Opinion
No. 1 CA-CV 12-0376
01-16-2014
ROBERT J. HALT and LYNN D. HALT, husband and wife, Plaintiffs/Counterdefendants/Appellees, v. SUNBURST FARMS EAST, INC. an Arizona non-profit corporation, Defendant/Counterclaimant/Appellant, CONNIE KOREN, Intervener/Appellant
McKeddie Cooley PLLC, Scottsdale By Melanie C. McKeddie, Justin R. Cooley and Matthew Klopp Counsel for Plaintiff/Counterdefendants/Appellees James L. Sullivan, Scottsdale By James L. Sullivan And Stoops Denious Wilson & Murray PLC, Phoenix By Stephanie M. Wilson, And Mack Watson & Stratman PLC, Phoenix By Daxton R. Watson, Troy B. Stratman and Michael H. Orcutt Co-Counsel for Defendants/Coun terclaimants/Appellants
NOTICE: NOT FOR PUBLICATION.
UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
Appeal from the Superior Court in Maricopa County
Nos. CV0000-488397; CV2008-000489, CV2008-007832
(Consolidated)
The Honorable J. Richard Gama, Judge
REVERESED; JUDGMENT VACATED
COUNSEL
McKeddie Cooley PLLC, Scottsdale
By Melanie C. McKeddie, Justin R. Cooley and Matthew Klopp
Counsel for Plaintiff/Counterdefendants/Appellees James L. Sullivan, Scottsdale
By James L. Sullivan
And Stoops Denious Wilson & Murray PLC, Phoenix
By Stephanie M. Wilson,
And Mack Watson & Stratman PLC, Phoenix
By Daxton R. Watson, Troy B. Stratman and Michael H. Orcutt
Co-Counsel for Defendants/Coun terclaimants/Appellants
MEMORANDUM DECISION
Presiding Judge Andrew W. Gould delivered the decision of the Court, in which Judge Donn Kessler and Judge Michael J. Brown joined. GOULD, Judge:
¶1 Sunburst Farms East, Inc. ("Sunburst") appeals the court's denial of its Rule 60(C) motion and entry of judgment against Sunburst. For the reasons discussed below, we reverse the court's denial of Sunburst's Rule 60(c) motion; vacate the court's entry of judgment against Sunburst; and remand this case to the trial court to vacate the 1985 Judgment entered against Sunburst's predecessors in interest.
Facts and Procedural Background
¶2 For over 25 years the Declaration of Covenants, Conditions and Restrictions ("CC&Rs") for housing development subdivisions III, IV, and VII of Sunburst and Sunburst Farms East Mutual Water and Agricultural Company, Inc. ("SFEM")--Sunburst's predecessor in interest-have been the subject of litigation. SFEM was organized and incorporated to provide the subdivision lots with irrigation water and to maintain the irrigation facilities. SFEM established a homeowner's association ("HOA") of which all lot owners were automatically members. All lots in the subdivisions contained deed restrictions; these restrictive covenants were embodied within the subdivision's CC&Rs.
¶3 Under the original CC&Rs ("Original CC&Rs"), all lot owners were automatically members of the HOA, and the HOA was empowered to require members to pay dues and assessments for SFEM's services regardless of whether the individual used irrigation water. The Original CC&Rs further provided SFEM with the power to place a lien on each member's property until the assessments were fully paid. The Original CC&Rs required a majority vote of the subdivision homeowners for any amendment.
¶4 In the mid-1970's the Original CC&Rs were amended in accordance with the procedures required by the Original CC&Rs (the "Amended CC&Rs"). These Amended CC&Rs sparked litigation that ultimately resulted in our supreme court's decision, Duffy v. Sunburst Farms E. Mut. Water & Agr. Co. Inc., 124 Ariz. 413, 604 P.2d 1124 (1979). In Duffy, the court determined that the Amended CC&Rs, which made membership in the HOA "a wholly voluntary right within the discretion of each record owner and . . . remove[d] the association's power to impose assessments and liens upon homeowners," were valid. Id. at 414, 417, 604 P.2d at 1125, 1128. The court reasoned that the amendments were properly enacted by means of a majority vote of the owners of the lots as required by the Original CC&Rs. Id. at 416, 604 P.2d at 1127. Thus, the Amended CC&Rs "revoked" the Original CC&Rs. Id. at 417, 604 P.2d at 1128.
