Levenbaum & Cohen Blog

The Supreme Court just issued an opinion in Lake v. City of Phx, braodly construing Arizona’s public records law.  The case concerns access to metadata embedded in electronic records which can show, among other things, whether electronic records were subsequently altered.  The Court reversed the Court of Appeals, which gave a narrow construction to the (surprisingly) undefined term “public record” and held that, “if a public entity maintains a public record in an electronic format, then the electronic version, including any embedded metadata, is subject to disclosure under our public records laws.”

This is certainly good news since, as we all know, the devil is in the details.

Did you know that a confidentiality clause can have tax consequences? This was the subject of a United States Tax Court opinion in Amos v. IRS (2003), the case where Dennis Rodman kicked a courtside TV cameraman in the groin.

The Court held that, if a portion of a settlement is attributable to a confidentiality agreement, that portion is taxable.

It is not clear what the long-term effects are for this holding, but there are ways to deal with it. For example, you will want to make sure any clause in a settlement agreement provides that the confidentiality agreement is mutual, and that no additional consideration is being paid for it. In the alternative, you should negotiate an additional and specific amount being paid in consideration for a confidentiality clause, recognizing the tax implications.

Obviously, consult a tax professional for up to date tax advice on this type of issue.

A New York personal injury lawyer was recently disbarred for basically “being an asshole.” Although I can hardly endorse his brash style (e.g., telling the judge to “Kiss my tuchis!”), it is interesting what other New York attorneys had to say: “Personally, I find him abrasive, angry, tough, fierce, and frightening,” says attorney Ron Kuby. “You know, the qualities you usually want in a lawyer.”

This raises the question: what kind of lawyer do you want for your case? Do you really want an “abrasive, angry, tough, fierce, and frightening” attorney? Is that really what you need? What good do that do?

As colorful and entertaining as it may be to watch such lawyers chew out their opponents, the reality is that most clients are not well-served by such tactics. To the contrary, judges and juries typically do not embrace hostile attorneys and, sometimes, such tactics can backfire, and badly.

Don’t get me wrong; you also do not want a lawyer who is afraid of their own shadow. My point is that you should select a lawyer who knows how to “pick their battles” and who can “fight smart,” not just a scrapper who picks a fight with anyone within earshot.

Surprising result in Webb v. Gittlen, a new opinion from the Arizona Supreme Court which holds that a professional negligence claim against an insurance agent is assignable. Although a long overdue holding, it highlights the badly misunderstood law concerning assignments, including the scope and justification of anti-assignment law (see my earlier article on Assignments vs. Liens in the Personal Injury Context).

To be sure, how many modern opinions rely upon 400-year old case law from “Lord Coke”? This one does.

The opinion is a actually a good read in that the Supreme Court takes us through centuries of anti-assignment history and jurisprudence, neatly summarizing Arizona law on this issue as follows:

The current principles under Arizona law for determining if an unliquidated claim may be assigned can be summarized as follows: (1) claims generally are assignable except those involving personal injury; (2) the legislature may specify whether particular claims are assignable; and (3) absent legislative direction, public policy considerations should guide courts in determining whether to depart from the general rule.

The Court then turned to the case at issue and, without specifically saying so, seemed to accept that a claim against an insurance agent — relating to a wrongful death claim — does not “involve a personal injury.” While I think this is clearly correct, it is surprising how often the issue gets ignored or taken for granted — namely, what constitutes an unlawful assignment of a personal injury claim?

For example, is a medical lien an unlawful assignment of a personal injury claims? Why not? Since most personal injury attorneys encounter these every day, wouldn’t it make sense to know whether they are valid and why? Well, this opinion may shed some light on the issue where Court stated as follows:

Arizona case law generally allows the assignment of unliquidated legal claims except those involving personal injury. This distinction reflects the evolution of the common law, which once held that “choses in action” could not be assigned, except to the crown. Welch v. Mandeville, 14 U.S. (1 Wheat.) 233, 237 n.a (1816). A legal claim is one type of “chose in action,” but the concept also encompasses “debts of all kinds” and “rights to recover ownership or possession of real or personal property.”

