Lewis v. DeBord (CA2 10/6/14)

A case about judgment liens and, in passing, memorandum opinions.

The plaintiffs took a default judgment for money and recorded it. Their debtors then acquired real property that they later sold to the DeBords. Under the statutes (33-961ff) and cases the rule has been that filing creates a lien against the debtor’s present or after-acquired property and that purchasers from the debtor take subject to the lien. In this action the plaintiffs sought to foreclose their judgment lien against it.

The problem was that in 1996 the statutes were amended to add a requirement that along with the judgment the creditor file an information sheet specifying some things about the debtor and the lawsuit. The plaintiffs didn’t file one until after they filed this action. The DeBords moved for summary judgment, arguing that this invalidated the lien. The plaintiffs argued that it merely affected the priority of their lien against other judgment creditors – of which there were none, so its lien was unharmed.

The trial court ruled for the DeBords. The Court of Appeals affirms, though its not clear whether for the same or different reasons.

After analyzing the history and structure of the statute the court agrees with the plaintiffs that failure to file the information sheet affects the priority, not the validity, of the lien.

But the court disagrees with the plaintiffs about its priority. The statute (33-967(D)) says that a judgment “has as its priority the date of [filing the information sheet].” “If the legislature wanted to limit the concept of priority . . . to the interests of competing lienholders . . . it could have said so.” “Priority” therefore includes not only competing lienholders but subsequent purchasers. Since the DeBords took the property before the information sheet was filed “[their] interest in the property has priority over the  . . . judgment lien.” So the DeBords win anyway.

We can’t quite get our head around this one. In what sense is a lien valid against property the owner of which has an interest that has “priority” over the lien? Since when does, or can, a lien statute use “priority” in the context of an ownership interest?

But what about memorandum decisions, you ask? The plaintiffs cited an opinion that mentioned that an earlier memorandum in that case had held that failure to file an information sheet didn’t invalidate a judgment lien. In one of several long footnotes the court points out that memoranda are not precedent and adds that courts “do not treat passing references to previous memorandum decisions in published opinions as precedent.” Since the court purports to agree that failure to file the sheet doesn’t invalidate the lien the purpose of this footnote is to discourage the memo-cited-in-a-later-opinion loophole. The courts want to limit the loopholes to the ones they are creating themselves by rule changes.

(link to opinion)

Quihuis v. State Farm (10/1/14)

On a certified question from the Ninth Circuit the court holds that a default judgment entered pursuant to a Damron agreement “does not preclude litigation of whether coverage exists under the policy.”

Cox, the holder of a State Farm auto policy, sold the car, though she hung on to the title pending full payment and hadn’t cancelled the policy. The new owner’s daughter caused an accident w/ Quihuis, who sued her and Cox (presumably meaning that mom had no insurance). Cox did a Damron admitting, inter alia, ownership of the car at the time of the accident. Pursuant to the agreement, judgment was entered and assigned to Quihuis, who sued State Farm. The case was removed; the District Court gave State Farm summary judgment, finding that Cox hadn’t owned the car. Quihuis appealed, resulting in the certified question.

The argument that a Damron agreement can affect coverage is one that various lawyers have been making for a long time. As applied in this case, the idea is that since ownership was a liability issue (on a negligent-entrustment allegation) it is conclusively established by the judgment and cannot be questioned even if it also determines coverage. For this proposition some, including Quihuis’ lawyers, have cited a Division Two opinion, AAU v. Wood (2004). AAU is of Biblical length and breadth so it is appropriate, and perhaps necessary, that Justice Pelander, who wrote it, is now called on to understand apply it.

He begins by deciding that Restatement (Second) of Judgments 58, which has to do with indemnitors and indemnitees, controls. “Section 58(1)(a) precludes State Farm from disputing the ‘existence and extent’ of the Coxes’ liability to the Quihuises.” He then looks to case law to decide what “existence and extent” means.

Morris said that under a Morris agreement the insurer could litigate coverage. Wood, Justice Pelander tells us, was “a straightforward application of 58(1)(a)”; it prohibited re-litigation of liability and also of “issues” that “relate” “strictly” to liability and damages. Add these together and they mean that 58(1)(a) “does not prevent relitigation of pure coverage issues.”