¶5 In 1980, the HOA attempted to amend the Amended CC&Rs by reinstating mandatory membership and SFEM's power to place assessments and liens on each member's property ("Second Amended CC&Rs"). Holding the Second Amended CC&Rs out as valid, SFEM charged assessments of all homeowners and sought to enforce liens for nonpayment. William and Wanda Mir, Ronald and Evelyn Slaughter, and Paul and Sally Langan (the "Mir Plaintiffs") filed suit against SFEM seeking (1) a declaratory judgment to clear their title of all liens and to declare the Second Amended CC&Rs void, and (2) damages for slander of title and breach of contract.
The Mir Plaintiffs alleged the Second Amended CC&Rs were not amended in accord with the procedural requirements set out in the Amended CC&Rs. This allegation was based on the fact that the amendments were proposed at an HOA meeting on July 10, 1980 where "some of the homeowners signed the Second Amended CC&Rs"; however, signatures of a majority of owners were not obtained until 1982.
¶6 The court eventually entered a declaratory judgment for the Mir Plaintiffs on the grounds that the Second Amended CC&Rs were null and void, and quieted title in favor of each of the Mir Plaintiffs. To resolve the Mir Plaintiffs' remaining claims, the parties entered into a settlement agreement ("1985 Agreement") stipulating to a judgment of $100,000 in favor of the Mir Plaintiffs. As part of the 1985 Agreement, the Mir Plaintiffs covenanted not to execute on the $100,000 judgment so long as SFEM "refrain[ed] from filing or attempting to file with the Maricopa County Recorder's Office any document regardless of what it may be called which requires any homeowner in Sunburst Farms East Three Four or Seven to have any form of membership in or to pay any amounts of money to [SFEM] regardless of what such amounts of money might be called." The 1985 Agreement further provided that in the event of a breach, the Mir Plaintiffs "or any of their successors in title" could enforce the $100,000 judgment, and that the agreement would bind "any successor in interest" to SFEM.
¶7 Pursuant to the 1985 Agreement and the stipulated judgment submitted by the parties, the court signed a judgment on May 9, 1985 ("1985 Judgment"). The 1985 Judgment stated:
IT IS ORDERED that the plaintiffs, William and Wanda Mir, Ronald and Evelyn Slaughter, and Paul and Sally Langan be and they are hereby awarded a judgment against the defendant [SFEM] in the amount of $100,000. Said judgment is awarded under the Second Claim for Relief pleaded in the Complaint and shall bear interest at the rate of 10% per annum from the date of entry.
¶8 In the years that followed, SFEM's successor-in-interest became Sunburst. The homeowners who were parties to the 1985 Agreement sold their properties to their successors-in-interest, the Halts, Mr. Lisi, and the Castros.
¶9 In 2003, Sunburst once again attempted to impose mandatory assessments on all homeowners by re-urging its enforcement of the Second Amended CC&Rs. Twenty-two homeowners, including the Halts, filed a lawsuit seeking to declare the Second Amended CC&Rs invalid. These homeowners ultimately entered into a settlement agreement with Sunburst ("the 2004 Agreement") whereby Sunburst agreed to record a notice acknowledging the invalidity of the Second Amended CC&Rs in return for the homeowners' agreement to give up their claims for damages and attorneys' fees, and to pay Sunburst for the actual costs incurred for bridle path maintenance not to exceed $40 per year.
The Halts did not file an action seeking to enforce the 1985 Judgment because Sunburst did not record the Second Amended CC&Rs and thus, technically did not breach the 1985 Agreement.
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¶10 In 2007, Sunburst recorded a new set of CC&Rs ("2007 CC&Rs") that purported to supersede "the prior litigations and settlements, including the 1985 Settlement Agreement and Covenant Not to Execute and the 2004 Settlement Agreement." The 2007 CC&Rs made the title of "Member" optional, but required minimum mandatory assessments for all of the homeowners in the subdivision for maintenance of the irrigation infrastructure and bridle paths.
