Opinion
No. 1 CA-CV 13-0085
03-31-2015
LINDA S. MASARYK, Appellant, v. MENDELSOHN CONSTRUCTION, LLC, a limited liability company, Appellee.
COUNSEL Bluff & Associates, Phoenix By Guy W. Bluff, Bruce A. Smidt Counsel for Appellant Mathew & Associates, Phoenix By Ivan K. Mathew Counsel for Appellee
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV2009-020422
The Honorable J. Richard Gama, Judge
AFFIRMED IN PART; REVERSED IN PART
COUNSEL Bluff & Associates, Phoenix
By Guy W. Bluff, Bruce A. Smidt
Counsel for Appellant
Mathew & Associates, Phoenix
By Ivan K. Mathew
Counsel for Appellee
MEMORANDUM DECISION
Judge Randall M. Howe delivered the decision of the Court, in which Presiding Judge Margaret H. Downie and Judge Patricia K. Norris joined. HOWE, Judge:
¶1 Linda S. Masaryk appeals from the final judgment entered in favor of Mendelsohn Construction, LLC. The superior court found that Mendelsohn was entitled to payment for unpaid invoices submitted to Masaryk pursuant to Arizona's Prompt Pay Act, Arizona Revised Statute ("A.R.S.") section 32-1129.01 (2015), and awarded Mendelsohn attorneys' fees and costs. The superior court also found that the economic loss doctrine barred Masaryk's common law indemnity claim. For the following reasons, we affirm in part and reverse in part.
We cite the current version of a statute that has not been materially amended since the relevant date.
FACTS AND PROCEDURAL HISTORY
¶2 In 2006, Masaryk hired Mendelsohn Construction to build a custom house. The parties' contract required Mendelsohn to submit monthly applications for payment to Masaryk's representative—her architect—who would then issue a "Certificate for Payment" before Masaryk made payment. The pay applications were to include payrolls, petty cash accounts, receipted invoices, and any requested evidence of cash disbursements. The contract required that Mendelsohn be paid ten days after the architect received the application for payment. If Masaryk disputed Mendelsohn's final accounting of the work performed, however, Mendelsohn was "entitled to demand arbitration of the disputed amount." Moreover, if the owner terminated the contract for cause, the contractor "shall not be entitled to receive further payment until the [w]ork is finished."
¶3 On October 6, 2008, Mendelsohn sent Masaryk's architect a pay application for $306,661.64 ("Pay Application 17"). The architect approved Pay Application 17 the next day, noting that the application was "[v]alid providing [Mendelsohn] provides complete time sheets for labor cost request." Masaryk then "crossed out" $83,831.63 in labor, overhead, profit, and sales tax from the invoice, and paid Mendelsohn $222,830.81 for Pay Application 17.
¶4 Complaining of defective workmanship, Masaryk terminated her contract with Mendelsohn on October 8, 2008. In November 2008, Mendelsohn sent Masaryk's architect a second pay application for $193,675.76 ("Pay Application 18"). The next day, Mendelsohn amended Pay Application 18—and resubmitted it to the architect—to include the $83,831.63 of unpaid invoices from Pay Application 17, totaling $277,507.39. The architect did not approve and certify Pay Application 18, and Masaryk did not pay it.
¶5 Because one of Mendelsohn's subcontractors did not receive payment for its work, it sued Masaryk and Mendelsohn for unjust enrichment and foreclosure on its lien on the property; the subcontractor also sued Mendelsohn for breach of contract. As defendants named in the subcontractor's complaint, Masaryk and Mendelsohn filed cross-claims against each other. Pertinent here, Masaryk's cross-claim against Mendelsohn alleged breach of contract and "common law indemnity for all sums paid to [the subcontractor] . . . ." Mendelsohn's cross-claim against Masaryk alleged breach of contract and violation of Arizona's Prompt Pay Act. The parties ultimately moved—and cross-moved—for summary judgment on all claims.