While not the focus of the opinion, the Court’s discussion of the affirmative assignably of “legal claims” and “debts of all kinds” is important. For instance, even though a medical lien creates an interest in a person’s bodily injury recovery, maybe it is a valid “legal claim” since it covers a “debt.” But if you think this is a slam-dunk, consider what the same Court said in Allstate Ins. Co. v. Druke, 118 Ariz. 301, 576 P.2d 489 (1978):

Whatever the form, whatever the label, whatever the theory, the result is the same. The [documents] create an interest in any recovery against a third party for bodily injury. Such an arrangement, if made or contracted for prior to settlement or judgment, is the legal equivalent of an assignment and therefore unenforceable.

Id. at 304, 576 P.2d at 492; Lo Piano v. Hunter, 173 Ariz. 172, 175-76, 840 P.2d 1037, 1040-43 (App. 1992) (holding that reimbursement provision was an unenforceable assignment of a personal injury claim). So it is still up in the air whether such assignments are valid.

Anyway, the substantive thrust of the Court’s holding was to explain the difference between assignments of legal malpractice claims and professional negligence claims against insurance agents. Without holding whether legal malpractice claims were assignable, the Court went on to “assume they are not” and distinguished the attorney-client relationship with the insurance agent-client relationship, essentially saying that the later was of a lesser duty (i.e., generally not a fiduciary, which was a bit of a surprise to me) and drawing on other differences (without saying why the differences made a difference by the way). The Court just concluded that the relationship with an insurance agent was not “uniquely personal” to justify making claims against an insurance agent non-assignable.

Next, the Court addressed public policy arguments. Surely, the best line in this section is the following refreshing dose of common sense to the argument that allowing such assignments would “commercialize” the insurer-client relationship: “Although the agent-client relationship has personal dimensions, it arises from a commercial transaction - the purchase of insurance. It is therefore odd to suggest that it should not be commercialized.” This, of course, begs the question — isn’t the relationship between an attorney and client commercial? That is, it involves the commercial exchange of money for services, so why should it get any different treatment?

It is probably too much to hope for, namely — the complete abolition of anti-assignment law — and even though it sometimes helps our clients in the lien context, it has always seemed unnecessarily paternalistic and outdated to me, especially the nonsense about “trafficking in personal injury claims.” Still, it was nice to see the Court tip its hat, in footnote 3, to commentators “who advocate allowing assignment of all tort claims.”

In fact, the Court alluded to the inconsistent and strange genesis of the non-assignablity issue, noting that “[a]s courts became more accessible and litigation a more accepted means for resolving disputes, the prohibition on assignment gradually became the exception rather than the rule.” The Court explained that the rationale behind the “exception” of prohibiting assignment of personal injury claims was basically tied to the idea that the claims were “personal” and did not survive death, therefore, they could not be assigned during the person’s lifetime. But the Court observed:

This “survivability” test did not itself survive in Arizona after 1955, when the legislature enacted a [now amended] statute providing for the survival of most causes of action, including personal injury claims. Although this statute undermined one rationale for refusing to allow the assignment of personal injury claims, courts did not abolish the rule. Instead, they resurrected the common law public policy rationale - fear of vexatious litigation.

In other words, the reason we still have non-assignment law today is simply a function of judicial activism from 50 years ago. So it’s possible that, one day, courts will see it differently — afterall, who would have thought the Court would permit assignment of a claim against an insurance agent, but not a lawyer?

Real estate is one of this author’s favorite “hobbies” of late — call it schadenfreude, but the real estate roller coaster is at least as good as reality television, and better than Grey’s Anatomy. As a result, it is not surprising that we should see more real estate cases come out of the woodwork, especially those related to foreclosure.

Today Division One published Roberts v. Robert, which deals with tax lien foreclosure actions. You may not know it, but there is a whole world of investment out there where people buy “tax liens” from local governments and, when the real estate taxes are not paid after three years, the owners of the tax liens foreclose and obtain title to the real property.

The only way to avoid the foreclosure is to “redeem” the tax lien by paying the back taxes, interest and other penalties before the owner of the lien completes the foreclosure action (which wipes out the ability to “redeem”). A.R.S. § 42-18201(A)

A.R.S. § 42-18515 identifies who may redeem a tax lien. It states that a tax lien may be redeemed by: (1) the owner; (2) the owner’s agent, assignee or attorney; or (3) any person who has a legal or equitable claim in the property, including a certificate of purchase of a different date.

So back to the Roberts case. What happened there is that the owner of the property died intestate (i.e., without a will) and the owners of the tax liens brought a foreclosure action but failed to name one of the heirs of the decedent (i.e., a son) in the complaint. The owners of the tax lien obtained a default judgment which, they believed, eliminated anyone’s right to redeem the tax liens.

