Butler Law v. Winslow Memorial

A theme of this opinion is “don’t conflate venue and liability,” which is apparently what the trial court did. But it also talks about what a limited-liability corporation is or isn’t.

A hospital in Navajo County hired a Maricopa County lawyer regarding employment matters. It later sued him, his P.L.L.C., and an outside associated lawyer for malpractice in Navajo County. Defendants moved for change of venue since they reside in Maricopa County. The trial court denied Defendants’ motion; the Court of Appeals denied special action.

The Supreme Court reverses. Plaintiff argued that the representation/fee agreement was a contract to perform services in Navajo County. But although a written contract to perform in a county permits venue there (12-401(5)), the contract must require that performance either expressly or by necessary implication. The fee agreement said nothing about the place of performance. The fact that the hospital was in Navajo didn’t matter; “place of performance” does not include “a place where performance merely causes an effect.” (The court has no occasion to address the question you litigators are asking: what if the agreement were for representation in a Navajo County lawsuit? And would that question be harder or easier if the agreement were for the defense of future lawsuits with no reference to where they might be filed?)

So far the opinion amounts to “the statute means what it says.” But then comes the L.L.C. part.

12-401(18) allows certain types of companies and also “other corporations” to be sued where the cause of action arose. Plaintiff argued that an L.L.C. is an “other corporation.” The court disagrees.

The Arizona Constitution defines “corporation” as “all associations and joint-stock companies . . . having any powers or privileges of corporations not possessed by individuals or co-partnerships.” The court says, in one conclusory sentence, that that doesn’t include an L.L.C.

Having completed its constitutional analysis the court turns, “more importantly,” to statutory analysis. Why it considers the statutes more important that the Constitution isn’t clear. In any event, the legislature put the L.L.C. laws in Title 29 (partnerships) rather than in Title 10. So they’re not corporations. In Arizona (the court points out, evidently believing that this bolsters the argument) they’re not partnerships, either but, rather, a “distinct business entity.” Although the powers of corporations and L.L.C.s are “overlapping,” an L.L.C. can waive corporate powers and has features that corporations don’t.

Yeah, maybe so. But doesn’t that leave you still wondering about associations and companies having powers or privileges of corporations not possessed by individuals or partnerships?

At the end of the opinion the court says that seeing L.L.C.s as corporations would “substantially increase the reach of” 12-401(18), which it won’t do “absent legislative action.” The court does not always display such exquisite restraint.

Plaintiff also made some arguments about the lawyers’ personal liability and piercing corporate veils. The court basically says that venue depends on the statute, not that stuff.

Reversed and remanded.

(Opinion: Butler Law et al. v. Hon. Higgins/Winslow Memorial)

Knightbrook Insurance v. Payless (2/8/18)

A certified question concerning the law of equitable subrogation.

A man rented a car from Payless. Payless offered him supplemental liability insurance from Knightbrook; he did not pay for it but Payless didn’t get his signature declining it. After he caused an accident he apparently took the position that he expected the insurance. Knighbrook denied the resulting claim against the policy. The driver settled with the claimants under a Damron and assigned them his claims against Knightbrook. Knightbrook settled their claim and sued Payless in federal court for equitable subrogation, alleging that its failure to get a written denial of coverage had exposed it.

The District Court ruled that Knightbrook was entitled to subrogation under §78 of the Restatement (First) of Restitution. Under that section it did not have to prove that it was actually liable under the policy but merely that it had a “justifiable belief” that it was. On appeal, the Ninth Circuit certified the question: Does §78 apply in Arizona?

The Supreme Court says “no.” “Arizona’s equitable indemnity law . . . [allows] recovery only when an indemnity plaintiff . . . discharges an actual obligation that a culpable indemnity defendant owed to a third party.” There is “no ‘duty of indemnity unless the payment discharges . . . an existing duty.” But §78 requires only a belief, not “an actual legal obligation or a discharge of the indemnity defendant’s liability.” So the rule could result in indemnity where there was in fact no original obligation: “We are troubled that §78 could preclude an indemnitor from raising viable defenses to the underlying claim” (Payless had apparently argued that, despite Knightbrook’s “justifiable belief,” it could disprove the existance of coverage.) “We . . . decline to adopt First Restatement §78 because it is contrary to Arizona’s equitable indemnity principles and does not, in our view, reflect a sound rule.”

Knightbrook argued that Arizona law follows the Restatement. The court points out that the Third Restatement, which superseded the First in 2011, deleted §78-type liability. “We are not bound to the latest edition if we chose to follow the Restatement” but the change is relevant to this analysis.

Only one Arizona case had ever cited §78 (Hatch, App. 2016), citing as authority the District Court’s decision in this case.

(Opinion: Knightbrook Insurance v. Payless Car Rental)


Allstate v. Watts (CA1 2/6/18)

This case discusses the power of an industry-wide arbitrator to change the terms of the agreement by which its members handle claims.

In this consolidated appeal two insurance companies had paid claims under homeowners’ policies for damage caused to their insureds’ homes by Defendant’s plumbing products. They filed subrogation cases against it. The parties were all signatories to the property subrogation agreement of Arbitration Forums, an outfit that arbitrates property claims. But after they signed it AF changed the agreement to exclude products-liability claims. Defendant moved to compel arbitration in both cases, lost both motions, and appeals.

The Court of Appeals reverses. The insurers relied on language in the agreement allowing AF to make rules and regulations covering arbitrations. But the court inteprets that, based on its reading of the structure of the agreement, as procedural. Exclusions of products actions was “a significant, substantive change,” not a mere procedural change. AF didn’t have the power to make a substantive change. The court rejects an Indiana case (also involving this defendant, which has been fighting this battle around the country for a few years now) that read the agreement differently.

The court also relies on 12-3006, making agreements to arbitrate future claims “enforceable and irrevocable,” which it says happens “upon the arising of the controversy, unless the parties agree otherwise.”

AF is an insurance-industry entity with insurance-industry attitudes, which explains why it figured to change a contract unilaterally by sending out a notice.  But these plaintiffs have that same attitude and as far as we know never objected to the change; they continue to be among the most frequent users of the agreement’s arbitration procedures. It would be interesting to know what discussions, if any, they had with AF about the change at the time.

(Opinion: Allstate v. Watts)