Justia Contracts Opinion SummariesArticles Posted in Arizona Supreme Court
Apollo Education Group, Inc. v. National Union Fire Insurance Co.
The Supreme Court answered a question certified by the United States Court of Appeals for the Ninth Circuit by holding that, under a policy without a contractual duty to defend, the objective reasonableness of an insurer's decision to withhold consent is assessed from the perspective of the insurer, not the insured.National Union Fire Insurance Company of Pittsburgh, PA, which insured Apollo Education Group, Inc.'s directors and officers for liability up to $15 million under a policy that included no duty to defend the insured if sued. A class action suit against Apollo resulted in an agreement to settle. Apollo refused to consent to the settlement but entered into the agreement. Apollo then sued National Union to recover the settlement amount, alleging breach of contract and bad faith. The district court granted summary judgment to National Union. On appeal, the Ninth Circuit certified the question to this Court. The Supreme Court held that an insurer must, in deciding whether to consent to a settlement, give the matter full and fair consideration, but need not approve a settlement simply because the insured believes it is reasonable. View "Apollo Education Group, Inc. v. National Union Fire Insurance Co." on Justia Law
JTF Aviation Holdings, Inc. v. CliftonLarsonAllen LLP
The Supreme Court held that the court of appeals erred by concluding that a contractual limitations provision can preclude nonparties to the contract from asserting tort claims that do not arise out of the contractual relationship.In affirming the trial court's summary judgment, the court of appeals relied upon the "closely related party doctrine," which looks to the relationship between a nonparty and parties to the agreement, as well as the relationship between a nonparty and the agreement itself. Specifically, the court of appeals concluded that the nonparty was so "closely related" to the contract or its signatories that enforcement of the contract terms was "foreseeable." However, no Arizona court had previously adopted the closely related party doctrine to impose a contractual limitations provision on a nonparty. The Supreme Court reversed, holding that the court of appeals erred in binding the nonparty to a contractual limitations provision based on the closely related party doctrine. View "JTF Aviation Holdings, Inc. v. CliftonLarsonAllen LLP" on Justia Law
Terrell v. Torres
The Supreme Court affirmed the order of the family court directing the donation of cryopreserved embryos to another couple following the parties' divorce, holding that the parties' agreement directing the disposition of the embryos did not grant the family court discretion in awarding the embryos but, rather, directed donation of the embryos.After Husband petitioned for divorce he asked that the couple's seven viable cryogenically preserved embryos be donated to another couple. The family court found that the "Embryo Cryopreservation & Embryo Disposition" agreement entered into by the parties did not resolve whether either party should get the embryos or whether they should be donated. The court balanced the parties' interests and concluded that Husband's right not to be compelled to be a parent outweighed Wife's right to procreate and directed that the embryos be donated to another couple. The Supreme Court affirmed but on different grounds, holding that the agreement required donation of the embryos and did not grant the family court discretion to make either a unilateral award or direct donation. View "Terrell v. Torres" on Justia Law
Sky Harbor Hotel Properties, LLC v. Patel Properties, LLC
In these consolidated cases involving alleged breaches of fiduciary duties the Supreme Court answered questions certified to it by the United States Bankruptcy Court for the District of Arizona by applying common law agency principles to questions involving fiduciary duties between members and managers of a limited liability company (LLC).The Court answered the three certified questions as follows: (1) a manager of an Arizona LLC owes common law fiduciary duties to the company; (2) a member of an Arizona LLC owes common law fiduciary duties to the company, provided that the member is an agent of the LLC; and (3) an Arizona LLC's operating agreement may lawfully limit or eliminate those fiduciary duties, but the agreement may not eliminate the implied contractual duty of good faith and fair dealing. View "Sky Harbor Hotel Properties, LLC v. Patel Properties, LLC" on Justia Law
Mertola, LLC v. Santos
At issue was when the statute of limitations commences on credit card debt subject to an optional acceleration clause.The Supreme Court held that Mertola LLC’s lawsuit seeking to collect an outstanding credit card debt from Alberto and Arlene Santos (together, Santos) was barred by the six-year statute of limitations pursuant to Ariz. Rev. Stat. 12-548(A)(2), despite the credit card agreement in this case giving the bank the option of declaring the debt immediately due and payable upon default.Santos defaulted on the credit card debt, and Mertola eventually acquired Santos’s debt. Mertola sued for breach of the account agreement, seeking the entire outstanding balance. The superior court granted summary judgment for Santos, concluding that the breaches alleged by Mertola occurred more than six years prior to the filing of this action. The court of appeals reversed, concluding that although the statute of limitations for a missed payment begins to run when the payment is due, the cause of action as to future installments does not accrue until the creditor exercises the acceleration clause. The Supreme Court vacated the court of appeals’ opinion and affirmed the trial court, holding that when a credit card contract contains an optional acceleration clause, a cause of action to collect the entire outstanding debt accrues upon default. View "Mertola, LLC v. Santos" on Justia Law
Teufel v. American Family Mutual Insurance Co.
