Opinion
No. 1 CA-CV 18-0140
02-21-2019
PINETOP LAKES ASSOCIATION, Plaintiff/Appellee, v. PONDEROSA DOMESTIC WATER IMPROVEMENT DISTRICT, Defendant/Appellant.
COUNSEL Solomon Law Offices, P.C., Snowflake By Sterling T. Solomon Counsel for Plaintiff/Appellee Joshua Carden Law Firm, P.C., Scottsdale By Joshua W. Carden Counsel for Defendant/Appellant
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Navajo County
No. S0900CV20070615, S0900 CV20070626, S0900 CV201300470 (Consolidated)
The Honorable Robert Van Wyck, Judge, Judge Retired
AFFIRMED IN PART; REVERSED IN PART; REMANDED
COUNSEL Solomon Law Offices, P.C., Snowflake
By Sterling T. Solomon
Counsel for Plaintiff/Appellee Joshua Carden Law Firm, P.C., Scottsdale
By Joshua W. Carden
Counsel for Defendant/Appellant
MEMORANDUM DECISION
Judge Kenton D. Jones delivered the decision of the Court, in which Presiding Judge Lawrence F. Winthrop and Judge Maria Elena Cruz joined. JONES, Judge:
¶1 Ponderosa Domestic Water Improvement District (the District) appeals the trial court's order denying its request for an award of attorneys' fees and costs incurred in its defense of a breach of contract claim initiated by the Pinetop Lakes Association (the Association) in 2007. For the following reasons, we affirm the order denying the District's request for attorneys' fees, reverse the order denying the District's request for costs, and remand for entry of an award of taxable costs to the District.
FACTS AND PROCEDURAL HISTORY
¶2 In 2007, the Association filed a complaint against the District, alleging it was engaging in business activity upon a piece of real property in Pinetop-Lakeside (the Property) in violation of the applicable codes, covenants, and restrictions (CC&Rs), by drilling a well upon the Property. In the complaint, the Association sought both damages and an order enjoining the District from drilling a well.
¶3 Shortly thereafter, the District filed a separate complaint seeking to exercise its powers of eminent domain against individual lot owners within the Association through a declaration that its conduct was exempt from otherwise applicable CC&Rs. After this Court determined the District was entitled to exercise eminent domain powers to improve a domestic water system, see Pinetop Lakes Ass'n v. Ponderosa Domestic Water Imp. Dist., 1 CA-CV 09-0395, 2010 WL 2146415, at *5, ¶ 21 (Ariz. App. May 27, 2010) (mem. decision), the trial court entered an order condemning those portions of the CC&Rs that would prohibit it from drilling a well on the Property.
¶4 In September 2012, the District tendered a formal offer of judgment to settle the 2007 breach-of-contract complaint for $500. The Association ignored the offer and, in 2013, filed a second breach-of-contract complaint against the District. After the trial court determined the District was statutorily immune from liability for drilling a test well, see Ariz. Rev. Stat. (A.R.S.) § 12-1115 (granting the state the right to enter and survey property for public use), the parties stipulated to dismiss the 2013 complaint on the condition that they bear their own attorneys' fees and costs. The following month, the District asked the court to enter judgment in its favor on the 2007 complaint and sought an award of attorneys' fees and costs incurred in that matter pursuant to A.R.S. §§ 12-341 and -341.01. The Association opposed the entry of judgment on the 2007 complaint and submitted a competing request for fees.
Absent material changes from the relevant date, we cite a statute's current version.
¶5 After taking the matter under advisement, the trial court entered final judgment in the District's favor but denied the parties' requests for attorneys' fees and costs. The District timely appealed the denial of its request for fees and costs. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and -2101(A)(1).
The Association suggests the trial court likewise erred in denying its competing request for fees and costs. However, because the Association did not cross-appeal from the order denying fees and costs, it is precluded from "attack[ing] said judgment with a view . . . of 'enlarging [its] own rights thereunder or lessening the rights of [its] adversary.'" Ariz. Pub. Serv. Co. v. Mountain States Tel. & Tel. Co., 149 Ariz. 239, 243 (App. 1985) (quoting Maricopa Cty. v. Ariz. Corp. Comm'n, 79 Ariz. 307, 310 (1955)).
DISCUSSION
I. The Trial Court Abused its Discretion in Determining that the District was Not the Successful Party for Purposes of Awarding Costs.