¶11 This action prompted the Halts to file a lawsuit in January 2008 seeking a judgment that Sunburst had violated the 1985 Agreement and that, consequently, the Halts were entitled to enforce the 1985 Judgment against Sunburst for $100,000 plus interest at the rate of 10% per year from May 6, 1985 until paid (the "Halt" action).
¶12 In response to the lawsuit Sunburst filed an answer and counterclaim against the Halts arguing that the 1985 Agreement and resulting Judgment are invalid and seeking a declaratory judgment that the 2007 CC&Rs were valid. At the same time, Sunburst filed a separate lawsuit against nine other families in the subdivision seeking the same declaration that the 2007 CC&Rs were valid (the "Braden" action). The Braden defendants filed an answer, counterclaim, and third party complaint against Sunburst, alleging the filing of a false lien, breach of fiduciary duty and breach of contract against Sunburst and the Board of Sunburst Farms. The Halt and Braden cases were consolidated.
¶13 Subsequently, a group of approximately 20 homeowners led by Connie Koren (the "Interveners") sought and were permitted to intervene as defendants/counterclaimants in the Halt litigation. The Interveners asserted an interest in the court's determination of whether the 2007 CC&Rs are valid and enforceable and whether the Halt's can enforce the 1985 Judgment against Sunburst. In their answer and counterclaim, the Interveners sought a declaration that the 2007 CC&Rs are valid.
¶14 The consolidated litigation centered around two primary issues: (1) whether the Halts could execute on the 1985 Judgment against Sunburst, and (2) whether the 2007 CC&Rs were properly executed amendments to the Amended CC&Rs. The court bifurcated its consideration of these two issues, set the issues concerning execution of the 1985 Judgment for trial, and directed the parties to focus discovery solely on the issues related to the 1985 Judgment.
¶15 In its pretrial memorandum, Sunburst stated that one of the issues for trial was the enforceability of the 1985 Judgment and the 1985 Agreement. The Halts objected, stating that Sunburst had raised these issues in an untimely manner, and that Sunburst was attempting to collaterally attack the 1985 Judgment. The court ultimately determined that the only issue to be decided at trial was whether the 2004 Agreement waived the Halt's right to execute on the 1985 Judgment.
¶16 After the trial, in November 2008, the court entered a minute entry order granting judgment in favor of the Halts and against Sunburst. In making this ruling, the court adopted the Halts' proposed findings of fact and conclusions of law, which included the following: (1) the 1985 Agreement "sought to prevent the Association [Sunburst] from ever imposing mandatory membership or mandatory assessments upon the residents of the Sunburst Farms community again"; (2) the Halts did not waive their right to execute on the 1985 Judgment when they entered the 2004 Agreement; and (3) Sunburst's arguments concerning the validity of the 1985 Judgment constituted collateral attacks on the 1985 Judgment and would not be considered by the court.
¶17 In May 2009, the case was informally stayed and transferred to a special master to effect a settlement between the parties. The litigation remained stayed pending the report of the special master from approximately May 2009 until July 2010. During this time, in November 2009, the Interveners filed a motion for summary judgment asserting that the 1985 Judgment was void on its face. They argued that the 1985 Judgment and the 2004 Agreement conflicted with the CC&Rs and prevented any amendments. Sunburst joined in this motion.
¶18 After the special master filed his report, the court held a hearing in July 2010, and in a minute entry filed in August 2010, adopted some of the findings of the special master. Two of the "sections" of the special master's report that were adopted by the court were "sections" 21 and 26. Section 21 was a proposed finding by the special master that "[n]either the 1985 Judgment nor the [1985 Agreement] are void upon their face due to jurisdictional defect," while section 26 set forth a finding that neither the 1985 Agreement nor the 1985 Judgment prevented the CC&Rs from being amended; they merely make it expensive to do so.
¶19 Thus, by August 2010, based on the 2008 bench trial and the findings of the special master adopted by the court, the court had essentially determined, albeit in an indirect manner, that the 1985 Judgment was valid. As a necessary part of this determination, the court rejected the challenge raised by Sunburst and the Interveners that the 1985 Judgment was void because it was based on the illegal 1985 Agreement.
