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Oak Creek Util. Corp. v. Oak Creek Holdings

ARIZONA COURT OF APPEALS DIVISION ONE
Jun 30, 2020
No. 1 CA-CV 19-0614 (Ariz. Ct. App. Jun. 30, 2020)

Opinion

No. 1 CA-CV 19-0614

06-30-2020

OAK CREEK UTILITY CORPORATION, Plaintiff/Appellant, v. OAK CREEK HOLDINGS LLC, an Arizona limited liability company; COMMNET FOUR CORNERS, LLC, a Delaware limited liability Company, Defendants/Appellees.

COUNSEL Gordon & Gordon, PLLC, Cottonwood By Michael J. Gordon Counsel for Plaintiff/Appellant Fennemore Craig, P.C., Phoenix By Timothy J. Berg, Emily Ward Co-Counsel for Defendants/Appellees Aspey Watkins & Diesel, PLLC, Flagstaff By Whitney Cunningham, Jason Bliss Co-Counsel for Defendants/Appellees


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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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 Coconino County
No. S0300CV201700497
The Honorable Cathleen Brown Nichols, Judge

VACATED AND REMANDED

COUNSEL Gordon & Gordon, PLLC, Cottonwood
By Michael J. Gordon
Counsel for Plaintiff/Appellant Fennemore Craig, P.C., Phoenix
By Timothy J. Berg, Emily Ward
Co-Counsel for Defendants/Appellees Aspey Watkins & Diesel, PLLC, Flagstaff
By Whitney Cunningham, Jason Bliss
Co-Counsel for Defendants/Appellees

MEMORANDUM DECISION

Judge David B. Gass delivered the decision of the Court, in which Presiding Judge Lawrence F. Winthrop and Judge Maria Elena Cruz joined. GASS, Judge:

¶1 Oak Creek Utility Corporation (the water company) challenges the superior court's grant of judgment on the pleadings on its declaratory relief complaint seeking to void past leases with Oak Creek Holdings LLC (Holdings) and a lease between Holdings and Commnet Four Corners, LLC. For the following reasons, this court vacates the entry of judgment on the pleadings and remands with instructions to the superior court to dismiss the amended complaint without prejudice.

FACTUAL AND PROCEDURAL HISTORY

¶2 This court states the relevant fact allegations from the water company's amended complaint and assumes them to be true for purposes of this appeal. See Muscat by Berman v. Creative Innervisions LLC, 244 Ariz. 194, 197, ¶ 7 (App. 2017).

¶3 The water company is a public service corporation providing water service to the Twin Springs subdivision in Coconino County. It owns and operates a well and 2,000-gallon storage tank on land it leases from Holdings. The water company also owns an adjacent, undeveloped 617-square foot parcel that, as explained below, once was part of the same parcel as the leased land.

¶4 The water company purchased the well, the storage tank, and both properties at issue in 1985 with Arizona Corporation Commission approval. The water company's principal shareholders at the time were Scott and Alison Gray. Shortly after purchasing these assets, the Grays split the land into the two current parcels and obtained Commission approval to hold the parcels in their own names. In January 1986, the Grays leased both parcels to the water company.

¶5 The Grays and the water company executed a renewed lease in 1995. Unlike the 1986 lease, the 1995 lease only covered a small fenced area the water company used at the time. Scott Gray signed the 1995 lease both individually and as president of the water company.

¶6 Sometime after executing the 1995 lease, the Grays sold the water company shares to a third party. In 2003, the Grays executed a renewed lease with the water company covering the same small fenced area as the 1995 lease. Near the end of 2003, the Grays assigned their interest in the 2003 lease to Holdings, of which they are the principal owners.

¶7 In 2016, the Arizona Department of Environmental Quality ordered the water company to expand its water storage capacity to 10,000 gallons. The water company also received "additional orders . . . [o]ver the past thirty years" requiring "significant improvements." The area covered under the 2003 lease is too small for these improvements, although sufficient space would be available on the larger parcel. Since the 2003 lease, Holdings has executed leases with Commnet and two other telecommunication companies to place cell towers on the larger parcel.

¶8 The water company did not seek relief from the Commission. Instead, in June 2018, the water company filed its first amended complaint, seeking declaratory relief against Holdings, Commnet, and the other telecommunication companies. The water company alleged the 1995 and 2003 leases were void under A.R.S. § 40-285.A because they were not approved by the Commission.

The water company's claims against the other two companies are not at issue in this appeal. --------

¶9 The superior court granted judgment on the pleadings for Holdings and Commnet. The superior court found the water company "had notice of the purported concerns from State regulators for the past 30 years." It then ruled the claims against Holdings and Commnet were untimely "based on any conceivable, applicable Statute of Limitations." The superior court then entered final judgment awarding Holdings $47,454.75 in attorney fees and $240.84 in costs. It also awarded Commnet $10,843.00 in attorney fees and $247.98 in costs.

