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Estate of Cortez (CA2 12/22/10)

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The issue here is whether, having failed to plead in your Answer the affirmative defense that you have an agreement to arbitrate, and having actively litigated for a year, and having participated in a comprehensive pretrial conference without mentioning arbitration, and having demanded a jury trial, you can then force arbitration.

Cortez died in a nursing home. Her PR sued it for wrongful death. Having done all of the above the nursing home then moved to compel arbitration because an agreement requiring it had been part of her admission paperwork. The court granted the motion. The Court of Appeals reverses.

Basically, the court takes several pages to explain that by doing these things the nursing home had waived the defense. The trial-court argument apparently used the word “repudiate”; a footnote informs us that “waiver” and “repudiation” are interchangeable in this context. This portion of the analysis concludes by saying that “Once [the nursing home] had demonstrated conduct wholly inconsistent with arbitration, it “acquiesce[d] in the waiver thereby making the revocation complete and binding on both.” In the charitable spirit of the season we will pass over that Delphic pronouncement without further comment.

The nursing home’s argument was that it hadn’t found the file before filing its Answer, therefore didn’t know about the arbitration agreement, and therefore didn’t intentionally relinquish a known right. The court says that it had “constructive knowledge” since it always used the same forms and since its employee had signed the agreement. Actually, the lawyers had constructive knowledge of their client’s actual knowledge; unfortunately, it’s pretty clear that this isn’t what the court means.

The home also argued that the PR hadn’t shown prejudice. “But in Arizona a showing of prejudice has been required only when a party is attempting to prove waiver specifically on the ground of unreasonable delay.” In other words, the court now reveals that the basis of the decision was not delay but  “conduct inconsistent with an intent to arbitrate, such as the filing of a complaint or answer [sic].” In other words, repudiation, not waiver, and there is a difference between them after all. In any event, the court next says what it should have said to begin with: the PR was of course prejudiced, by having to fight a year’s worth (two, including this appeal) of litigation.

The home also argued the public policy favoring arbitration. The court points out that when you’ve squandered the advantages of arbitration – a cheaper and speedier resolution – there’s no point in requiring it.

Speaking of the spirit of the season, this whole opinion should be passed over. As a memorandum it is perfectly serviceable; as a published opinion it makes no contribution except confusion.

 

(link to opinion)

Miidas Greenhouses v. Global Horticultural (CA2 12/22/10)

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Another economic-loss-rule case.

Miidas bought some peat moss from Global. One batch of it was bad and ruined Miidas’ crops. Miidas sued for breach of contract, strict liability, and negligent misrepresentation. Global moved for summary judgment on the tort claims, arguing the economic-loss rule. The trial court granted it.

See Flagstaff Affordable Housing to brush up on the rule. This is a products case, so the Court of Appeals used the three-factor test. We said that Flagstaff “throws doubt on the three-factor test itself, apparently signaling a willingness to change it when an appropriate products case comes along.” Miidas argued “Flagstaff signals that Salt River‟s three-part test will soon no longer be the law in Arizona products cases.” The court says “Although we acknowledge the Flagstaff court‟s negative comments about the Salt River test, we agree with Global that despite these comments, Flagstaff did not overrule Salt River.” Which proves that you can lead a horse to water, etc.

So, the three-factor test. First, was the product unreasonably dangerous? Yes, it was unreasonably dangerous – to seeds. If that is how the phrase can be used then of course it means anything – and therefore nothing.

Next, the court demonstrates that the best argument against the three-factor test is its application. For what follows is among the most confused and confusing patches of gobbledygook that’ll you ever have to read in a judicial opinion. Flagstaff should have meant (and we’d bet it was intended to mean) never having to read something like this again. Among other things the court tells us that the second factor, which it never really explains, is not “helpful” here. Well, it’s not helpful because the test is largely nonsense – and you’d think that a case that has to try to say that the growing of a crop happened “suddenly” and “accidently,” or that whether it did or not has to be considered but doesn’t matter, would take up Flagstaff’s invitation to admit that. Instead the decision is largely an analysis of Salt River, almost as though Flagstaff didn’t exist.