¶6 Over one year after filing her cross-claim, Masaryk moved to amend her complaint to add claims for fraud, breach of fiduciary duty, express indemnity, negligent misrepresentation, theft, and punitive damages. The superior court denied the motion, finding that pursuant to the construction contract, the new causes of action were subject to arbitration and thus "operate[d] as a bar to bringing these actions in this court." The superior court also found that Masaryk's "delay in seeking an amendment to the counterclaim [wa]s prejudicial."
¶7 In an interrogatory dated July 22, 2011, Mendelsohn asked Masaryk to identify the factual basis for her indemnity claim. Masaryk responded that she was "entitled to indemnification pursuant to A.R.S. § 33-995 for any monies paid to [the subcontractor], in addition to fees and costs incurred in defending the action."
¶8 The superior court granted Mendelsohn summary judgment on its Prompt Pay claim, awarding it $277,507.39 in principal, $200,626.44 in prejudgment interest, $6,968.85 in taxable costs, $27,009.71 in non-taxable costs, and $146,832.97 in attorneys' fees. The superior court also granted Mendelsohn's motion for summary judgment against Masaryk's indemnity claim, finding that the economic loss doctrine barred it. The superior court entered these findings as final pursuant to Arizona Rule of Civil Procedure ("Rule") 54(b).
DISCUSSION
¶9 Masaryk raises several arguments on appeal. We address each in turn.
I. Jurisdiction
¶10 Masaryk first argues that we lack jurisdiction because the superior court improperly certified Mendelsohn's Prompt Pay claim as a final judgment under Rule 54(b). Masaryk contends that the superior court's order did not resolve a separate claim because the Prompt Pay claim "could not exist absent the written construction contract between Masaryk and Mendelsohn" and is therefore ineligible for certification as a final judgment until the remaining breach of contract claim has been resolved. "[T]he determination of whether multiple claims exists lies within the sound discretion of the [superior] court." Cont'l Cas. v. Superior Court, 130 Ariz. 189, 191, 635 P.2d 174, 176 (1981).
Several Arizona appellate decisions have stated that we review de novo a trial court's determination that a judgment fully disposes of a separate claim. See Kim v. Mansoori, 214 Ariz. 457, 459 ¶ 6, 153 P.3d 1086, 1088 (App. 2007); Davis v. Cessna Aircraft Corp., 168 Ariz. 301, 304, 812 P.2d 1119, 1122 (App. 1991); Lloyd v. State Farm Mut. Auto. Ins. Co., 189 Ariz. 369, 373, 943 P.2d 729, 733 (App. 1996). This recitation of the standard of review is inconsistent with our supreme court's statement in Continental Casualty.
¶11 Appellate court jurisdiction is generally "limited to final judgments which dispose of all claims and all parties." Musa v. Adrian, 130 Ariz. 311, 312, 636 P.2d 89, 90 (1981); see also A.R.S. § 12-2101(B). Rule 54(b) provides an exception when the superior court "direct[s] the entry of final judgment as to one or more but fewer than all of the claims or parties . . . upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment." Entry of final judgment under Rule 54(b) must dispose of a separate claim; otherwise, the judgment is not final and cannot be made appealable simply by the inclusion of Rule 54(b) language. Davis, 168 Ariz. at 305, 812 P.2d at 1123. A claim is "separate and distinct" from others if "no appellate court would have to decide the same issues more than once even if there are subsequent appeals." Cont'l Cas., 130 Ariz. at 191, 635 P.2d at 176.
¶12 The superior court acted within its discretion by entering final judgment on Mendelsohn's Prompt Pay claim. The Prompt Pay claim is "separate and distinct" from Masaryk's breach of contract claim because the claims involve different issues: a successful Prompt Pay claim requires a contractor to prove that an owner failed to make timely payments for approved invoices, A.R.S. § 32-1129.01(A), whereas "[t]o bring an action for the breach of the contract, the plaintiff has the burden of proving the existence of the contract, its breach and the resulting damages," Thomas v. Montelucia Villas, LLC, 232 Ariz. 92, 96 ¶ 16, 302 P.3d 617, 621 (2013). Thus, even if one of the parties subsequently appeals from the disposition of any remaining claims, no appellate court would have to again resolve Mendelsohn's Prompt Pay claim. Because the Prompt Pay claim constituted a separate claim, we have subject matter jurisdiction.
