JTF Aviation Holdings v. CliftonLarson (9/18/20)

This opinion disapproves of holding people to contracts they weren’t parties to.

Plaintiff Freer hired Defendant, an accounting firm, to audit his company’s books. The contract was between Defendant and the company. Defendant certified that the books conformed to GAAP. Another company bought Plaintiff’s business but then found that the books did not conform to GAAP and that the inaccuracies inflated the price it paid. Plaintiff settled the resulting lawsuit and personally sued Defendant for negligence and breach of fiduciary duty. The contract said that suit had to come within 24 months of Defendant’s audit report; this one came after. The parties cross-moved for summary judgment on the issue.

Plaintiff’s argument was that he himself was not bound by the limitation because he was not a party to the contract. The trial court ruled that he was close enough to his company to be bound, using the “closely-related party” doctrine, and granted Defendant’s motion. Plaintiff appealed; the Court of Appeals affirmed.

The Supreme Court granted review and reverses. The “closely-related party” doctrine is used in some federal courts in cases involving (at least in all the federal cases cited here) forum selection clauses. The court says that where a claim may be brought is a “more limited” issue than when. Applying the doctrine in this case “places too much emphasis on [Plaintiff’s] ownership of [the company] and minimizes the importance of the corporate form recognized by Arizona law.” In Arizona, “corporate status will not be lightly disregarded.” The doctrine amounts to an alter-ego or corporate-veil theory, both of which require more than proof of ownership. 

Vacated, reversed, remanded for proceedings consistent.

The opinion’s few footnotes are mostly unnecessary but the first also raises a style problem we’ve mentioned before. It announces that the parties and the courts below were wrong to say that the contract established a “limitation” period rather than a period of “repose” but that it will condescend to say “limitation” because they did. Now, these people didn’t say “limitation” because nobody at five large law firms and two levels of our judicial system knows the difference; they said it because that’s what the contract said: “Limitation Period.” But whether the provision is about one concept or the other doesn’t matter here; the court chooses not to mention the only way in which it might have made some slight difference. So why imply — and this is indeed an implication, intended or not, that some readers will draw — that all those who worked on the case were ignorant until this court enlightened them? The answer is that the footnote is, if not a mere exercise in pedantry, an attempt to avoid having someone, somewhere, some time in the future use the opinion to confuse the two concepts or to accuse this court of doing so. (Many unfortunate excrescences on judicial opinions are, like this one, attempts to ward off imagined arguments yet-unmade.)  But if the distinction had to be drawn, it would not have been hard to do so without gratuitous insult: “The contract creates a period of repose, styled a “Limitation Period,” as follows: [quoting it].”

(Opinion: JTF Aviation v. CliftonLarsonAllen)


In re the Stephens Revocable Trust (CA2 7/31/20)

The Court of Appeals explains that you can’t throw out a Complaint before its filed.

Plaintiff believed that her stepmother financially exploited her father, who had suffered from dementia for some time before his death. Pursuant to the vulnerable-adult statute (45-456) she petitioned for leave to file a Complaint. Stepmother opposed it, arguing that the actions she took were authorized by the trust of which she was the trustee. The trial court agreed and denied the petition. Plaintiff appealed.

On appeal Stepmother argued that Plaintiff lacked “standing.” The statute allows the vulnerable adult or his conservator to file a Complaint; if they don’t, any “interested person” may petition the court to do so. Plaintiff’s interest was obvious, especially since Stepmother’s machinations had cut the daughter out of the trust. “Standing,” therefore, “was not in dispute.”

It isn’t clear whether the trial court thought this was an  issue of standing or whether it was perhaps thinking of failure to state a claim; the opinion mentions the latter, though that has no more to do with this than does standing. The trial court’s lengthy order ruled in detail on the merits: Stepmother’s actions were allowed by the trust instrument and therefore, by the terms of the statute, she cannot be liable under it. The question is whether you can do that before the case is even filed.

For guidance on what a court should look for before granting a petition under this statute the court looks to a recent hornbook. The answer is: standing. For some reason the court seems reluctant to say that but that’s what it boils down to. There must have been no filing by the vulnerable adult or conservator and the petitioner must be an interested person. If there are more than one of those then the trial court can, as “gatekeeper,” pick the most appropriate. It must “accept the factual allegations of the proposed complaint as true.” The matters considered by the trial court in this case should have been addressed by motion filed after the Complaint.

Reversed and remanded.

There are various other times when leave must be sought before making an allegation. Though the issue might be novel in connection with this statute, Stepmother was hardly unique or original in confusing a right to file with a right to prevail. It is unfortunate that the probate judge did so as well; perhaps he considered himself to be acting in the interest of “judicial efficiency,” which is nowadays — as we have mentioned before — routinely an excuse for cutting corners. The question now is whether, having announced his views on the merits, he will presume to keep the case.

We’re not sure what the court’s style book says this month about “complaint.” Without a capital, its what you have when someone aggrieves or annoys you. With a capital, its what you file to do something about that. Treating “Complaint” as a name used to be understood. The opinion does not capitalize it, even though it uniformly capitalizes “Trust,” the abbreviation of the name of the thing Mr. Stephens established.

(Opinion: In re The Stephens Revocable Trust)



In re Trust of West (CA2 7/1/20)

These Plaintiffs vaulted over a high bar then tripped over a low one they set up themselves.

They successfully sued to set aside a trust amendment for undue influence. Having prevailed, they applied for fees on various grounds. Defendant objected because Plaintiffs had not requested fees in their petition as required by Rule 54(g). The trial court awarded fees under the common-fund doctrine. Defendant appeals that order.

The Court of Appeals vacates it. The rule says that a claim for fees “must be made in the pleadings” or in  a Rule 12 motion. The rule is mandatory, unambiguous, and makes no exception for fees awarded in equity. (Rule 54(i) does provide for two exceptions — fees awarded as sanctions and fees that must be proved at trial as a substantive element of the claim — but neither applied here.) Plaintiffs did mention fees in their initial disclosure statement but that is insufficient; the purpose of the rule — to encourage settlement — requires that parties be put on notice of the claim “before each stage of the law suit” (quoting Wagenseller 1985, emphasis in original). Plaintiff’s catchall prayer — for ““such other and further relief as the Court deems appropriate under the circumstances” — did not put Defendant on notice. (Once upon a time the formula was “such further relief as the court deems proper” but modern scoring awards bonus points for extra words. Those who know just enough to choose between the two forms are confident that the longer one must be stronger and more sophisticated and protect them in a number of circumstances, though they can’t name any.)

(Opinion: In re the Restated Trust of Crystal H. West)