¶20 Thereafter, in November 2010, Sunburst filed a Rule 60(c) motion to vacate the 1985 Judgment based on the alleged unenforceability of the 1985 Agreement. The court denied Sunburst's motion, concluding it was untimely. The court entered final judgment for the Halts, awarding them the full 1985 Judgment amount of $100,000, including interest accruing at the rate of 10% per year since May 1985, plus attorneys' fees and costs amounting to $105,530.90. Additionally, Sunburst was sanctioned by the court for its "continuing resistance to the validity of the 1985 Judgment," which "unreasonably delayed these proceedings and was not supported by a good faith factual or legal basis." Sunburst and Intervener Koren ("Appellants") timely appealed.
Discussion
¶21 Appellants raise multiple points of error in challenging the court's judgment. However, the dispositive issue is whether the 1985 Agreement is valid and enforceable.
Enforceability of the 1985 Agreement
¶22 The interpretation of restrictive contracts is a question of law that we review de novo. Johnson v. Pointe Cmty. Ass'n, Inc., 205 Ariz. 485, 489-90, ¶ 23, 73 P.3d 616, 620-21 (App. 2003) (quoting Ariz. Biltmore Estates Ass'n v. Tezak, 177 Ariz. 447, 448, 868 P.2d 1030, 1031 (App. 1993)). "In Arizona, a recorded declaration that contains restrictive covenants common to all properties in a development forms a contract between 'the [development's] property owners as a whole and the individual lot owners.'" Id. Both the HOA and the homeowners are bound to comply with the terms of the CC&Rs, and either party is "entitled to judicial recourse to ensure such compliance." Johnson, 205 Ariz. at 490, ¶ 24, 73 P.3d at 621.
¶23 We enforce unambiguous provisions in a restrictive covenant according to their terms. Burke v. Voicestream Wireless Corp. II, 207 Ariz. 393, 398 ¶ 22, 87 P.3d 81, 86 (App. 2004). "Words in a restrictive covenant must be given their ordinary meaning." Id. at 396, ¶ 13, 87 P.3d at 84.
¶24 Amendments to CC&Rs that do not comply with the stated procedures of the CC&Rs are null and void. See Multari v. Gress, 214 Ariz. 557, 560, ¶ 19, 155 P.3d 1081, 1084 (App. 2007) (private deed restrictions invalid for failure to comply with prior declaration); Shamrock v. Wagon Wheel Park Homeowners Ass'n, 206 Ariz. 42, 46, ¶ 16, 75 P.3d 132, 136 (App. 2003) (noncompliance with CC&R amendment process meant modification never took effect). An amendment is an action "to alter, extend, or revoke existing restrictions." Riley v. Boyle, 6 Ariz. App. 523, 525, 434 P.2d 525, 527 (1967).
¶25 Further, we note that "[I]t is the duty of the court, whenever the facts which render [a] contract void are called to its attention, to declare the law, and no party may recover in an action where the right of recovery must rest in some manner upon [a] void contract." Nat'l Union Indem. Co. v. Bruce Bros., 44 Ariz. 454, 467-68, 38 P.2d 648, 654 (1934); see also United Dairymen of Ariz. v. Rawlings, 217 Ariz. 592, 597, 177 P.3d 334, 339 (App. 2008) (stating that a contract that is unenforceable "does not have the force of law"). Because the court cannot enforce an illegal contract, "the illegality of a contract may be raised for the first time on appeal by the court on its own initiative," or by the parties. Mitchell v. Am. Sav. & Loan Ass'n, 122 Ariz. 138, 139-40, 593 P.2d 692, 693-94 (App. 1979); see also Bank One, Arizona v. Rouse, 181 Ariz. 36, 39, 887 P.2d 566, 569 (App. 1994) ("[W]hen the illegality 'appears on the face of the contract . . .' the defense is preserved.").
