Austin v. Austin (CA2 4/30/15)

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This is a divorce but the issue raised in this appeal concerns the validity of an arbitration clause, here one in an agreement between the spouses creating a company to hold their assets.

Josiah Austin married wealthy Valer Austin and took over her financial affairs. He formed a holding company that assumed control of her assets, gave him community property rights to some of them, gave him control over all of them, and undid the effect of irrevocable trusts she had set up for her children. The agreements creating the company contained clauses requiring arbitration of disputes. Valer signed them without paying attention, trusting her husband. When she filed for divorce disputes concerning the company came up; he moved to compel arbitration of them; the trial court denied it.. He appealed; the Court of Appeals affirms.

Harber’s Estate (1969) held that postnuptial agreements are valid but that if one spouse challenges an agreement then the burden is on the other to prove, by clear and convincing evidence, that it was not fraudulent, coerced, unfair, or inequitable. The trial court used this standard to deny Josiah’s motion, although the opinion does not give the details of the ruling. Josiah’s position was that standard contract law should apply, under which Valer is presumed to know what she signed. The rule of Harber’s Estate had only been applied to postnuptial property settlements; Josiah argued that it should be limited to them.

The court points out (based on the trial court’s findings of fact) that the holding company’s effects “were no less severe than a traditional postnuptial property division agreement.” Because the agreements were made during the marriage “and altered each spouse’s property rights in the event of death” they were postnuptial agreements subject to Harber’s Estate.

Josiah argued that this would require separate counsel for spouses that create trusts “or other complex estate documents.” (We wouldn’t have called these arrangements terribly complicated, nor even unusual, at least for such people – the GRIT and GRUT and GRAT crowd – but the court seems to think them so.) The court’s response is, basically: “Well, yeah, what’s your point?

Valens’ children were parties because of their rights in those trusts. The trial court ruled that they weren’t bound by the arbitration agreement because they hadn’t signed it. Josiah argued they were bound, under Schoneberger (2004), because they were third-party beneficiaries who received a direct benefit. But the holding company did not benefit them, directly or otherwise; instead it reduced their rights. Josiah also argued that that they were estopped to dispute the arbitration clause because their claims in part depended on the holding company agreements. But the thrust of their position was that the agreements were improper; claims under the agreements were alternative claims made in case the children were held to be bound by them. “Such a contingency, to which they object, is not sufficient to create estoppel.”

(As a mildly interesting though unrelated note, the backstory here – which the opinion has no occasion to mention – is a classic Arizona tale: the rich easterners who buy a cattle ranch (in this case the El Dorado ranch in the Chiricahuas) so that they can spend some time in quaint surroundings and also tell their friends back home, and themselves, that they are “ranchers.” In the old days the formula was to buy some Mexican cattle, hire a few cowboys to fatten them up a bit on the ranch, then ship them to a feed lot. On occasion that actually made some profit but profit wasn’t the point. Nowadays things are simpler since you can keep just a few cows and push the conservation angle instead.) 

(link to opinion)

Newman v. Cornerstone National Insurance (3/18/15)

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We blogged the Court of Appeals opinion here.

The Supreme Court vacates it but comes to the same conclusion for basically the same reason: “20-259.01(B) does not require the notice to specify the cost of the UIM coverage.” “Whether an offer of UM/UIM coverage has been made does not depend on the insured’s understanding of the terms being offered, but instead on whether a reasonable person would understand that his or her acceptance would bind the insurer to provide the offered coverage,” citing Ballesteros (2011).

The court says it reviews this because it’s “a recurrent legal question of statewide importance” but doesn’t mention the other case to have raised it, Melendez now being a memorandum opinion. The existence of Melendez is presumably one reason it took this case but perhaps the court also wants to emphasize that, after Ballesteros and Newman, it really, really isn’t going to read requirements into this statute and so people should stop trying to. “We have previously refused to add requirements to this statute and again decline to do so.”

(link to opinion)

Tri-City National Bank v. Barth (CA1 3/17/15)

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Its nice to know that the court will, at least eventually, put its foot down.

The Gradys borrowed money from Tri-City’s predecessor-in-interest, giving a Deed of Trust on their house. They defaulted. Following the normal modern debtor’s playbook, they sued Tri-City. They lost. But they didn’t move out, so Tri-City filed an FED action; the Gradys lost; they appealed. The trial court at first denied a stay of execution of the FED judgment pending appeal so they took a special action; the Court of Appeals ruled that a stay is not discretionary if an appropriate bond is filed. But the Court of Appeals eventually ruled against them on the merits and the Supreme Court denied review. So Tri-City moved to lift the stay, for a Writ of Restitution, and to take the bond. The Gradys responded with a nebulous motion asking the trial court to set aside the judgment, among other things. The trial court denied that motion and granted Tri-City’s. The Gradys appealed, as a special order after judgment, the denial of their motion. And they filed a motion to stay execution of the FED judgment until the completion of that appeal. The trial court granted that, feeling that it had to do so given the previous special-action ruling. Tri-City took this special action from that order.

The Court of Appeals accepts it and grants relief.

Both sides argued, again, whether a stay was discretionary. But the Court of Appeals decides the case on a different issue: “In our view, the real issue is whether the trial court had the authority to stay execution of a judgment not currently pending appeal. We hold that it did not.” “A stay can only be granted of the judgment that is being appealed,” based on the language of ARCAP 7(b) and 12-1182.

The court may be right but the analysis is more complicated than that. Although the opinion rules on an issue not briefed or argued, neither the opinion nor the record indicates that the court requested supplemental briefing. Why not? Its hard to think of a good reason but perhaps the court was reluctant to drag this out further. Tri-City has been trying for six years to get the Gradys out of the house and the court goes out of its way to suggest that their bond was inadequate. “Put simply, the Gradys are receiving a continuing unjust benefit through procedural gamesmanship.”

(link to opinion)