the superior court restricted the scope of the litigation and the resulting judgment to May 2006 because it precluded discovery of events after that date. The Johnsons' citation to the record does not support their broad assertion. Although the record supports their position that the superior court limited discovery of State Farm's general counsel to the time period before May 2006, the court denied State Farm Fire's motion in limine to preclude any evidence State Farm had for filing the counterclaim. As a result, the superior court did not restrict all discovery to anything on or before May 2006; State Farm Fire's motivation for filing the counterclaim necessarily encompassed the time period after the Johnsons filed their complaint. Nonetheless, the Rule 68 judgment did not limit itself to claims that occurred before May 2006.
¶19 Because there was a final judgment on the merits, the doctrine of res judicata bars further litigation of the same claims between the same parties based on the same facts. See Corbett, 213 Ariz. at 624, ¶ 13, 146 P.3d at 1033. Moreover, the doctrine applies to "every point decided [in the first action] and also as to every point raised by the record which could have been decided." Fuller, 124 Ariz. at 78, 601 P.2d at 1362 (citation omitted) (internal quotations marks omitted).
¶20 In Johnson I, the Johnsons alleged in their amended complaint that State Farm Fire acted in bad faith "by intentional, willful, oppressive and unreasonable misconduct, in reckless disregard of [the Johnsons'] rights." In support of their claim, the Johnsons alleged that State Farm Fire's disclosure of the Johnsons' private documents to a third party proved that the company filed its counterclaim in bad faith, stating that the disclosure was "evidence upon which the jury could conclude that the counterclaim was part of State Farm's scheme to avoid its liability under the insurance policy it sold to the Johnsons."
¶21 Here, the Johnsons have alleged the same claim of bad faith against State Farm Fire, but have qualified the claim by stating that State Farm Fire breached its duty "with its ligation actions following the Johnsons' lawsuit for breach of contract and bad faith." In support of their claim in this case, the Johnsons stated that State Farm Fire, through its employee, gave a third party their "unredacted claim file." The alleged conduct by State Farm Fire, however, is the same conduct that the Johnsons previously alleged in support of the bad faith claim presented in Johnson I. The Johnsons have already prevailed on the bad faith claim against State Farm Fire in the previous litigation and we find that they are barred by the doctrine of res judicata from suing State Farm Fire again on the same claim and asserting the same supporting facts.
II. Turner, Garrett, and Boge
¶22 We now turn to the individual defendants, who were alleged to be employees of both State Farm Fire and State Farm Mutual. The individual defendants admitted they were employed by State Farm Fire; Turner admitted he was employed as a claims team manager, Garrett admitted that he was a claims section manager, and Boge admitted that he was a corporate lawyer. We review de novo the grant of the Rule 12(b)(6) motion. Coleman v. City of Mesa, 230 Ariz. 352, 355, ¶ 7, 284 P.3d 863, 866 (2012). A dismissal is proper pursuant to Rule 12(b)(6) only if "as a matter of law [] plaintiffs would not be entitled to relief under any interpretation of the facts susceptible of proof." Id. at 356, ¶ 8, 284 P.3d at 867 (citation omitted) (internal quotations marks omitted). "[M]ere conclusory statements are insufficient to state a claim upon which relief can be granted." Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 419, ¶ 7, 189 P.3d 344, 346 (2008). We limit review to the pleading itself, assuming the truth of the factual allegations and indulging all reasonable inferences in favor of the plaintiff. Id.
¶23 To state a claim of malicious prosecution, a plaintiff must allege the following: (1) the defendant or defendants instituted a civil action, (2) which was motivated with malice, (3) initiated without probable cause, (4) the action terminated in the plaintiff's favor, and (5) the plaintiff was damaged. Bradshaw v. State Farm Mut. Auto. Ins. Co., 157 Ariz. 411, 417, 758 P.2d 1313, 1319 (1988).
In the civil context, we note that the more accurate name for the claim is wrongful institution of civil proceedings. Giles v. Hill Lewis Marce, 195 Ariz. 358, 360 n. 1, ¶ 5, 988 P.2d 143, 145 n.1 (App. 1999).
¶24 Here, the complaint alleges that Turner and Garrett were responsible for the counterclaim that State Farm Fire filed in Johnson I. The complaint, however, never alleges that these individual defendants instituted a civil action or the counterclaim in Johnson I. And, even if we presume that Turner and Garrett provided information about the claims that the Johnsons made on their homes that led to the filing of the counterclaim, they did not as a matter of law institute the counterclaim or any other civil action against the Johnsons. Cf. id., 157 Ariz. at 415, 417, 758 P.2d at 1317, 1319 (stating that although the suit was brought in the name of another party, the defendant could be held liable as initiating a civil action for purposes of malicious prosecution where the defendant was the instigator and asked permission from the named party to bring the suit).
¶25 Similarly, the Johnsons allege that the three decided to file a counterclaim to intimidate and coerce the Johnsons into settling. The Johnsons, however, did not settle. Instead, they accepted the offer of judgment and a final judgment was entered. See 4501 Northpoint LP, 212 Ariz. at 103, ¶ 28, 128 P.3d at 220 (acknowledging there is a difference between settlement and a Rule 68 offer of judgment because Rule 68 exposes the offeree to the possibility of sanctions and the offeror to an unfavorable judgment against it). They did not have to accept the offer of judgment. They made their choice presumably after analyzing whether it was more beneficial to accept the offer or proceed to trial. The three employees were not responsible for the choice the Johnsons made in Johnson I, and that decision does not give rise to a claim.