II. Summary Judgment on Mendelsohn's Prompt Pay Claim
¶13 Masaryk next argues that the superior court improperly granted summary judgment in favor of Mendelsohn's Prompt Pay claim. Summary judgment may be granted when no genuine issue as to any material fact exists, and the moving party is entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(c)(1). We review a summary judgment order de novo. Cannon v. Hirsch Law Office, P.C., 222 Ariz. 171, 174 ¶ 7, 213 P.3d 320, 323 (App. 2009). We interpret statutes to give effect to the legislature's intent, looking first to the statutory language itself. Baker v. Univ. Physicians Healthcare, 231 Ariz. 379, 383 ¶ 8, 296 P.3d 42, 46 (2013). When the language is clear and unambiguous, and thus subject to only one reasonable meaning, we apply the language without using other means of statutory construction. State v. Gomez, 212 Ariz. 55, 57 ¶ 11, 127 P.3d 873, 875 (2006). If, however, the language is ambiguous, "'we consider the statute's context; its . . . subject matter, and historical background; its effects and consequences; and its spirit and purpose.'" Id. (quoting Hayes v. Cont'l Ins. Co., 178 Ariz. 264, 268, 872 P.2d 668, 672 (1994)). We attempt to give effect to all provisions of a statute and harmonize those provisions. Sw. Gas Corp. v. Indus. Comm'n, 200 Ariz. 292, 297 ¶ 16, 25 P.3d 1164, 1169 (App. 2001).
¶14 The Prompt Pay Act requires an owner to make progress payments to a contractor "on the basis of a duly certified and approved billing or estimate of the work performed and the materials supplied during the preceding thirty day billing cycle." A.R.S. § 32-1129.01(A). Those payments are to be made within seven days after the date the billing or estimate is certified and approved. Id. "A billing or estimate shall be deemed approved and certified fourteen days after the owner receives the billing or estimate, unless before that time the owner or the owner's agent prepares and issues a written statement detailing those items in the billing or estimate that are not approved and certified." A.R.S. § 32-1129.01(D). "An owner may decline to approve and certify a billing or estimate or portion of a billing or estimate for unsatisfactory job progress, defective construction work or materials not remedied, disputed work or materials, [or] failure to comply with other material provisions of the construction contract . . . ." Id. "Payment shall not be required pursuant to [the Prompt Pay Act] unless the contractor provides the owner with a billing or estimate for the work performed or the material supplied in accordance with the terms of the construction contract between the parties." A.R.S. § 32-1129(O). Finally, "[a] construction contract shall not alter the rights of any contractor, subcontractor, or material supplier to receive prompt and timely payments [under the Prompt Pay Act]." A.R.S. § 32-1129(P).
¶15 Masaryk argues that she was not required to pay Mendelsohn for Pay Application 18 because she terminated the construction contract for cause. Masaryk relies on a provision of the parties' construction contract stating that "the [c]ontractor shall not be entitled to receive further payment until the [w]ork is finished." Mendelsohn, however, contends that the "Prompt Pay Act trumps contract provisions."
¶16 Here, Masaryk cannot invoke that provision of the construction contract to withhold payment on Pay Application 18. Pursuant to A.R.S. § 32-1129(P), a construction contract cannot alter a contractor's right to receive prompt and timely payments under the Prompt Pay Act. This result comports with the Prompt Pay Act's purpose of "ensuring timely payments from the owner to the contractor and down the line to subcontractors and supplies whose work has been approved." Stonecreek Bldg. Co., Inc. v. Shure, 216 Ariz. 36, 39 ¶ 16, 162 P.3d 675, 678 (App. 2007).
