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Ad Hoc Committee v. Reiss (CA1 2/23/10)

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These two related cases, consolidated on appeal, involve the ecclesiastical abstention doctrine.

They involve a fight about whether a corporate Board of Directors acted properly in hiring a new president, throwing out the minority director who thought him unqualified, later firing the new president, and allegedly misusing corporate funds. The wrinkle is that the corporation was a church and the president its new priest. People divided into pro- and anti-new-priest camps and then both sides showed their faith in the inscrutable judgments of the Almighty by asking Caesar to render one more to their liking.

Under the ecclesiastical abstention doctrine the court does not have subject matter jurisdiction to consider “ecclesiastical matters,” i.e., matters which concern “theological controversy, church discipline, ecclesiastical government, or the conformity of the members of the church to the standard of morals required of them.” (How a court can “abstain” from doing something it doesn’t have the power to do is a problem the opinion appears to recognize; it ends up saying, in essence, that “subject matter jurisdiction” means different things depending on what the court says it means. The real answer would be to admit that “abstention” is a misnomer the court is stuck with because of the precedent.)

The opinion carefully explains the history of the doctrine as if it were a rarity. It isn’t something you run into every day but the same court issued an opinion about it in 2002 (Rashedi). And having consolidated the cases for purposes of appeal, it divides them for purpose of the opinion, almost as if it drafted separate opinions and stuck one onto the end of the other.

The doctrine doesn’t apply when “neutral principles of law” are involved. Do these cases involve ecclesiastical matters or neutral principles of corporate law? Ecclesiastical matters, says the court. Why? That’s not clear. A main issue concerns the new priest’s qualifications but the opinion’s 38 pages never explain why this involves church doctrine rather than simple matters of fact – whether he was ordained before a certain date under a certain rite. The other issue involves misappropriation of funds and property. Some of those allegations were dismissed for unrelated reasons but the opinion dumps the rest into the “ecclesiastical matters” category by inventing a defense to them. Although the pleading in question was not well drafted, it says that the defendant “has emptied all bank and financial accounts of the Church, taking the proceeds thereof . . .”  The court decides that the allegations “only prove [sic] that the Board may have changed church bank accounts” and that’s part of the financial affairs of the church that the court can’t look at. But that isn’t even what the language says, much less what it clearly means. And how that can possibly be the right standard of review is another thing that’s not clear.

The court apparently feels that its contribution to the law is to decide that the abstention doctrine applies not only to hierarchical churches (parts of larger denominations) but also to congregational churches (local, independent ones). It analyzes this for several pages (it is one of those that briefs almost every case it cites). While its probably right, those several pages don’t hint at a principal reason for the issue.  These people formed a corporation and drafted lengthy articles of incorporation and adopted extensive bylaws. Nothing else governs their church (it is a Catholic church but is not part of the local diocese). Having gone out of their way to do things established and required only by civil law, was it their intention that that law largely not apply? Perhaps so, and perhaps it shouldn’t anyway, but perhaps also the court could find space to address real problems somewhere among its airy recitations of “insightful and well-reasoned” (that particular one is, by the way, tedious and obscure) cases.

One gets the impression that the court didn’t want theses cases to continue and so devised or accepted reasons, however contrived, why they couldn’t. We mention that sort of thing from time to time because the impressions an opinion gives are important. If that’s not what was going on, its not our fault that what the court said could lead people to think so. It would have been better simply to cite Rashedi – a  superior opinion anyway – and be done with it.

In re the Gila River General Adjudication (2/19/10)

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The Arizona Supreme Court took this case as a “special proceeding” for interlocutory review of a ruling by an “adjudication court” on a “motion for summary disposition.”

Sound like the twilight zone? It won’t to old ears but if yours aren’t then welcome to the world of the water cases. This species of permanent litigation has enriched generations of Arizona lawyers. The present opinion, for example, cites cases called Gila River I, Gila River VI, Gila River VII, and maybe some other Gila Rivers we missed.  It has spawned its own rules and procedures, e.g., the 1991 Special Procedural Order that controls this particular sub-species of stream litigation. And it has its own language, which we needn’t go into since if you care about AFYs and rebound calls and the Globe Equity Decree of 1935 and such then you already know what they are. One occasionally suspects, though, that like Jarndyce v. Jarndyce the case isn’t entirely understood by anyone alive – a situation always beneficial to the profession.

Few of the stream opinions neglect to describe their litigation’s tortuous history, often with rueful but passing acknowledgment that it was “complex” twenty years ago. This one also informs us that “much of Arizona is arid desert land” – citing the United State Supreme Court for the proposition, in case you weren’t clear on it.