¶6 The District argues the trial court erred in denying its request for costs under A.R.S. § 12-341. This section provides: "The successful party to a civil action shall recover from his adversary all costs expended or incurred therein unless otherwise provided by law." A.R.S. § 12-341. The award of costs to the successful party is mandatory, but "[t]he trial court has substantial discretion to determine who is a successful party." Assyia v. State Farm Mut. Auto. Ins., 229 Ariz. 216, 223, ¶ 32 (App. 2012) (quoting Fulton Homes Corp. v. BBP Concrete, 214 Ariz. 566, 572, ¶ 25 (App. 2007)); see also Democratic Party of Pima Cty. v. Ford, 228 Ariz. 545, 549, ¶ 15 (App. 2012) (citing McEvoy v. Aerotek, Inc., 201 Ariz. 300, 302, ¶ 9 (App. 2001)). The court abuses its discretion when "the record fails to provide substantial evidence to support the [] court's finding." Grant v. Ariz. Pub. Serv. Co., 133 Ariz. 434, 456 (1982) (citing Martin v. Rossi, 18 Ariz. App. 212, 215-16 (1972)).
In its briefing, the District also suggests it is entitled to an award of twice its taxable costs pursuant to Arizona Rule of Civil Procedure 68(g), which allows for imposition of a sanction against "[a] party who rejects an offer [of judgment] but does not obtain a more favorable judgment." The District never requested Rule 68 sanctions from the trial court, however, and therefore failed to preserve the issue for our review. See City of Tempe v. Fleming, 168 Ariz. 454, 456 (App. 1991) ("As a rule, arguments not made at the trial court cannot be asserted on appeal.") (citing Millers Nat'l Ins. v. Taylor Freeman Ins. Agency, 161 Ariz. 490, 495 (App. 1989), and Campbell v. Warren, 151 Ariz. 207, 208 (App. 1986)).
¶7 For purposes of A.R.S. § 12-341, the "successful party" is "the party who wins the lawsuit," either in whole or in part. Drozda v. McComas, 181 Ariz. 82, 85 (App. 1994) (citing Ayala v. Olaiz, 161 Ariz. 129, 131 (App. 1989)). Accordingly, a defendant who procures a dismissal of the claims against him — even if that dismissal is without prejudice or entered pursuant to stipulation — is the successful party. See, e.g., Harris v. Reserve Life Ins., 158 Ariz. 380, 385 (App. 1988); Mark Lighting Fixture Co. v. GE Supply Co., 155 Ariz. 65, 70 (App. 1986) ("It is apparent from the wording of the Arizona statutes in question that our legislature intended to allow recovery of costs and attorney's fees when a party succeeds in the particular proceeding, which is the 'action,' without regard to whether the substantive allegations presented therein were disposed of at that time."), vacated on other grounds, 155 Ariz. 27 (1987).
¶8 The trial court here determined the District was not the successful party in the 2007 breach-of-contract case. The court did not provide any explanation for this conclusion, and we discern none from the record. Indeed, after nearly a decade of litigation, judgment was ultimately entered in the District's favor. The only reasonable conclusion to be drawn from these circumstances is that the District prevailed for purposes of A.R.S. § 12-341. Accordingly, we reverse the order denying the District's claim for costs related to the 2007 claims.
Although the three related lawsuits were consolidated within the trial court, each case was resolved separately, and the District only requested fees related to its defense of the 2007 breach-of-contract complaint. For this reason, the various tests identified by the District for determining the successful party in litigation involving competing claims, counterclaims, and setoffs all tried together are inapplicable.
II. The Trial Court Did Not Abuse its Discretion in Denying the District's Request for an Award of Attorneys' Fees.
¶9 The District also argues the trial court erred in denying its request for an award of attorneys' fees pursuant to A.R.S. § 12-341.01(A). This section provides: "In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees." A.R.S. § 12-341.01(A).
¶10 Unlike A.R.S. § 12-341, however, the language of this fee-shifting statute is permissive. Therefore, even assuming A.R.S. § 12-341.01 applies and the District was successful for purposes of that statute, the trial court retains discretion to determine whether an award of attorneys' fees is appropriate. Autenreith v. Norville, 127 Ariz. 442, 444 (1980) (citing Title Ins. Co. of Minn. v. Acumen Trading Co., 121 Ariz. 525, 526 (1979)); see also Munger Chadwick, P.L.C. v. Farwest Dev. & Constr. of the Sw., L.L.C., 235 Ariz. 125, 128, ¶ 14 (App. 2014) ("[A]n award of fees under A.R.S. § 12-341.01 is discretionary; it is not an entitlement.") (citing Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570 (1985)). In evaluating whether to award fees under A.R.S. § 12-341.01(A), the court should consider the statute's intended purpose to:
(1) mitigat[e] the burden of the expense of litigation to establish a just claim or a just defense; (2) encourag[e] more careful analysis prior to filing suit by imposing the risk of paying the opposing party's attorneys' fees where legitimate settlement offers are rejected; and (3) promot[e] settlements and thus reducing caseloads involving contractual matters.Hall v. Read Dev., Inc., 229 Ariz. 277, 282, ¶ 18 (App. 2012) (citing A.R.S. § 12-341.01(B); Chaurasia v. Gen. Motors Corp., 212 Ariz. 18, 29, ¶ 43 (App. 2006); and Senate Fact Sheet, S.B. 1159, 44th Leg., 1st Reg. Sess. (Ariz. Feb. 11, 1999)) (internal quotations omitted).