¶17 Relying on A.R.S. § 32-1129(O) , Masaryk also contends that she was not required to pay Mendelsohn because Pay Application 18 failed to comply with the parties' contract. But to decline payment of a submitted pay application, an owner must "prepare[] and issue[] a written statement detailing those items in the billing . . . that are not approved or certified" within fourteen days of receiving the billing or estimate. A.R.S. § 32-1129.01(D). Masaryk's argument thus fails because she failed to object in writing to Pay Application 18. If an owner can simply not pay a contractor because the invoices do not comply with the terms of the construction contract, the fourteen day time limit in A.R.S. § 32-1129(D) becomes ineffective. Ruiz v. Hull, 191 Ariz. 441, 450 ¶ 35, 957 P.2d 984, 993 (1998) (stating that when construing a statute, "we must read the statue as a whole and give meaningful operation to each of its provisions."). We therefore reject Masaryk's assertion that Subsection (O) "serves no function" if owners are required to provide written objections to pay applications that do not comply with the terms of the parties' contract. Rather, Subsection (O) prescribes a basis by which an owner can object to a contractor's pay application; it does not exempt the owner from submitting a written objection under Subsection (D).
¶18 Masaryk further contends that even if she was required to object, that she did so. She claims that her architect's notation that Pay Application 17 was "[v]alid providing [that Mendelsohn] provides complete time sheets for labor cost request" constitutes a timely written objection to Pay Application 18. It does not. Even assuming that the Architect's notation on Application 17 somehow applies to Pay Application 18, Subsection (D) required Masaryk or her architect to issue "a written statement detailing those items in the billing . . . that are not approved or certified." Here, however, Masaryk's architect clearly, albeit conditionally, approved Pay Application 17, requiring only that Mendelsohn submit labor time sheets. The record is devoid of any evidence that Mendelsohn did not submit the requested time sheets. We therefore find that the architect's notation did not constitute a proper written objection to Pay Application 17, much less Pay Application 18.
Because we find that Masaryk never made a proper written objection to Pay Application 18, we do not consider her argument that "there was no evidence as to when the time for objecting began to run."
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¶19 Masaryk finally argues that she was not required to object to Pay Application 18 because it was submitted after termination of the construction contract. We reject this argument because the critical issue is not whether Mendelsohn submitted the application after the contract had terminated, but whether the work contained in Pay Application 18 was performed before the contract terminated. See A.R.S. § 32-1129.01(A) ("Progress payments shall be made on the basis of a duly certified and approved billing or estimate of the work performed and the materials supplied" during the appropriate billing cycle.) Masaryk presents no evidence that the work related to the invoices attached to Pay Application 18 occurred after the termination of the contract. To the contrary, as the superior court found, "[t]here is no dispute that [Mendelsohn] performed the work outlined in the invoices [from Pay Application 18]." Masaryk's remedy for alleged unsatisfactory workmanship was to submit a written objection pursuant Subsection (D). She was not permitted, however, to withhold payment for already-performed work without following that statutory scheme. Requiring Masaryk to approve or disapprove particular work and pay promptly does not deprive her of a remedy for alleged latent defects. Stonecreek Bldg., 216 Ariz. at 40 ¶ 18, 162 P.3d at 679. Rather, Masaryk may still pursue redress through the remaining breach of contract claim against Mendelsohn. Id. Accordingly, we affirm the superior court's entry of summary judgment in favor of Mendelsohn's Prompt Pay claim.
III. Summary Judgment against Masaryk's Indemnity Claim
¶20 Masaryk argues that the superior court erred in granting Mendelsohn's motion for summary judgment against Masaryk's common law indemnity claim because the economic loss doctrine does not bar such a claim. The economic loss doctrine prohibits certain tort actions seeking "pecuniary damage[s] not arising from injury to the plaintiff's person or from physical harm to property." Sullivan v. Pulte Home Corp., 232 Ariz. 344, 345 ¶ 8, 306 P.3d 1, 2 (2013). Common law indemnity, however, is not a tort claim, but an equitable claim based on an obligation of "one party to make good a loss or damage another party has incurred." Evans Withycombe, Inc. v. Western Innovations, Inc., 215 Ariz. 237, 241 ¶ 18, 159 P.3d 547, 551 (App. 2006). The economic loss doctrine thus does not apply to common law indemnity claims, and the superior court erred in granting summary judgment on that basis.
