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)


Sholem v. Gass et al. (3/30/20)

We had at first thought to skip this one, which may fall into the category Too Boring For Even Us To Blog. But it will open new opportunities for plaintiffs and new challenges for the defense. And it illustrates once again why it isn’t necessarily a good idea to outsource Arizona law to those unfamiliar and unconcerned with it.

This is about abatement of a Complaint under Rule 4(i). The rule says this:

If a defendant is not served with process within 90 days after the complaint is filed, the court–on motion, or on its own after notice to the plaintiff–must dismiss the action without prejudice against that defendant or order that service be made within a specified time. But if the plaintiff shows good cause for the failure, the court must extend the time for service for an appropriate period.

Eleven months after filing it, Plaintiff had not served her case. The trial court had not dismissed it or required service. Plaintiff moved for an extension; the court granted it and she filed within the extended time. Defendant moved to dismiss because Plaintiff had not shown good cause. The trial court denied the motion; the Court of Appeals declined jurisdiction of Defendant’s special action.

The Supreme Court affirms.

It first reviews the history of abatement. Arizona has had abatement since 1913, when it was enacted by the first state legislature. Originally, an action abated if not filed within one year. This law eventually became a rule and the rule went through various changes until, in 1996, we got the present version. It was adopted, as had been its predecessor, so that the Arizona rule would match the federal rule.

Then begins the analysis: “The plain language of Rule 4(i) permits extensions absent a showing of good cause.” The rest of the opinion is a coda to this pronouncement. The idea is that good cause is a requirement only of a mandatory extension, that other extensions are discretionary and do not require it.

Defendant argued that Rule 6(b)(1) requires excusable neglect if a request for extension is made after the applicable time limit has expired. The court agrees that it applied before 1996 but says that the present version of Rule 4 is inconsistent with Rule 6. It disapproves of Toy v. Katz (App. 1997), which said that the 1996 rule didn’t change anything substantively. Rule 6 now applies only if plaintiff gets a Rule 4 extension then blows that time period, too.

The court agrees with Defendant that Plaintiff did not show good cause. The extension was therefore not mandatory but could be discretionary. The court says that factors considered by trial courts in exercising their discretion are whether the statute of limitations bars refiling, whether the defendant evaded service, and whether the defendant would be prejudiced by the extension. The court decides that there was no prejudice and that Defendant might have been hiding.

So, despite 107 years of “shall” and “must” and ever-shorter time periods, abatement is now a chimera, replaced by arguments about prejudice and blame. And the change was made 26 years ago by people who said they hadn’t really changed anything.

Is the court wrong? Perhaps; Rule 6 should of course apply if you want to preserve some measure of consistency with longstanding Arizona law. But the people who wrote federal rule 4 knew nothing of that and their rule doesn’t really fit with it. This is what happens when you make law by cutting and pasting. How many times have we been told that a rule has been changed “merely” to make it consistent with a federal rule? Consistency is a pleasant-sounding shibboleth, not a cogent goal; the two sets of rules — made in the context of different law, history, needs, policies, and procedures — rarely match. In any event, you may not intend a change when you’re “merely” making things consistent but the next generation of judges won’t know or remember or care about that when it comes time for them to try to reconcile Arizona’s apples with the federal orange you stuck in the barrel.

The opinion is too long but is well-organized and its fourteen pages contain not a single footnote. So, for style, a solid C+.

(Opinion: Sholem v. Hon. Gass et al.)

Hwal’Bay Ba: J Enterprises, Inc. v. Jantzen (2/25/20)

This opinion concerns “the circumstances under which a tribal entity enjoys sovereign immunity as a ‘subordinate economic organization’ of the tribe.” If you know what that means then you will want to read it, though it tells you not much of anything new except how to organize your motions and briefs on the subject. But the court clearly wants it to be seen as the new leading case so we’ll mention it, though its not really worthy of a full blog.

The real party in interest was injured on a rafting trip organized by a tribal entity. She sued; the entity claimed immunity; the trial court denied its motion to dismiss. The Court of Appeals — presumably seeing this as an issue that would go further up anyway — denied the entity’s special action; the Supreme Court accepted it.

The court briefly reviews basic sovereign-immunity law, reviews at length the Arizona cases on point, and makes passing mention of other jurisdictions. Rather than draw its conclusion from that, though, the court chooses first to reformulate it into “six non-exclusive factors to examine in deciding whether an entity is a subordinate economic organization of a tribe . . . .” The need for doing so isn’t clear, especially since the court neither adds anything new nor omits anything old (except, perhaps, by accident). Its “factors” are broad categories that include all the facts and circumstances that might, as shown by the earlier cases, bear on the subject. But of course from now on you will need to cite the court’s categories and follow its organization in order to show that you have read the case and are following the “law” in announces.

Justice Bolick concurs separately in order to opine that the Tenth Amendment (which for some reason he refers to it as “amend. X”) should limit sovereign immunity.

(Opinion: Hwal’Bay Ba: J Enterprises, Inc. v. Jantzen)