¶26 Here, the 1985 Agreement is unenforceable because it impermissibly operates to restrict future amendments to Sunburst's CC&Rs that would create mandatory membership or water-use assessments. The Amended CC&Rs, which were in effect at the time the 2007 CC&Rs were passed, created the right and method to amend the CC&Rs; a majority vote by the subdivision homeowners. Duffy, 124 Ariz. at 416, 604 P.2d at 1127. Following this procedure, the homeowners passed the 2007 CC&Rs requiring mandatory water-use assessments. However, under the expansive language of the 1985 Agreement, Sunburst was prohibited from filing the 2007 CC&Rs because they would be considered "any document . . . which requires any homeowner to have any form of membership" in the Sunburst HOA, "or to pay any amounts of money to [Sunburst] . . . regardless of what such amounts might be called." In short, the 1985 Agreement abrogates the very procedure for amendment that is established under the Amended CC&Rs.
¶27 The 1985 Agreement cannot be viewed as a valid amendment to the CC&Rs, because the 1985 Agreement did not comport with the majority-vote requirement of the controlling Amended CC&Rs. The 1985 Agreement was signed by Sunburst's Board of Directors and the Mir Plaintiffs, not by a majority of the lot owners. As such, it cannot be given effect to amend the CC&Rs. See La Esperanza Townhome Ass'n v. Title Sec. Agency, 142 Ariz. 235, 239, 689 P.2d 178, 182 (App. 1984) ("Amendments which are not properly executed never become effective."); see also Wilson v. Playa de Serrano, 211 Ariz. 511, 513, ¶ 7, 123 P.3d 1148, 1150 (App. 2005) ("If the recorded declaration does not contain or at least provide for later adoption of a particular restriction or requirement, that restriction or requirement is invalid.").
¶28 The ultimate effect of the 1985 Agreement is to extend indefinitely the Amended CC&Rs' establishment of voluntary membership and preclude the imposition of any water-use assessments. The 1985 Agreement prohibits Sunburst from reinstating mandatory membership or water-use assessments even if such a change is approved by a majority of the lot owners of Sunburst subdivisions III, IV, or VII. Any such amendment, regardless of whether it was properly enacted according to the Amended CC&Rs, would subject Sunburst to liability under the 1985 Judgment. As such, the 1985 Agreement is an improperly executed amendment that "extends" the Amended CC&Rs. See La Experanza, 142 Ariz. at 239, 689 P.2d at 182; Riley, 6 Ariz. App. at 525, 434 P.2d at 527.
¶29 Accordingly, we conclude the 1985 Agreement is void and unenforceable.
Enforceability of the 1985 Judgment
¶30 Our determination that the 1985 Agreement is unenforceable does not automatically invalidate the 1985 Judgment. Despite Sunburst's arguments to the contrary, the 1985 Judgment is not "void on its face." A judgment is void on its face if the court entering it acted without jurisdiction: "(1) over the subject matter, (2) over the person involved, or (3) to render the particular judgment or order entered." Martin v. Martin, 182 Ariz. 11, 15, 893 P.2d 11, 15 (App. 1994). The court that entered the 1985 Judgment had subject matter jurisdiction; superior courts are courts of general jurisdiction and they have jurisdiction in all cases and proceedings in which jurisdiction is not vested exclusively in some other court. Ariz. Const. art. 6, § 14; Ariz. Corp. Comm'n v. Mountain States Tel. & Tel. Co., 71 Ariz. 404, 228 P.2d 749 (1951). The 1985 court had personal jurisdiction over the parties; the parties to the 1985 Judgment stipulated to the judgment. See Endischee v. Endischee, 141 Ariz. 77, 80, 685 P.2d 142, 145 (App. 1984). The court had jurisdiction to enter the 1985 Judgment given; following a declaratory judgment in favor of the Mir Plaintiffs, the 1985 Judgment awarded damages to the Mir Plaintiffs in the amount of $100,000 on the second claim for relief and dismissed the third claim for relief with prejudice.