IV. Award of Attorneys' Fees and Costs Against Masaryk
¶21 Masaryk next argues that the superior court erred in awarding Mendelsohn attorneys' fees for its Prompt Pay claim because the superior court should have awaited the resolution of the parties' remaining claims. We review the superior court's award of attorneys' fees for an abuse of discretion. Orfaly v. Tucson Symphony Soc'y, 209 Ariz. 260 ¶ 18, 99 P.3d 1030, 1035 (App. 2004). We review questions of law, including the superior court's authority to award attorneys' fees and contract interpretation, de novo. Geller v. Lesk, 230 Ariz. 624 ¶ 8, 285 P.3d 972, 975 (App. 2012).
¶22 The successful party to a Prompt Pay claim is entitled to costs and reasonable attorneys' fees. A.R.S § 32-1129.01(S) ("In any action or arbitration brought to collect payments or interests pursuant to this section, the successful party shall be awarded costs and attorney fees in a reasonable amount.").
¶23 Here, Mendelsohn was the successful party in its Prompt Pay claim. Accordingly, the superior court properly awarded Mendelsohn reasonable attorneys' fees pursuant to A.R.S § 32-1129.01(S). We find no merit in Masaryk's argument that "the term 'successful party' . . . relat[es] to the action in general—not the prompt payment claim itself." Section 32-1129.01(S) clearly states that successful parties pursuant to "this section"—meaning the Prompt Pay Act—are awarded attorneys' fees. We therefore affirm the superior court's award of attorneys' fees.
V. Masaryk's Motion for Leave to Amend Complaint
¶24 Masaryk finally argues that the superior court abused its discretion by denying her request for leave to amend her cross-claim against Mendelsohn. We review the denial of a motion to leave to amend for an abuse of discretion. ELM Retirement Center, LP v. Callaway, 226 Ariz. 287, 292 ¶ 25, 246 P.3d 938, 943 (App. 2010).
¶25 Although leave to amend should be freely granted when justice requires, it is not automatic. Ariz. R. Civ. P. 15(a)(1); In re Estate of Torstenson, 125 Ariz. 373, 376, 609 P.2d 1073, 1076 (App. 1980). A court does not abuse its discretion in denying a motion to amend when a plaintiff's request is unduly delayed or when the amendment would be futile. Bishop v. State Dep't of Corrections, 172 Ariz. 472, 474-75, 837 P.2d 1207, 1209-10 (App. 1992). Here, by waiting over one year after the filing of her cross-claim to amend her complaint, Masaryk unduly delayed her request for leave to amend. Moreover, the amendment would have been futile because the additional claims were barred by the arbitration clause in the parties' construction contract. Thus, the superior court did not abuse its discretion in denying the request to amend.
VI. Attorneys' Fees and Costs on Appeal
¶26 Masaryk requests attorneys' fees and costs on appeal pursuant to A.R.S. § 12-341. Because Masaryk is not the prevailing party on appeal, we decline to award her attorneys' fees. Although Mendelsohn failed to cite the proper statutory provision in its request for attorneys' fees on appeal, the Prompt Pay Act imposes mandatory fees. A.R.S. § 32-1129.01(S). Therefore, we grant Mendelsohn's request for attorneys' fees and costs for pursuing prompt payment upon compliance with ARCAP 21.
CONCLUSION
¶27 For the foregoing reasons, we affirm the superior court's grant of summary judgment on Mendelsohn's prompt pay claim and award of attorneys' fees and costs. We also affirm the superior court's denial of Masaryk's request to amend her complaint. We reverse, however, the superior court's grant of summary judgment on Masaryk's common law indemnity claim.