¶26 Moreover, the Johnsons allege that the three employees initiated the "prosecution of a counterclaim for fraud without probable cause." The statement is a conclusory allegation and does not satisfy the well-pled requirement described by our supreme court in Cullen. 218 Ariz. at 419, ¶ 7, 189 P.3d at 346. Although the Johnsons pled specific allegations against "State Farm" in their complaint, the allegations were not directed towards the three individual defendants. For example, the Johnsons allege that "State Farm's internal documents show it knew it owed the Johnsons policy benefits" and the counterclaim was an "intentional ruse." Because the rules of agency do not attribute the knowledge of the principal onto the agent, the Johnsons have failed to properly plead the element of probable cause required for malicious prosecution. See Scott Imps. v. Orton, 22 Ariz. App. 354, 355, 527 P.2d 513, 514 (1974) ("An innocent agent is not affected by the knowledge of facts which the principal or another agent has and which, if known to him, would cause his representations to be fraudulent.") (quoting Restatement (Second) of Agency § 348 cmt. b (1958)) (internal quotation marks omitted). Consequently, the court did not err in granting motions to dismiss for the three individual defendants.
The reference to "State Farm" in the Johnsons' complaint refers to both State Farm Mutual Insurance Company and State Farm Fire and Casualty Company.
--------
III. State Farm Mutual
¶27 The Johnsons also sued State Farm Mutual. In their response to State Farm Mutual's motion to dismiss, the Johnsons admitted that their theory of State Farm Mutual's liability was not based on contractual privity of an insurance policy, but on the agency doctrine of respondeat superior because Turner, Garrett, and Boge were employees of State Farm Mutual. Even assuming that the theory was cognizable, State Farm Mutual cannot be held responsible because (1) the complaint did not sufficiently allege that the three employees engaged in malicious prosecution and (2) State Farm Mutual had no contract with the Johnsons that could result in a claim for breach of covenant of good faith and fair dealing. Accordingly, the court properly dismissed State Farm Mutual.
IV. Attorneys' Fees
¶28 In its cross-appeal, State Farm Fire argues that the superior court erred by denying its request for attorneys' fees pursuant to Arizona Revised Statutes ("A.R.S.") sections 12-341.01(A) (West 2014) and 12-349 (West 2011).
A. Section 12-341.01(A)
¶29 Section 12-341.01(A) gives the superior court discretion to award attorneys' fees to the successful party in a contract action. We review the denial of attorneys' fees for an abuse of discretion. Villa De Jardines Ass'n v. Flagstar Bank, FSB, 227 Ariz. 91, 99, ¶ 25, 253 P.3d 288, 296 (App. 2011). We will affirm the decision for the denial of attorneys' fees under § 12-341.01(A) if there is any reasonable basis for the court's ruling. Uyleman v. D.S. Rentco, 194 Ariz. 300, 305, ¶ 27, 981 P.2d 1081, 1086 (App. 1999) (stating that even if the superior court gave no reasons for denying the request for attorneys' fees, this court may affirm if there is any reasonable basis for the denial).
¶30 Here, in denying State Farm Fire's request for attorneys' fees, the superior court considered State Farm Fire's motion, the Johnsons' response, and State Farm Fire's reply. State Farm Fire failed to direct this court to any specific error that the superior court committed in exercising its discretion in denying the attorneys' fees request. We therefore find that the superior court did not abuse its discretion.
B. Section 12-349
¶31 State Farm Fire also contends that the court erred by denying its attorneys' fees pursuant to § 12-349. State Farm Fire claims that this lawsuit was filed without substantial justification and also solely or primarily for delay or harassment because the Johnsons "had already recovered in Johnson I based on the same allegations."
¶32 We will affirm the denial of attorneys' fees pursuant to § 12-349 unless clearly erroneous. Phx. Newspapers, Inc. v. Dep't of Corr., State of Ariz., 188 Ariz. 237, 243, 934 P.2d 801, 807 (App. 1997). A claim is without substantial justification pursuant to § 12-349(A)(1) if it (1) constitutes harassment, (2) is groundless, and (3) is not made in good faith. A.R.S. § 12-349(F); Johnson v. Mohave Cnty., 206 Ariz. 330, 334, ¶ 16, 78 P.3d 1051, 1055 (App. 2003). Failure to prove even one element makes the statute inapplicable. Id. Pursuant to § 12-349(A)(2), the party requesting attorneys' fees must show that the opposing party brought the suit "solely or primarily for delay or harassment." A.R.S. § 12-349(A)(2).
¶33 Here, the judgment in Johnson I is insufficient to show that that the current lawsuit was initiated in violation of § 12-349. The superior court did not find by a preponderance of the evidence that the Johnsons' claims were without substantial justification or brought primarily to delay or harass. See Donlann v. Macgurn, 203 Ariz. 380, 387, ¶ 36, 55 P.3d 74, 81 (App. 2002). As a result, we find that the ruling denying the fee request under § 12-349 was not clearly erroneous.
C. Attorneys' Fees and Costs on Appeal
¶34 Pursuant to § 12-341.01(A), State Farm Fire, State Farm Mutual, Turner, Garrett, and Boge request reasonable attorneys' fees and costs on appeal. In the exercise of our discretion, we grant a reasonable portion of their attorneys' fees for defending against the bad faith claim. We, however, decline to award fees for the malicious prosecution claim. See Barmat v. John & Jane Doe Partners A-D, 155 Ariz. 519, 522, 747 P.2d 1218, 1221 (1987) (stating that attorneys' fees pursuant to § 12-341.01(A) may include a tort only if "the cause of action in tort could not exist but for the breach of contract"). Furthermore, we award State Farm Fire, State Farm Mutual, Turner, Garrett, and Boge their costs of appeal upon compliance with ARCAP 21.
CONCLUSION
¶35 Based on the foregoing, we affirm the judgment.