¶10 The water company timely appealed. This court has jurisdiction under Article 6, Section 9, of the Arizona Constitution, and A.R.S. § 12-2101.A.1.

ANALYSIS

¶11 Though the parties did not raise the issue, this court must first consider whether the water company initiated this action in the proper forum. It did not.

¶12 Under the primary jurisdiction doctrine, this court determines whether the superior court or an agency—here, the Commission—should make the initial decision in a case. See Sw. Soil Remediation, Inc. v. City of Tucson, 201 Ariz. 438, 442, ¶ 13 (App. 2001). The doctrine is intended to guide courts in deciding whether to allow the agency to first determine some question arising in the court proceeding before exercising its jurisdiction. Id. This court generally applies the doctrine "when an initial decision by the judiciary could interfere with the effective operation of" the agency at issue. See Coconino Cty v. Antco, Inc., 214 Ariz. 82, 87, ¶ 16 (App. 2006).

¶13 The water company contends the 1995 and 2003 leases are void because it did not obtain Commission approval before executing them:

A public service corporation shall not sell, lease, assign, mortgage or otherwise dispose of or encumber the whole or any part of its railroad, line, plant or system necessary or useful in the performance of its duties to the public . . . without first having secured from the [C]ommission an order authorizing it so to do. Every such disposition, encumbrance or merger made other than in accordance with the order of the commission authorizing it is void.
A.R.S. § 40-285.A. The statute does not, however, "prevent the sale, lease or other disposition by any such corporation of property that is not necessary or useful in the performance of its duties to the public." See A.R.S. § 40-285.C.

¶14 The Commission is authorized to hear a "[c]omplaint . . . made . . . by any person or association of persons . . . setting forth any act or thing done or omitted to be done by any public service corporation in violation, or claimed to be in violation, of any provision of law." A.R.S. § 40-246.A. In Babe Invs. v. Ariz. Corp. Comm'n, Santa Fe Railway removed a switch and section of railroad track. See 189 Ariz. 147, 149 (App. 1997). About one year later, two adjacent landowners initiated an administrative hearing, contending Santa Fe failed to seek Commission approval before disposing of the track. Id. at 149-50. The Commission denied relief and dismissed the matter after finding the undisputed evidence showed the track had not been used for more than two years before Santa Fe removed it. Id. at 152.

¶15 On appeal from the Commission's order, the superior court vacated, concluding Santa Fe should have filed an application for abandonment with the Commission before disposing of the track. Id. at 150. This court reinstated the Commission's order, concluding the Commission was authorized to, and did, resolve whether Santa Fe violated subsection 40-285.A:

Here, Santa Fe determined that the siding was not necessary or useful to its operations, and the statute therefore did not require it to secure permission before removing it. But, because [the adjacent landowners] were interested parties who alleged that the disposition was of property that was necessary or useful, the Commission retained the power to review Santa Fe's decision.
Id. at 151 (internal citations omitted; emphasis added).

¶16 This court is not aware of any caselaw contrary to Babe Investments suggesting parties may initiate a subsection 40-285.A challenge in superior court. And the main question raised in this dispute—whether the lease rights the water company relinquished were "necessary or useful in the performance of its duties to the public"—is plainly within the Commission's expertise. See A.R.S. § 40-285.A; see also Original Apartment Movers, Inc. v. Waddell, 179 Ariz. 419, 421 (App. 1993) ("the statutorily defined purposes and powers of the administrative agency are relevant indicators of the agency's particular skill and expertise in the specific area."). This court, therefore, concludes the Commission has primary jurisdiction over the water company's challenge. See Sw. Soil Remediation, Inc., 201 Ariz. at 442, ¶ 13.

ATTORNEY FEES

¶17 Holdings and Commnet requested attorney fees under ARCAP 21(a) and A.R.S. § 12-341.01. Because they did not prevail, this court denies their request.

CONCLUSION

¶18 This court vacates the superior court's entry of judgment on the pleadings and the associated awards of attorney fees and costs. The judgment is remanded with instructions to dismiss the amended complaint without prejudice to allow the water company to initiate proceedings before the Commission. This court expresses no opinion on the merits of the water company's challenge.


Summaries of

Oak Creek Util. Corp. v. Oak Creek Holdings

ARIZONA COURT OF APPEALS DIVISION ONE
Jun 30, 2020
No. 1 CA-CV 19-0614 (Ariz. Ct. App. Jun. 30, 2020)
Case details for

Oak Creek Util. Corp. v. Oak Creek Holdings

Case Details

Full title:OAK CREEK UTILITY CORPORATION, Plaintiff/Appellant, v. OAK CREEK HOLDINGS…

Court:ARIZONA COURT OF APPEALS DIVISION ONE

Date published: Jun 30, 2020

Citations

No. 1 CA-CV 19-0614 (Ariz. Ct. App. Jun. 30, 2020)