¶31 Nonetheless, the trial court erred in relying on the invalid 1985 Agreement when entering the 1985 Judgment. Therefore, the 1985 Judgment was voidable. De Noyelles v. De Noyelles, 146 Ariz. 37, 39, 703 P.2d 584, 586 (App. 1985) (stating that a "voidable judgment" is a judgment issued by a court with jurisdiction but in error). The 1985 Judgment was entered and based on the 1985 Agreement. The parties stipulated to the 1985 Judgment as a condition of the 1985 Agreement. The stipulation filed with the court directed the court to enter judgment, stated the amount to be awarded, and referenced and attached the 1985 Agreement. As such, the 1985 Judgment is premised upon and embodies the 1985 Agreement, and therefore the validity of the 1985 Judgment is dependent upon the validity of the 1985 Agreement. See Lamb v. Arizona Country Club, 124 Ariz. 239, 240, n.2, 603 P.2d 510, 511, n.2 (App. 1979) (motion to vacate stipulated judgment necessarily required consideration of validity of underlying settlement agreement because stipulated judgment embodied the terms of the settlement agreement).
Collateral Attack
¶32 The Halts assert that even if the 1985 Judgment is erroneous and voidable, unlike a void judgment that can be vacated at any time, a voidable judgment can only be modified by timely direct appeal or proper and timely post-judgment motion. See State v. Bryant, 219 Ariz. 514, 518, ¶ 14, 200 P.3d 1011, 1015 (App. 2008). The Halts argue that Sunburst's Rule 60 motion was not a proper post-judgment motion; rather, it was an improper collateral attack on the 1985 Judgment.
¶33 The Halts are incorrect in characterizing Sunburst's Rule 60(c) motion as a collateral attack. A collateral attack upon a judgment consists of an effort (1) outside of Rule 60(c) (2) to obtain another judgment in a separate and independent action that will have the effect of modifying or destroying the effect of a prior judgment. Duncan v. Progressive Preferred Ins. Co, 228 Ariz. 3, 7, ¶ 13, 261 P.3d 778, 782 (App. 2011); see Roberson v. Teel, 20 Ariz. App. 439, 444, 513 P.2d 977, 982 (1973) (concluding that where appellant did not allege grounds for relief under Rule 60(c), the independent action attacking the judgment was a collateral attack); Cooper v. Commonwealth Title of Ariz., 15 Ariz. App. 560, 562, 489 P.2d 1262, 1264 (1971) (stating that a judgment is under collateral attack when the primary purpose of an action is obtaining independent relief, and vacating or setting aside the judgment is only incidental to that purpose). Here, Sunburst filed a Rule 60(c) motion directly seeking to vacate the 1985 Judgment.
Timeliness of 60(c) Motion
¶34 We review a trial court's denial of relief under Rule 60(c) for an abuse of discretion. City of Phx. v. Geyler, 144 Ariz. 323, 328, 697 P.2d 1073, 1078 (1985). In doing so, we examine "whether the trial court's denial of relief was grounded upon a determination of disputed questions of fact or credibility, a balancing of competing interests, pursuit of recognized judicial policy, or any other basis to which we should give deference." Id. at 329, 697 P.2d at 1079. Rule 60(c)(6) provides the court with broad equitable power; it "vests power in courts adequate to enable them to vacate judgments whenever such action is appropriate to accomplish justice." Webb v. Erickson, 134 Ariz. 182, 186, 655 P.2d 6, 10 (1982) ("[T]he purpose of clause 6 is to enable trial courts to grant equitable relief from default whenever the circumstances are extraordinary and justice requires."); see also Roll v. Janca, 22 Ariz. App. 335, 527 P.2d 294 (1974). However, we will not defer to a trial court's decisions that are based on incorrect legal conclusions. Gorman v. City of Phx., 152 Ariz. 179, 182, 731 P.2d 74, 77 (1987).
¶35 Considering the totality of the facts and circumstances of this case, the trial court abused its discretion in concluding Sunburst's Rule 60(c)(6) motion was untimely. See Amanti Elec., Inc. v. Eng'red Structures, Inc., 229 Ariz. 430, 276 P.3d 499 (App. 2012); Roll, 22 Ariz. App. at 337, 527 P.2d at 296. The record does not support the court's conclusion that Sunburst unjustifiably delayed in bringing the motion. Sunburst first challenged the validity of the 1985 Judgment by arguing that the 1985 Agreement was unenforceable in its answer, counterclaim and third-party complaint in 2008. When Sunburst listed the validity of the 1985 Judgment as an issue for trial in 2008, the court decided that the only issue to be addressed at the trial would be whether the Halts, by entering the 2004 Agreement, waived and therefore were estopped from enforcing the 1985 Judgment. Then, even though the issue was not listed as an issue for trial, the court, in wholesale fashion, adopted findings prepared by the Halts indicating the 1985 Judgment and 1985 Agreement were valid. Next, the court stayed the proceedings for over a year, transferring the case to a special master to finalize a settlement. Finally, in August 2010, the court adopted findings by the special master indicating that the 1985 Agreement and 1985 Judgment were valid.
