Falcone Bros. v. City of Tucson (CA2 8/25/16)

It will, we hope, surprise no one that a city can’t make ordinances or contracts that tell the Superior Court what its jurisdiction and rules should be.

Plaintiff contractor had a claim against the City arising out of a construction contract. The contract said that, pursuant to the City’s Procurement Code, Plaintiff could submit its claim to various levels of the City bureaucracy and then, if they denied it, file a special action within thirty days. The City denied Plaintiff’s claim; instead of filing a Special Action Plaintiff filed a Notice of Claim and then sued the City. The City moved to dismiss for lack of subject-matter jurisdiction, which the trial court granted.  Plaintiff appealed.

The Court of Appeals reverses.

First, though, it corrects something it said in an earlier case. Lambert (2009) was another Tucson contractor case; that contractor did file the “special action” and won it; the City appealed. The opinion – in one of those throw-away lines that nobody pays much attention to, apparently not even the court – based its jurisdiction on what’s now 12-2101(A)(1). But that requires that the action have originated in the Superior Court, which – our Supreme Court decided in 1930 – an action to review another tribunal’s decision didn’t. Because of Lambert’s questionable jurisdiction, “we do not rely on that case as precedent.” (Strange that nobody at the court caught the issue then. In any event, this illustrates one reason why rote statements of jurisdiction – or rote statements of anything, and our courts do a lot of things by rote – are a poor idea.)

Plaintiff argued that the City’s scheme violated due process. The opinion mentions the argument but does not address it since it can decide the case more narrowly.

“Only statutes and court rules govern special actions.” “[A] city has no authority to limit the jurisdiction of the state’s courts” unless a statute lets it. The City’s Procurement Code at that time was modeled after the State’s, which says that cities may adopt it. But under the State code claims decisions can ultimately be reviewed under the Administrative Procedures Act, which doesn’t apply to cities. The City didn’t argue that the State Procurement Code, by allowing cities to adopt it, modified the Administrative Procedures Act to allow the same thing (and the opinion mentions the idea mostly to cast doubt on it). What the City did didn’t even conform to the State code, which provides for review at  two separate levels of government. Under the City’s system, at least in this contract (the opinion suggests that it might have been a departure from the norm) final “review” of a contract claim against the City was done by the City bureaucrat who signed the contract.  

The City argued that its procedure was authorized by the statute that says, basically, that claimants must exhaust administrative remedies before asserting a claim against a government entity. But that statute “merely establishes the time for filing a notice of claim,” it “does not give cities authority to establish unlimited administrative-claims processes.”

“At oral argument, the City suggested its administrative review process is enforceable as an arbitration agreement because the parties mutually agreed to be bound by this alternative dispute resolution process.” (Whether or not it’s a great argument it’s the City’s best and the court spends the most time on it. Why was it left for oral argument? The opinion suggests in several places – and perhaps the quoted sentence was intended as one of them – that the appeal was not particularly artful.) “The Procurement Code itself distinguished the process here from arbitration.” And as an arbitration agreement the contract would be unconscionable because the City alone picks the “arbitrator” and because the City could accept, reject, or modify the “arbitrator’s” decision.

The court also mentions, if only to rule out, the possibility that the City’s procedures might have had statutory certiorari in mind. But that’s discretionary and has no time limit; ordinances and contracts purporting to change that are invalid.

The City also argued that under cases such as Hurst (App. 1979) its administrative decision must be deemed “just, reasonable, and lawful” and therefore given conclusive effect absent special action under the contract/ordinance. But those cases involved statutes that specifically permitted the decision and provided for judicial review.

Finally, the City argued that Plaintiff did not exhaust administrative remedies, as required by the statute mentioned above. The court disagrees. Plaintiff did everything required except file the “special action.” Even were the ordinance and contract valid, a special action is not an administrative remedy.

Reversed and remanded for further proceedings – i.e., litigation of the contract claim.

(Opinion: Falcone Bros. v. City of Tucson)

First American Title v. Johnson Bank (6/13/16)

This is a case about title insurance. “We hold that when an undisclosed title defect prevents the known, intended use of the property and causes the borrower to default on the loan, the lender’s diminution-in-value loss should be calculated as of the date the title policy was issued rather than as of the date of foreclosure.”

The bank lent money on some properties and bought lender’s policies of title insurance on them. The borrowers defaulted, allegedly because there turned out to be CC&Rs that prevented them from doing with the property what they had intended. The parties agreed that that triggered the policy but disagreed about how to figure damages. As relevant here, title policies say basically that the damages are the difference between the property’s value with and without the encumbrance or defect. The question was, as of what time do you figure that – the time of the foreclosure or the time of the issuance of the policy? The market had fallen substantially in the mean time so the bank argued for time-of-issuance and the bank for time-of-foreclosure. On cross-motions for summary judgment the trial court ruled for the insurer; the Court of Appeals reversed; the Supreme Court vacates that opinion but finds for the bank.

The court first finds that the policy language is ambiguous about the timing. This was the easy way to go since both parties argued that the language unambiguously favored them.