A policy exclusion for personal liability “under any contract or agreement” does not apply to relieve an insurer of its duty to defend its insured, an alleged builder-vendor, against a claim for negligent excavation brought by the home buyer because the negligence claim arose from the common law duty to construct the home as a reasonable builder would.After rockslides damaged his property, the home buyer sued the alleged builder-vendor, asserting breach of contract, negligence, and fraud-based claims and alleging that the rockslides were the result of improper excavation during construction. The builder-vendor’s insurer declined the tender of defense on grounds that there was no coverage under the relevant insurance policies. The builder-vendor sought damages and declaratory relief. The superior court granted summary judgment in favor of the insurer. The court of appeals reversed, concluding that the policy’s “contractual liability” exclusion did not apply. The Supreme Court affirmed, holding that the contractual liability exclusion did not relieve the insurer of its duty to defend the builder-vendor against the home buyer’s negligence claim. View "Teufel v. American Family Mutual Insurance Co." on Justia Law
KnightBrook Insurance Co. v. Payless Car Rental System Inc.
Arizona equitable indemnity law does not incorporate the Restatement (First) of Restitution section 78 because it conflicts with Arizona’s general equitable indemnity principles.Michael Bovre rented a vehicle from Payless Car Rental System Inc. Payless offered Bovre supplemental liability insurance (SLI) under a policy provided by KnightBrook Insurance Co. Bovre caused an accident while driving the rental vehicle that injured Lorraine and Robert McGill. The McGills sued Bovre. The parties settled. Bovre assigned to the McGills his claims against KnightBrook and Payless for their alleged failure to provide supplemental liability insurance (SLI) and agreed to an adverse judgment. Thereafter, the McGills sued Payless and KnightBrook seeking to recover the judgment. The McGills and KnightBrook entered into a settlement in which the McGills’ claims against Payless were assigned to KnightBrook, which paid the McGills the $970,000 SLI policy limit. KnightBrook then filed an action in federal court against Payless, asserting an equitable indemnification claim for the $970,000 it paid McGills. Relying on the First Restatement section 78, the district court ruled that KnightBrook was entitled to equitable indemnification from Payless for the $970,000 SLI policy limits. On appeal, the Ninth Circuit certified two questions to the Supreme Court. The court answered the first question as set forth above, which rendered moot the second question. View "KnightBrook Insurance Co. v. Payless Car Rental System Inc." on Justia Law
Phillips v. Honorable William O’Neil
Ariz. R. Evid. 408 precludes use of a consent judgment to prove substantive facts to establish liability for a subsequent claim. Likewise, a consent judgment cannot be used for impeachment purposes under Ariz. R. Evid. 613.Before disciplinary proceedings were initiated against attorney Brent Phillips, the Arizona Attorney General sued Phillips for violations of the Arizona Consumer Fraud Act (CFA). To resolve the CFA action, Phillips agreed to a consent judgment. During attorney disciplinary proceedings, Phillips’ counsel moved in limine to preclude the State Bar from introducing the consent judgment into evidence for any purpose. The State Bar opposed the motion, arguing that it should be allowed to use the consent judgment to impeach Phillips’ testimony if it differed from the facts contained in the consent judgment. The presiding disciplinary judge (PDJ) concluded that Rule 408 did not render the stipulated facts inadmissible. The Supreme Court vacated the PDJ's order denying Phillips’ motion in limine, holding (1) none of the exceptions to Rule 408 allowed the State Bar to admit the consent judgment or its contents into evidence during the disciplinary proceedings; and (2) Rule 408 did not permit the use of the consent judgment to impeach Phillips. View "Phillips v. Honorable William O’Neil" on Justia Law
Sirrah Enterprises, LLC v. Wunderlich
Because the warranty of workmanship and habitability is imputed into every residential construction contract, it is a term of the contract, and therefore, the successful party on a claim for breach of the warranty qualifies for an attorney-fee award under a controlling contractual fee provision or, barring that, Ariz. Rev. Stat. 12-341.01.Defendants contracted with Plaintiff to build a basement at their home. Defendants refused to pay to the full contract amount after the work was completed, and Plaintiff sued for the unpaid contract amount. Defendants counterclaimed for breach of the implied warranty of workmanship and habitability. The jury found in Defendants’ favor on their claim for breach of the implied warranty. The trial court awarded Defendants attorney fees pursuant to a contractual fee provision and section 12-341.01. The Supreme Court affirmed the trial court’s judgment, holding that the implied warranty was a term of the contract, and as the successful party in the claim to enforce the warranty, Defendants were entitled to their reasonable attorney fees. View "Sirrah Enterprises, LLC v. Wunderlich" on Justia Law
Hamblen v. Honorable Ralph Hatch
In this employment dispute, Employee filed an action in superior court alleging an unjust enrichment claim against Employee. Employee moved to compel arbitration under the parties’ employment contract’s arbitration provision and brought a claim for severance pay. The superior court granted the motion. Employer asserted various counterclaims. The arbitrator ruled in favor of Employer, finding that Employer properly rescinded the contract based on Employee’s underlying misrepresentations and omissions. The final arbitration award fully settled all claims and counterclaims submitted. The superior court confirmed the award but also granted Employer leave to amend its complaint to reassert its counterclaims. The superior court granted Employer’s motion to amend its complaint. The Supreme Court reversed, holding that Employer, having not specifically challenged the contract’s arbitration provision, may not amend its complaint and litigate its various claims against Employee in this action. View "Hamblen v. Honorable Ralph Hatch" on Justia Law