Fisher v. USAA (CA1 8/7/18)

On the requirement of timeliness when challenging an arbitration award.

Claimants in a UIM arbitration suggested an arbitrator but apparently discovered after the carrier agreed to him than he also did arbitrations for another law firm that represented that carrier. But they raised no objection, went to arbitration, and lost. Following unsuccessful post-hearing motions with the arbitrator, they filed in court to vacate the award and to obtain discovery on the arbitrator’s alleged conflict of interest. The trial court denied the motions. (We have condensed the facts a bit, omitting an intriguing but irrelevant disagreement between the claimants and their original lawyer and making a small guess about what and when the claimants actually filed in court, the description of which lacks clarity and consistency.)

The Court of Appeals affirms, ruling that the claimants waived the objection. The statute (12-3001 et seq.) provides that an arbitrator must disclose conflicts and that an award can be set aside for failure to do so. But comments to the Revised Uniform Arbitration Act, on which our statute is based, say that objection must come “within a reasonable period after the person learns or should have learned of the undisclosed fact.” “We agree that parties who know or have reason to know of possible partiality must raise an objection with the arbitrator during the course of the arbitration proceeding.”

The claimants tried reverse the burden of proof by invoking a presumption of partiality. The statute provides for that if the arbitrator does not disclose a direct interest in the outcome of the case or a substantial relationship with a party. But no interest in the outcome was alleged and working as an arbitrator for another firm that represented a party is not a substantial relationship with that party. “When a party challenges an arbitration award, the burden is on the moving party to prove that grounds for vacating the award exist.”

Waiver of the claim having “extinguished the pending action connected to the discovery request,” the court expressly declines to rule on the denial of that request.

(Opinion: Fisher v. USAA)


Chula Vista HOA v. Irwin (CA2 7/27/18)

The question presented is whether a supersedeas bond should include the amount of a fee award. City Center (2015) settled that; this case follows it, adding a bit of additional discussion of exceptions that don’t apply here.

Plaintiffs sued their homeowners association. They won, receiving some declaratory relief, $5000 damages, costs, and $35,000 attorney’s fees on a contract claim. The HOA file a notice of appeal. It argued that the amount of its supersedeas bond should not include the fee award; the trial court ruled that it should. So the HOA filed this special action.

The Court of Appeals accepts review and grants relief. The part of Rule 7 at issue here bases the bond on the “total amount of damages.” It is hornbook law that attorney’s fees are not “damages.”

But there are exceptions. The trial court apparently followed Desert Mountain (2010): “when one party’s breach of contract places the other in a situation that ‘makes it necessary to incur expense to protect his interest, such costs and expenses, including attorneys’ fees, should be treated as the legal consequences of the original wrongful act and may be recovered as damages.'” But Desert Mountain was a claim against an insurer to recover amounts — including fees — paid by an insured for claims the insurer refused to cover. The holding was that in that context the fees fell under the policy language of things the insured was “legally obligated to pay as damages.” The fees in this case didn’t arise from litigation with a third party. (It might be worth noting, though the court does not utilize the distinction, that Desert Mountain also did not use the standard legal definition of “damages”; instead it used the “plain and ordinary meaning” standard applied to insurance policies.)

Some provisional remedies are also exceptions, so Plaintiffs argued that their slander-of-title claim was “akin” to a provisional remedy. The court points out that the claim is statutory and that the statute (33-420), although allowing fees, does not define them as part of the “damages.”

(Opinion: Chula Vista Homeowners v. Irwin)

Ruffino v. Lokosky (CA1 7/12/18)

The court discusses service of process in the context of the internet.

Plaintiff sued because of some allegedly defamatory posts by Defendant on Defendant’s web site. When his process server failed to make service he moved for alternative service by mail. The trial court denied the motion, spotting the fact that the process server — despite a return that seemed to show a lot of effort — hadn’t really tried very hard. Plaintiff made one more desultory try then served by publication and took default judgment. He knew defendant’s email address and phone number and knew she was active on social media. And he had been in internet contact with her before the suit. But he didn’t try to notify her in any of those ways nor ask to serve electronically.

Defendant moved to set aside the judgment. After an evidentiary hearing the trial court granted the motion, finding that Defendant was not evading service and that service attempts were insufficient. Defendant appealed.

The Court of Appeals affirms. Plaintiff argued that the court should review de novo, presumably to avoid the lower court’s findings. The court points out that it reviews Rule 60 motions for abuse of discretion and clearly-erroneous findings.

The rule on service by publication (4.1(l)) requires that the plaintiff be unable to find the address after diligent effort or that the defendant is evading service, and also that service by publication is “the best means practicable in the circumstances for providing the person with notice.” (Some of us remember when our rules were written in English rather than in semi-grammatical jargon.) For some reason the trial court made a finding on only one of those things — that Defendant wasn’t evading. But there were only three possible addresses, the process server admitted that she thought one of them was the right address, and Plaintiff had the means of contacting Defendant to confirm it but didn’t. “A reasonably diligent effort . . . would have included reaching out to [Plaintiff] via telephone, email, or even social media to verify her correct address.” You can find telephone cases that are years old but the email/social media aspects of this are somewhat novel.

The court uses them with the “best means practicable” requirement as well. It says that even if there had been diligent effort and/or evasion of service, “given our present society . . . modern methods of communication, especially email, were more likely to give . . . notice of a suit than publication.” (The telephone is an even better way but that’s not the point of the opinion.)

The court adds archly, in an unnecessary and ill-considered comment, that the newspaper used for publication was distributed in a rural area 70 miles from Defendant’s Scottsdale address. But what of the very next section of Rule 4.1(l), which specifically allows service “in a newspaper published in the county where the action is pending,” as it and its predecessors have for many years? Would using a “closer” paper have overcome the failure to make a phone call or send an email? Is “a newspaper published in the county” no longer good enough? If so, why does the rule still say that? If not, on what basis should defendent select a newspaper — by trying to read the plaintiff’s mind about which one (if any, nowadays) she’s most likely to read? (And if that’s the standard, why don’t we require publication to be done on the paper’s front page rather than rather than in parts that nobody reads anyway?) Granted, the Republic needs the income; but the niche papers that make a living printing legal notices will be sorely disappointed.

There’s not actually much new here except the reminder to pursue internet contacts. And the moral is the old one: you need to direct and assist your process servers actively, not just let them go through their comfortable motions. The dogged, clever, self-starting process servers you read stories about presumably exist but you will never find one.

(Opinion: Ruffino v. Lokosky)