¶36 After emerging from this confusing procedural maze, Sunburst filed its Rule 60(c) motion directly challenging the court's finding that the 1985 Judgment was valid. The trial court denied the motion, finding, without directly addressing the validity of the 1985 Agreement, that Sunburst did not justify its delay before moving for Rule 60(c)(6) relief. However, this finding was clearly made in the context of the court's continuing conclusion--based on its findings after the 2008 bench trial and its adoption of the special master's findings--that the 1985 Agreement was valid, and therefore the Halts were entitled to execute on the 1985 Judgment.
¶37 Based on the particular record before us, we conclude the court abused its discretion in denying Sunburst's motion as untimely. After Sunburst challenged the validity of the 1985 Judgment in its initial pleadings, the case was assigned to four different judges and mired in a confusing and complex procedural posture for almost two years. Moreover, because we find the 1985 Agreement, which was the basis of the 1985 Judgment, is an illegal agreement, the court's basis for its ruling--the 1985 Judgment was a valid Judgment--does not require our deference. See Geyler, 144 Ariz. at 329, 697 P.2d at 1079. We are also convinced that Sunburst is entitled to be relieved of the 1985 Judgment against it. See Gorman, 152 Ariz. at 182, 731 P.2d at 77 (stating that a reviewing court will act to correct legal error). We would be hard pressed to leave Sunburst subject to a quarter-century-old judgment that is based on an illegal settlement agreement. Thus, the long and complicated procedural history of this case taken together with the fact that the Settlement Agreement underlying the 1985 Judgment is unenforceable, constitute "extraordinary circumstances of hardship or injustice justifying relief" under Rule 60(c)(6). Hilgeman v. Am. Mortg. Sec, Inc., 196 Ariz. 215, 220, 994 P.2d 1030, 1035 (App. 2000).
The Trial Court's Award of Sanctions
¶38 Appellants contend that it was clear error for the trial court to sanction Sunburst by awarding $4,736 in attorneys' fees to the Halts. We review a sanction award for an abuse of discretion and "view the evidence in a manner most favorable to sustaining the award"; we will affirm absent clear error. Phx. Newspapers, Inc. v. Dep]t of Corrections, 188 Ariz. 237, 243, 934 P.2d 801, 807 (App. 1997). To sanction a party pursuant to A.R.S. § 12-349, there must be proof by a preponderance of the evidence of sanction-worthy conduct. Phx. Newspapers, 188 Ariz. at 243-44, 934 P.2d at 807-08.
¶39 We disagree with the trial court's characterization of Sunburst's challenge of the 1985 Agreement as "effectively another attack on the 1985 Judgment." The record does not support the court's finding that Sunburst acted without a good faith factual or legal basis. Accordingly, we reverse the court's award of sanctions.
Attorneys' Fees on Appeal
¶40 Both parties request an award of attorneys' fees on appeal pursuant to A.R.S. §§ 12-341.01 and -341. We decline to award fees to either party. We award Sunburst its taxable costs on appeal upon compliance with Arizona Rule of Civil Appellate Procedure 21.
Conclusion
¶41 Having determined that the 1985 Agreement was invalid and the 1985 Judgment unenforceable, we conclude that the Halts are not entitled to enforce the 1985 Judgment against Sunburst. For these reasons, we reverse the court's denial of Sunburst's Rule 60 motion and vacate the entry of judgment for the Halts against Sunburst in the amount of $100,000 and the court's award of sanctions in the amount of $4,736 in attorneys' fees. We also vacate the court's award of attorneys' fees in the amount of $103,544.50 and costs in the amount of $1,985.90. Further, we remand this case to the trial court to vacate the 1985 Judgment.