At this point one could normally turn to the objective intent of the parties as shown by their actions and the circumstances of the transaction. The majority opinion skips that. Why? Apparently because it is thinking only of subjective intent; intent is therefore not a factor here because there was no parole evidence (the majority refers specifically to a parole-evidence case) of “the sole relevant issue here”: how the parties intended section 7(a)(iii) of the contract to operate. That approach would of course pretty much write “intent” out of the law of contracts.

The majority decides instead to interpret the policy based on “pertinent legislative goals” and “pertinent social policies.” Which means what such phrases normally mean –  that the remainder of the opinion will be largely a law-free zone, an “opinion” in the non-legal sense.

As to “pertinent legislative goals,” the majority says there are none. It does point out, though, that under the statutes title polices don’t guarantee anything about title.

So the interpretation is based entirely on the majority’s ideas about “pertinent social policies.” Why? Well, a cynic would suggest that the majority wants to do the same thing the Court of Appeals did, and for the same basic reason, but needs a different excuse. The Court of Appeals ruled that the insurer breached the contract at its inception by failing to disclose the CC&Rs. Since that’s a basic misunderstanding of title insurance – the insurer has no duty to do any such thing – a court that wants to keep the insurer on the hook for that must characterize it as other than a breach of duty.

The insurer, the court tells us, is in a better position to avoid the risk by carrying out more thorough title searches. The majority suggests that banks evaluate their risk only as of the time they make the loan; apparently they’ve never worked with or for banks or their actuaries. In any event, why a bank can’t equally well buy its own title search or an abstract of title (which does guarantee title) is unexplained. The “better position” idea might make sense with an owner’s policy (bought by the property owner) rather than a lender’s – but then the court would have to explain why the same contract means different things depending on who buys it.

Because the policy premium is based on the amount originally insured, figuring damages as of the date of foreclosure would allow the insurer to “profit from a depreciating market.” Unfortunately, the majority does not explain how much profit can be had before it changes the meaning of a contract nor how adventitious subsequent events change meanings established, as a matter of law, before their occurrence. But remember: the whole point is that this is “social policy,” not law.

The majority says that using the foreclosure date would “unfairly allow the title company to avoid the insured’s actual . . . damages.” Courts should take “a case-by-case approach to value the insured’s loss“ so that it can determine “the insured’s actual loss under the particular circumstances.” That makes sense in tort law; in contract law its called “social policy.”

But in a few places the majority gives the game away. “In determining damages caused by First American’s incomplete title search . . . social policy does not preclude [measuring the loss as of] the date the policies were issued.” “Damages” in the law are things caused by breaches of duty. The court also repeatedly speaks of “undisclosed” title defects, which clearly suggests that the title company had a duty not only to disclose them but to discover them in the first place. In other words, just as in the Court of Appeals, the title company is to be held responsible for not finding the CC&Rs. That’s not its duty – but its “social policy.”

For reasons unclear the record did not establish that the default and foreclosure resulted from the CC&Rs so the majority remands for further proceedings on that.

The dissent reflects a more traditional – that cynic mentioned above might say more coherent – view of title insurance. That seems to be its main purpose: to explain the duties of a title insurer. It points out that the majority is clearly blaming the insurer for not doing something it had no obligation to do. The majority’s lengthy response to the dissent is shrill, defensive, and at times rather unseemly;  and it ends up underscoring the dissent’s points.

The majority indicates that title companies can change their contracts to avoid this result. That’s what they’ll need to do now that the measure of damages under their contracts is “social policy.”

(Opinion: First American v. Johnson Bank)

Santorii v. MartinezRusso (CA1 8/23/16)

The court concludes that real-estate salespeople are not employees of their brokerage for tort purposes.

A real-estate salesman, while on the job, caused a car accident that killed Plaintiff’s decedent. She sued the brokerage firm for which he worked on the basis of  respondeat superior. The firm moved for summary judgment, arguing that the salesman was an independent contractor. The trial court granted the motion; Plaintiff appealed.

The Court of Appeals affirms.

Plaintiff cited R4-28-1109(D) of the Administrative Code: a broker “is responsible for the acts of all . . . salespersons . . . acting within the scope of their employment.” But other regulations require the broker to supervise only licensed activities and the handling of forms and records, so “a broker’s responsibility is more limited than that of an employer that supervises all aspects of an employee’s work.” In addition, though real-estate salespersons are “employees” for purposes of workers comp and unemployment, the Arizona Supreme Court has declined to apply that to tort law;  “cases arising under . . . social legislation are not necessarily authorities for principles giving rise to common law liability . . .”

Plaintiff cited an illustration from Restatement §220 (elements of employer-employee relationship) to the effect that a real-estate salesman who causes an accident makes his broker liable but not his principal. The court says that the point of the illustration is the part about the principal, for purposes of which it simply assumes that the broker is an employee.

The court also declines to hold that Defendant had a non-delegable duty. Nothing in Arizona law requires even a duty, much less a non-delegable one.

Plaintiff also contended that in this particular case there was a question of fact about the relationship. The court, after reviewing the facts, disagrees.  

(Opinion: Santorii v. MartinezRusso)