¶11 In reviewing the exercise of discretion, we do not substitute our opinion for that of the trial court; rather, we consider "whether a judicial mind, in view of the law and [the] circumstances, could have made the ruling without exceeding the bounds of reason." Associated Indem., 143 Ariz. at 571 (quoting Davis v. Davis, 78 Ariz. 174, 179 (1954) (Windes, J., specially concurring)). We will affirm the decision "if it has any reasonable basis." Tucson Estates Prop. Owners Ass'n v. McGovern, 239 Ariz. 52, 56, ¶ 12 (App. 2016) (citing Uyleman v. D.S. Rentco, 194 Ariz. 300, 305, ¶ 27 (App. 1999)).
¶12 Here, the trial court issued a detailed order containing specific findings regarding the relevant factors set forth in Associated Indemnity, including that: (1) the Association presented a meritorious claim implicating a novel legal issue ultimately requiring resolution by an appellate court; (2) the Association may have been subject to suit by its members if it failed to act to enforce the CC&Rs; (3) the parties were equally responsible for the "lack of genuine communication" that prevented settlement; and (4) assessing fees against the Association would cause it extreme hardship. See Associated Indem., 143 Ariz. at 570 (listing factors "useful to assist the trial judge in determining whether attorney's fees should be granted" under A.R.S. § 12-341.01(A)) (citing Wistuber v. Paradise Valley Unified Sch. Dist., 141 Ariz. 346, 350 (1984), and Sloatman v. Gibbons, 104 Ariz. 429, 430-31 (1969)). The court specifically noted that although the District "bought the residential lot, [and] apparently promised at that time to abide by the [CC&R]s, . . . in reality [the District] never intended to do so, or changed [its] mind after purchasing the property" before blatantly violating the CC&Rs in 2007. The court further stated that awarding fees under these circumstances "seemed counterintuitive" and expressed concern that a fee award would discourage other ownership associations from asserting tenable albeit ultimately unsuccessful claims for fear of incurring liability for substantial amounts of attorneys' fees, or, alternatively, encourage landowners to breach the CC&Rs "thinking there were not legal consequences for such actions."
¶13 The District correctly notes that the trial court's finding that a fee award would cause the Association extreme hardship lacks support in the record. But contrary to the District's arguments otherwise, the remaining findings are supported by the record and are sufficient to support the discretionary decision to deny fees to the District. The Association owed an obligation to its members to enforce the CC&Rs. See, e.g., Johnson v. Pointe Cmty. Ass'n, 205 Ariz. 485, 489-90, ¶¶ 23-24 (App. 2003); Restatement (Third) of Property: Servitudes § 6.13(1)(c) (2000), cited favorably by Tierra Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 201-02, ¶¶ 25-27 (App. 2007). Additionally, the Association's claims implicated a previously unlitigated interplay between the various statutes, agreements, and property rights. These claims need not have proved successful to be meritorious. Nor does the District's ultimate success upon the legal issues excuse its apparent unwillingness to communicate with the Association toward an out-of-court resolution.
¶14 The trial court is in a superior position to evaluate what are essentially factual matters involving the nature of the litigation, the potential of a fee award to incentivize undesirable conduct, and the reasonableness of the parties' claims, defenses, and efforts at settlement. See Associated Indem., 143 Ariz. at 571 (quoting Hensley v. Eckerhart, 461 U.S. 424, 437 (1983)). Although the District disputes the court's characterization of its conduct and efforts, we cannot say the court's findings and conclusions lack any reasonable basis. See Hawk v. PC Village Ass'n, 233 Ariz. 94, 100, ¶ 21 (2013) (citing Orfaly v. Tucson Symphony Soc'y, 209 Ariz. 260, 266, ¶ 21 (App. 2004)). Moreover, given that the findings on the Associated Indemnity factors overwhelmingly counsel against an award of fees, we cannot agree with the District that the court's analysis was "indelibly stained" by any error in finding the District was not the successful party for purposes of A.R.S. § 12-341.01. On this record, we find no abuse of discretion.
CONCLUSION
¶15 The order denying the District's request for attorneys' fees pursuant to A.R.S. § 12-341.01(A) is affirmed. The order denying the District's request for costs pursuant to A.R.S. § 12-341 is reversed. The case is remanded for calculation and entry of an award of taxable costs to the District.
¶16 Both parties request an award of attorneys' fees and costs incurred on appeal pursuant to A.R.S. §§ 12-341 and -341.01. Because neither party entirely prevailed, we decline both requests.