A full year later, the long, lost son intervenes in the action in the superior court, moving to set aside the default judgment because he was not made a party or served with the complaint. The trial court not only denied his application to set aside the default judgment, but actually imposed Rule 11 sanctions on him for making the pitch that he was entitled to be a party to the foreclosure action.

The Court of Appeals reversed. The Roberts court explained that, “[a]lthough . . . A.R.S. § 42-18151 does not specifically state that an heir may redeem a tax lien, by operation of law an heir succeeds to the ownership interest of the decedent in real property.” The Court went on to explain, “[i]n Arizona, title to a decedent’s real property devolves directly to his or her heirs and devisees, and this is true whether the estate has been or is being administered.” Indeed, A.R.S. § 14-3101(A) states:

Upon the death of a person, his separate property and his share of community property devolves to the persons to whom the property is devised by his last will, or to those indicated as substitutes for them in cases involving lapse, renunciation or other circumstances affecting the devolution of testate estates, or in the absence of testamentary disposition to his heirs, or to those indicated as substitutes for them in cases involving renunciation or other circumstances affecting the devolution of intestate estates.

The Court held that, “[u]nder A.R.S. § 42-18151, Roberts, either as an owner or a person having a legal claim in the property, became entitled to redeem the tax liens.”

Since the Court found that Roberts had a right to redeem, the next question was whether the foreclosure judgment eliminated his right to redeem since he was not joined as a defendant in the lien foreclosure action. Despite the lienholders’ claim that it would have been impossible to locate Roberts, the Court disagreed and stated that:

A diligent search and inquiry for heirs is all that is required, similar to the type of diligence required to justify and effect service of process by publication. Thus, depending on the circumstances, a tax lien holder may need to examine public records or court records, or may need to ask relatives, friends, or neighbors of a decedent property owner about the existence of heirs.

The Court also stated that “when, as here, the tax lien certificate holder has reason to believe the property owner has died leaving heirs, and, after exercising appropriate due diligence, has been unable to locate those heirs, the unknown heirs can be made parties and served with process by publication.” The Court found that Roberts was not served and that there was no reasonable effort made to locate him so that the default judgment was ineffective as to his rights to redeem. Accordingly, the Court reversed the trial court’s judgment, including the Court’s Rule 11 sanctions against Roberts.

There’s a new case out from Division Two, Cullen v. Koty-Leavitt Insurance, which deals with the reasonable expectations doctrine in the UIM setting. The case is not particularly fascinating from a substantive perspective, but it raises questions about potential legal malpractice exposure.

In sum, Cullen filed a UIM claim based upon the fact that his family was given the right to privately use a business vehicle. The vehicle was owned by the business, Sierrita Mining and Ranch Company, and had UIM coverage with Auto Owners. The named insured was the business, and there were no additional insureds.

Cullen was injured while riding in another vehicle and filed a UIM claim with Auto Owners. The insurer denied his UIM claim, he then filed suit and the trial court dismissed the action.

First, the Court of Appeals expressly adopted the Supreme Court’s holding in Bell Atlantic Corp. v. Twombly, the case that overruled the familiar Conley v. Gibson standard for dismissal.

This is a significant move and one wonders how the Arizona Court of Appeals, which is bound to follow the Arizona Supreme Court on such matters, saw fit to disregard the Arizona Supreme Court and unilaterally adopt the United States Supreme Court’s Twombly holding. In any event, doubt no further, the “notice pleading” landscape has changed in Arizona as follows:

“While a complaint attacked by a Rule 12(b)(6) . . . motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Instead, the complaint’s “[f]actual allegations must be enough to raise a right to relief above the speculative level.”

The Court stated “when a complaint fails to recite at least the basic facts supporting a claim for relief, we cannot see how a defendant would have fair notice of the nature and basis of the claim.” The Court then, turning its attention back to Cullen’s case, stated it was limiting its review to the facts alleged in the complaint and the terms of the insurance contract.

Second, the Court went on to state that “[i]t is clear that the UIM provision of the policy Auto Owners issued to Sierrita does not provide Cullen with UIM coverage.” This is pretty straight-forward since the only named insured was the business and Cullen was not injured while in the insured vehicle.