The court ends up deciding that  Miidas’ seeds were “other property” and that “the third factor of the Salt River test, as well as the first two, supports [sic] a conclusion that the economic loss rule should not be applied in this case.” (What that odd formulation means we’ll leave as an exercise for the reader.)

If you decide to read this one, though, ask yourself afterward just exactly what doing so has added to your knowledge of the law.

 

(link to opinion)

In the Matter of Phillips (12/16/10)

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This is a disciplinary decision. The issues involve ER 5 – a lawyer must make reasonable effort to ensure that his firm and those he supervises act ethically – and what the sanction should be.

Phillips runs one of those high-volume, high-advertising firms.  In 2002 he was put on probation because the firm was doing most of the things those firms can have problems with. The terms of probation included, basically, making sure that it didn’t do them. His suspension ended but the complaints didn’t, so the Bar sought discipline again. The Hearing Officer recommended a six-month-and-a-day suspension; the Disciplinary Commission accepted it by a vote of 6-2, the minority wanting the suspension reduced to ninety days. Phillips sought review. (Arentz, another member of the firm, was also involved in this and also sought review; the court denied his petition.)

What the firm did wrong takes five pages to summarize (boiled down from a Hearing Officer report well over 100 pages long). Read the opinion if you want the gory details; basically, it’s a laundry list of the pitfalls in running those firms (if you don’t know how they work then this opinion will be an eye-opening education). What they have in common is that Phillips didn’t do any of the individual acts (he no longer represents clients) but was responsible for the policies and procedures that allowed them to occur.

Phillips’ argument was that he therefore shouldn’t be responsible for them, that the Hearing Officer merely found him vicariously liable for the offenses of others. But the Hearing Officer “clearly understood and correctly applied” the law that Phillips was liable for his own ethical breaches in not enforcing proper policies and procedures. ER 5 (the opinion deals specifically with 5.1 and 5.3) says so.

That was the legal issue on which the court granted review. The analysis takes about a page. What takes the remaining 11 pages of the majority opinion? The sanction. But the court agrees with the Hearing Officer’s findings and conclusions on everything except the issue of proportionality.

On that the court first says that a case “involving a ‘consumer law firm’ and a high volume practice . . .  is difficult to compare with others.” That is worth a long article. But the short version is: no, it isn’t, unless the suggestion is that “consumer” law firms (whether “consume” refers to lawyer or client isn’t clear) needn’t follow the same rules of ethics as the rest of us.

But rejecting  proportionality allows the court to address “internal proportionality” – i.e., to compare Phillips’ sanction to Arentz.’ Arentz had 19 ethical violations; Phillips scored only 12. Arentz was more directly involved with his violations. But Arentz got only sixty days. And the reason for Phillip’s “and a day” sanction was because that means he would have to go through a formal reinstatement process, lengthening the sanction. Although the court agrees that Phillips deserves worse that Arentz, it concludes that six months – without the complication of the extra day – is enough. (There is also probation, the 21 conditions of which are stated in the appendix. In addition, while suspended “Phillips’s [sic] name may not be used in firm advertisements, letterhead, or other communications” – stand by for some Glen Phillips commercials – and he can’t take any firm income.)

Judge Weisberg, sitting by designation, writes separately to support the stiffer “and-a-day” sanction. “Phillips is not being sanctioned for his second ethics violation [as the majority suggests]. He is being sanctioned for his ethics violations eighteen through twenty-nine.” If you’re keeping score, Phillips’ 29 beats Arentz’ 19.  Phillips had been on probation once already. And Arentz was “working in a system that was developed, implemented, and supervised by Phillips.” He does agree, though, that you can’t compare “consumer” law firms (the court at least has the grace to put that in quotation marks) with the rest of us, who presumably exist merely to grind the faces of the poor.

Now, regardless of what you think of this type of firm or this type of law or this type of lawyer, you have to wonder what was going on here. The court denies Arentz’ petition, grants Phillips’ petition purportedly for an issue that it spends about ten seconds on, then reduces Phillips’ sanction not because of what he did but supposedly because it wasn’t proportional to a sanction it had denied itself the opportunity to review (which, as Judge Weisberg tries to point out, was too light), by pretending that comparing one case to one other is a proportionality analysis. This is one of those times when you don’t know what to hope – that the court didn’t realize how bad this would stink, or that it did.

 

(link to opinion)