The case is so complex that, as usual with such cases, procedure trumps substance. This opinion, in the course of 32 pages and 19 often-lengthy footnotes, upholds a settlement agreement involving one party (arrived at in 2005, to show you how quickly these things move) by saying not much more than that the lower court’s order approving it was procedurally correct and that any factual loose ends can be dealt with in the future. It addresses inconsistencies between the special procedural orders in the Gila River litigation and the Little Colorado litigation by saying, in not quite as many words, “we don’t want to talk about that.”

That is the way it manages these cases. Unless kept firmly at bay they would overwhelm. And so, since the only fair way to resolve the facts would be to use dueling pistols, we have developed procedural systems for handling – without ever ending – them, systems that must be preserved at all costs. The judges hope that push doesn’t come to shove until after they’ve retired, the lawyers until after their grandchildren have.

Flagstaff Affordable Housing v. Design Alliance (2/12/10)

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This is an examination and explanation of the economic-loss doctrine. It reverses a Division One opinion we blogged in March 2009.

Design Alliance designed apartments that Flagstaff Affordable Housing built. The design violated federal handicap-accessibility  requirements. FAH was required to remedy the problem at considerable expense so it sued Design Alliance.

Design Alliance moved to dismiss, arguing that the economic-loss rule barred the claim. That rule, as established by the First Division in  Carstens v. City of Phoenix, 206 Ariz. 123, says that there can be no recovery for economic loss absent personal injury or property damage. The trial court granted the motion. The Court of Appeals reversed, holding that the economic-loss rule does not apply to claims against design professionals. The Supreme Court reverses that, in an opinion meant to be a fairly definitive statement on the economic-loss rule.

Carstens had said that there is no tort recovery of economic loss absent physical harm. This opinion says that that’s what the rule is not. Tort plaintiffs who have no contract with the defendant can and often do seek to recover economic loss. The economic-loss doctrine is a creature of contract law: a contracting party is limited “to contractual remedies for the recovery of economic losses unaccompanied by physical injury to persons or other property.”

This was the law before the Court of Appeals mixed things up in Carstens. But the Supreme Court court seems aware that the real culprit was its opinion in the case that confused the Carstens court: Salt River (143 Ariz. 368). That case held that products liability plaintiffs, who could have both contract and tort claims, can’t get economic loss (assuming that the contract doesn’t permit it) unless there is physical harm caused suddenly and accidently by an unreasonably dangerous product (the “three-factor” test). The court tries to iron out one or two smaller problems with Salt River and then throws doubt on the three-factor test itself, apparently signaling a willingness to change it when an appropriate products case comes along.

In construction-defect cases, the court in effect says that building a building is a more contract-centric thing than buying a product and so allowing tort damages would not be appropriate. Therefore, “when a construction defect causes only damage to the building itself or other economic loss, common law contract remedies provide an adequate remedy.” Economic loss is recoverable only if the contract so provides. The three-factor test does not apply.

As to the Court of Appeals’ holding that the economic-loss rule isn’t involved in claims against design professionals, it is true that the architect owes common-law duties to the owner but they arise because there is a contract between them. There is no valid basis for dealing differently with architects than with other construction contractors.

It is at this point that the court seems to come closest to saying frankly that the very idea of an “economic-loss rule” is misleading. Its simply an aspect of the law of contract damages. To call it a “rule” makes more of it than there is and invites its misinterpretation as a piece of substantive law. That isn’t exactly what the court says, though it may not be a bad way to think about what the court means.

The opinion remands the case to the trial court. It announces an economic-loss rule different from the Carstens rule that the trial judge had; the new rule would allow economic loss if permitted by contract but the contract was not in the record on appeal.

This points up a potential source of confusion. Both this case and a number of Court of Appeals cases following Carstens indicate that the economic-loss rule applies to construction-defect cases. But this opinion means something different by “economic-loss rule;” it holds that the Carstens rule does not apply, overturning or making obsolete the CA cases.

One problem this opinion does not address – the facts did not present it – is the “other property” issue. The court repeatedly points out that the economic-loss rule does apply to claims of physical injury to persons or “other property” – i.e., property other than the product, building, etc. that was the subject of the contract. What “other property” means is not always easy to figure out.

A hat-tip to the court for trying in this and other decisions in the last year or so to address some real trouble-spots in our civil law. And also for citing in this one an oldie but a goodie, Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854), which you no doubt remember fondly from law school.

(link to opinion)