Third, the Court addressed the reasonable expectations argument. The Court explained that “[t]he [reasonable expectations] doctrine necessarily applies to the reasonable expectations of the contracting parties, not to the reasonable expectations of a hopeful insured, such as Cullen, who is a stranger to the insurance contract.” The Court concluded that “the reasonable expectations doctrine d[oes] not apply to an injured party who ‘had nothing to do with the purchase of the policy in question [and] never had an insurable interest or expectancy under the policy.’”

Then the Court gets cheeky. The Court stated that, despite Cullen’s status as a “stranger” to the insurance contract, “Cullen’s complaint is sufficient if the facts he alleged permit the inference Sierrita had a reasonable expectation Cullen would have portable UIM coverage under the policy it purchased from Auto Owners.”

Ho-hum, what could they be thinking? How about this: “In his briefs to this court, Cullen describes several factual scenarios that arguably could prove one of the above situations applies to his claim. His complaint, however, contains none of them. Although Cullen’s complaint conclusorily asserts he had a reasonable expectation of coverage, as we have explained, his expectations are not relevant here.” So, the Court affirmed the trial court and denied the insurers’ request for attorneys’ fees.

Message: if you want to avoid being sued, forget notice pleading, you better allege facts, facts, facts to support your legal claims.

Recent decision from Division One, Bohreer v. Erie Ins. Exch.. Bohreer holds that an Arizona court has general personal jurisdiction over a foreign insurer which has appointed the Director of Insurance as an agent for service of process and has not withdrawn such qualification or appointment, but has ceased doing business in the state prior to the acts underlying the complaint. The Court held that exercising such jurisdiction did not violate due process.

Division One recently handed down Webb v. Omni Block, Inc., a clearly written opinion which decisively eliminates an expert’s ability to testify as to the “percentage of fault” for any party or non-party.

In Webb, defendant, Omni Block, hired an expert who testified as to the specific percentage of fault (or lack thereof) for various parties and non-parties. Judge Jones allowed this testimony and the jury came back with an allocation that was very close to the allocation suggested by the defense expert. The Court of Appeals quickly dispatched the portion of the appeal challenging the expert’s qualification and focused, instead, on the appropriateness of the testimony on the “ultimate issue” pursuant to Rule 704.

Rule 704 states that “[t]estimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact.” The Court noted that a first-blush reading of Rule 704 “appears to support Omni’s argument because it permits opinion testimony [about the percentages of fault] that encompasses an ultimate issue.”

However, the Court observed, pursuant to “the comment to Rule 704, opinion testimony on an ultimate issue must still be helpful to the trier of fact and cannot be couched in legal conclusions that simply opine ‘how juries should decide cases.’” Quoting McCormick on Evidence, the Court noted:

Undoubtedly some highly opinionated statements by the witness amount to nothing more than an expression of his general belief as to how the case should be decided or the amount of damages which would be just. All courts exclude such extreme, conclusory expressions. There is no necessity for this kind of evidence; its receipt would suggest that the judge and jury may shift responsibility for the decision to the witness. In any event, the opinion is worthless to the trier of fact.

“We therefore hold that [Omni's expert's] opinion apportioning of percentages of fault to the parties and non-parties constituted inadmissible legal conclusions under Rule 704 because he thereby told the jury how to decide the case. Once [Omni's expert] testified to the duties and responsibilities of the parties involved, the distribution of fault among the parties responsible was the jury’s responsibility.”

It’s good to see the Court of Appeals finally adding teeth to the Comment to Rule 704. Many of us have used that Comment extensively to advocate for limitations to the substance for expert testimony, and so now that it was the basis of a published opinion, perhaps we will have greater success in getting judges to address the aggressive invasion of the jury’s province by defense experts.

That hissing sound you hear is not just air coming out of the real estate bubble, it’s the folks at Mining Investment Group, LLC (”MIG”) who today learned the importance of a mandatory closing date where a contract specifies that “time is of the essence.” The case, Mining Investment Group, LLC v. Roberts, shows just how strictly the courts will interpret real estate purchase contracts - indeed, what a difference a (business) day makes - where the contract includes a specific date for closing, a term that is currently quite common in many real estate purchase contracts.

The short story: MIG contracted with Roberts to buy some land for $126,000. MIG deposited $10,000 in earnest money into escrow, promised another $30,000 at closing and a note for the rest. The closing date was ultimately set on a Friday and MIG failed to deposit the $30,000 into escrow. Roberts then faxed the escrow company a cancellation after the close of business on the date of the closing, withdrawing the property from escrow. The next business day, however, MIG wired the $30,000 to the escrow company (the escrow company was closed over the weekend). Roberts refused to close and MIG sued Roberts for specific performance. Roberts countersued MIG for filing a groundless lis pendens against the property.