58(1)(b) precludes relitigation of any issues “determined in the [underlying] action” unless there was a conflict of interest between indemnitor and indemnitee. Justice Pelander looks to the illustrations to conclude that this applies only to issues actually litigated.

Quihuis argued that she had a judgment, not just an agreement. But “Our cases have not made a distinction [between them], nor does section 58.”

Quihuis also argued that Morris and Wood shouldn’t apply because State Farm refused to defend Cox, even under a reservation. But, citing Kepner, in Arizona there is no absolute duty to defend, especially when facts not in the Complaint take the claim outside the coverage. Even if State Farm had breached a duty to defend, which the opinion does not decide, it would still be entitled to litigate coverage. The opinion ends, however, with language warning insurers that the prudent thing is to defend under a reservation.

Quihuis’ was an interesting case on which to bring this issue since her Damron was a dodgy one, creating coverage by having someone admit to things that a court found weren’t true. There had been some speculation that the court would have to overrule AAU to prevent this fraud. Justice Pelander’s position, though, has always been that AAU was a perfectly simple (we would normally add “straightforward” but he has taken the word out of our mouth) holding consistent with everything else in the law. A more skeptical mind could conclude that he sees the case as an outlier – needed at the time for reasons that don’t entirely bear scrutiny – that can, at least on this point, now be reined in.

(link to opinion)

Fisher v. Edgerton (CA1 9/30/14)

The court discusses Rule 77 sanctions as between co-defendants.

The plaintiff in a motor-vehicle case sued Fisher and Edgerton, the drivers of the other two vehicles in the crash. Fisher and Edgerton blamed each other for it. The arbitrator found Fisher to be 100% at fault and awarded plaintiff about $29,000. Fisher appealed. The jury found Fisher 100% at fault but awarded plaintiff only $20,000. Although Fisher was therefore not liable to the plaintiff for Rule 77 sanctions, Edgerton  moved for them. The trial court awarded them. Fisher appealed.

Fisher made three arguments: (1) since, under a case called Vance, she was required to include Edgerton in the appeal absent a stipulation to the contrary, the plaintiff should be responsible for the sanctions; (2) she beat the arbitration award by more than 23%; (3) awarding sanctions in this context was unconstitutional.

As to #1 the court rather summarily concludes that it doesn’t matter and later suggests that the case might be different if Fisher had tried to get a stipulation excusing Edgerton from the appeal. (If, in other words, Fisher had accepted the arbitrator’s allocation of fault.) “Might” since the court raises but expressly declines to answer the question, Fisher having not sought a stipulation.

As to the 23%  the court concludes that “more favorable” applies to the allocation of fault as well as to damages. The language of the rule is “more favorable by at least 23% than the monetary relief, or more favorable than the other relief, granted by the arbitration award.” This must apply to allocation of fault, the opinion says, because “only monetary claims are subject to compulsory arbitration.”  The court seems to have overlooked the fact that because of Rule 7(c) (arbitration by agreement of reference) it is dealing with a set of rules that are not in fact necessarily limited to monetary claims. In any event, it neglects to inform us of a context in which the word “relief” has ever before been applied to findings of fact.

Finally, Fisher’s first constitutional argument analogized to punitive-damage law – she had not received fair notice of the possibility and extent of the award. The court concludes (without, of course, saying it this way) that Fisher should have known that it would construe the rule as it does in this case. As to extent, the rule limits the award to “reasonable” costs and fees; reasonableness  of fees is itself limited by a set of “non-exclusive factors” (the reference is to Granville, which the same panel issues as a companion to this case, thereby suggesting that constitutional violations can be cured ex post facto).

Fisher’s other constitutional argument was that an award against her would chill her right to a jury trial because in a case not subject to compulsory arbitration she wouldn’t be faced with liability to the co-defendant. But the rule is the same for all similarly-situated and the rule has a rational basis and legitimate governmental interest.

The court discusses Fisher’s constitutional arguments at great length while dealing with the others in way that, while managing not be be brief, is largely conclusory. Perhaps the court truly believes that its conclusions are obvious and straightforward rather than novel and far-reaching.

(link to opinion)