The trial court granted Roberts’ motion for summary judgment that, in light of the “time of the essence” clause in the contract, the failure to close on the specific date was a material breach. The trail court enforced the liquidated damages clause of the contract, awarding the $10,000 earnest money to the Roberts, awarded attorneys’ fees to Roberts pursuant to the contract and ordered the lis pendens to be released (although it did not find it was groundless). Both parties appealed and the Court of Appeals affirmed the trial court on all counts.

MIG relied upon one the Supreme Court’s decision in Foundation Development Corp. v. Loehmann’s, Inc., 163 Ariz. 438, 788 P.2d 1189 (1990), to support its argument that, notwithstanding the “time is of the essence” term of the contract, there must be a material breach to work a forfeiture of an equitable property interest, and that the “materiality” of a breach was a question of fact. Loehmann’s involved a tenant in a commercial lease who was subject to a forcible detainer action after it was three days late paying an assessment for common areas. In Loehmann’s the Supreme Court held that a “time of the essence” clause was not dispositive in determining the materiality of a breach, that “[t]he mere incantation that ‘time is of the essence’ works no magic to transform trivial untimeliness into a material breach; rather, the same factors . . . in determining general materiality apply to evaluating the effect of a particular ‘time of the essence’ provision.”

At first blush, Loehmann’s seems to support MIG, but the Court of Appeals saw it differently. The Court distinguished an “executory contract for the purchase of real estate” from leasehold contracts. The Court found an “equitable interest” in land under a purchase contract was sui generis to a “possessory interest” in land under a leasehold, with the possessory interest apparently enjoying more protection from “inequitable forfeiture” as described in Loehmann’s. The Court was also troubled by having to “ignore the express terms that the parties contracted for and essentially rewrite the contract.” Not surprisingly then, the Court affirmed the trial court’s award of the $10,000 earnest money and attorneys’ fees, also pursuant to the express terms of the contract. The Court also agreed with the trial Court’s determination that the lis pendens was not groundless.

This case is a big deal, and I have to wonder whether it will withstand further review. There are many reasons why real estate deals do not close on a specific dates, which are usually agreed to weeks or months in advance. Bank delays in wiring money, lender or broker delays of all kinds and simple press of business sometimes makes a precise closing impossible. Further, in my view, it is grossly unfair and bizarre to enforce the “time is of the essence” provision in one type of real estate contract (a lease) but not in others (a purchase) under some legal fiction that one is possessory and the other is “merely equitable.”

For now, at least, if you are buying property in Arizona, you better make sure you build in sufficient room for delaying closing because the slightest delay may result in a substantial forfeiture.

You know the old phrase from algebra, “show your work,” well that is the message to the trial courts. Regretably, trial courts often rule on disputed issues with nothing more than a summary decision and without articulating their reasoning. Obviously, some of this is due the sheer volume of work that trial courts perform, but some of it is also due to habit and being lazy.

The trouble with such summary rulings is that it makes an appeal very difficult. This was noticed some time ago by the Supreme Court in Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 495 n.3, 733 P.2d 1073, 1078 n.3 (1987), where the Court stated (albeit in a footnote) that “[w]e urge trial judges to articulate their reasoning so appellate courts can determine on appeal whether the ruling was erroneous.” Since then, the practice has not changed much.

Recently, Division Two raised the issue again — and this time brought it up from “footnote status” and into the text of the opinion. In the case, Airfreight Express, Ltd. v. Evergreen Air Center, Division Two decision cites Hawkins and reiterates that “[t]he trial court granted the motion . . . but did not explain the reason for its ruling, a practice we discourage.” Then, to make sure it gets heard, the Court of Appeals went on to overturn the trial court’s rulings.

In any event, the message is an important one because appeals are only as good as the record — “garbage in, garbage out” — so making trial courts spell out their reasoning makes for sound and efficient justice as well as smoother appeals.

[UPDATE: Ironically, a few days later, Division One handed down a decision Girouard v. Skyline in which the court stated that, "[f]or the benefit of reviewing courts, trial courts should explain a [evidentiary] decision on the record.” So that is twice in the same week — they mean it!]