Opinion
2 CA-CV 2022-0003
01-25-2023
Michael Smith and Sandi Smith, husband and wife, Plaintiffs/Appellants, v. NGM Insurance Company, a foreign corporation, Defendant/Appellee.
Michael W. Smith and Sandi K. Smith, Houston, Texas In Propria Personae Barrett & Matura P.C., Scottsdale By Kevin C. Barrett and Melissa J. England Counsel for Defendant/Appellee
NOT FOR PUBLICATION See Ariz. R. Sup. Ct. 111(c)(1); Ariz. R. Civ. App. P. 28(a)(1), (f).
Appeal from the Superior Court in Pima County No. C20195327 The Honorable Gary J. Cohen, Judge.
COUNSEL
Michael W. Smith and Sandi K. Smith, Houston, Texas In Propria Personae
Barrett & Matura P.C., Scottsdale By Kevin C. Barrett and Melissa J. England Counsel for Defendant/Appellee
Vice Chief Judge Staring authored the decision of the Court, in which Presiding Judge Eppich and Judge Brearcliffe concurred.
MEMORANDUM DECISION
STARING, Vice Chief Judge:
¶1 Michael and Sandi Smith appeal from the trial court's grant of NGM Insurance's motion for judgment on the pleadings, denial of the Smiths' motion for sanctions against NGM, and award of attorney fees to NGM. For the following reasons, we affirm.
Factual and Procedural Background
¶2 The history underlying this litigation has been well summarized in three recent memorandum decisions from this court, Smith v. D.C. Concrete Co., No. 2 CA-CV 2021-0093 (Ariz. App. Jan. 28, 2022) (mem. decision), Smith v. Rai &Barone, P.C., No. 2 CA-CV 2021-0110 (Ariz. App. Apr. 18, 2022) (mem. decision), and Smith v. D.C. Concrete Co., No. 2 CA-CV 2021-0135 (Ariz. App. May 17, 2022) (mem. decision). We reiterate here the facts relevant to the instant appeal.
¶3 In 2013, SK Builders, Inc., a residential general contractor, sued the Smiths after they had failed to make payments under a contract for construction of a home. The Smiths counterclaimed and brought a third-party complaint against subcontractor D.C. Concrete and business owners David Alan Connor, Gregory John Connor, and their spouses (collectively, "D.C.") for breach of contract and fraudulent misrepresentation. The Smiths also filed a third-party complaint against another subcontractor for professional negligence, but the parties eventually settled. In 2017, the trial court granted summary judgment in favor of D.C. on the Smiths' claims. The court awarded D.C. attorney fees, costs, and sanctions.
¶4 The Smiths opposed D.C.'s application for attorney fees and costs, claiming D.C. had:
(a) failed to disclose an amended reservation of rights letter showing that its insurer, NGM Insurance Company . . ., would provide a defense for the Smiths' claims against [D.C.]; (b)
failed to disclose any fee agreement between itself and [Rai &Barone P.C. ("RBPC")], or between NGM and [RBPC]; (c) never actually paid [RBPC], who had been paid by NGM; (d) redacted the attorney billing entries submitted to the trial court; and (e) requested recovery of fees and costs incurred in RBPC's defense of a different (ultimately settled) claim against a different defendant. Smith, No. 2 CA-CV 2021-0110, ¶ 4. Over these objections, the trial court awarded D.C. $259,092.70 in attorney fees, $5,299.34 in costs, and $30,564.94 in sanctions. The Smiths appealed that award, arguing the court had erred in concluding the breach of contract and fraudulent misrepresentation claims were "irreconcilably intertwined," such that fees were proper for both. SK Builders, Inc. v. Smith, 246 Ariz. 196, ¶¶ 8, 29 (App. 2019), review denied (Ariz. Sept. 24, 2019). We affirmed. Id. ¶ 30.
Rai & Barone P.C., now known as Rai Duer P.C., is the law firm that has represented D.C. throughout these proceedings.
¶5 In October 2019, the Smiths brought the action underlying this appeal against NGM and D.C. for fraud, fraud on the court, and tort of another. They requested punitive damages, attorney fees, and costs and sought to set aside the judgment in the 2013 case. As grounds, they raised the same allegations unsuccessfully raised in the initial case, specifically: (a) there had been no supplemental disclosure to show that NGM would pay D.C.'s defense costs; (b) no fee arrangements had been disclosed; (c) NGM, not D.C., had paid RBPC's bills; (d) billing statements had been redacted; and (e) RBPC had "falsely represented" to both the trial court and this court that the fees and costs it sought in the 2013 case had all been incurred defending D.C. against the Smiths' causes of action for breach of contract and fraudulent misrepresentation. Smith, No. 2 CA-CV 2021-0110, ¶ 7; Smith, No. 2 CA-CV 2021-0135, ¶ 6.
The 2019 case was initially consolidated with the 2013 case. However, we subsequently granted the Smiths special-action relief and vacated the order to consolidate the cases because the issuing judge had not been permitted to proceed with consolidation after the Smiths filed a motion for change of judge. Smith v. Metcalf, No. 2 CA-SA 2020-0014, ¶¶ 2, 4 (Ariz. App. Apr. 16, 2020) (decision order). The 2013 and 2019 cases remain separate matters.
¶6 In late 2020, the Smiths filed an action against RBPC, claiming fraudulent scheme, fraudulent misrepresentation, negligent representation, negligence, tort of another, and negligence per se. The trial court dismissed the Smiths' claims with prejudice, stating the Smiths "could not rely on [RBPC's] statements which were made during litigation as a basis for a fraud or misrepresentation claim, nor did [RBPC] have a legal duty towards [the Smiths] that could support a negligence claim." Further, it stated the Smiths "cannot sue [RBPC] for [its] conduct in successfully representing [its] clients in the prior litigation. [The Smiths]' remedies lie in addressing that conduct in that earlier litigation, which they did, without success." We affirmed on appeal. Smith, No. 2 CA-CV 2021-0110, ¶ 19.
¶7 In 2021, D.C. filed a motion for summary judgment on the 2019 complaint. The trial court granted the motion. As to the Smiths' allegation that RBPC had wrongfully included unrelated fees and costs when seeking judgment in the 2013 case, the court stated the Smiths "could have, and in fact did, raise this argument, albeit unsuccessfully, in [their] objection to D.C.'s application for attorney[] fees in [the 2013 case], as well as in [their] subsequent appeal of that matter." It continued, "In other words, the Smiths already unsuccessfully litigated this issue," which "cannot properly be re-litigated here in this new lawsuit."
¶8 The trial court then addressed the other "alleged procedural laws" in the fee application-including the incompletely disclosed fee agreements and the redacted billing statements-and rejected them as meritless and already unsuccessfully raised in the 2013 case. The court further concluded that there was insufficient evidence to support the Smiths' claims and that the claims were "legally barred by the preclusion doctrines, both issue and claim, and the law precluding horizontal appeals." It ultimately observed the case was "simply about the Smiths trying to get a second bite at the attorney[] fees apple they lost in the trial court and the court of appeals in [the 2013 case]" and concluded "[t]he law simply does not allow for this under the undisputed facts here." The court awarded D.C. attorney fees and warned the Smiths that "[i]f they bring another lawsuit arising from the outcome in [the 2013 case], and that case is determined, as this one has, to be devoid of legal merit, the [Smiths] and/or their counsel will be subject to serious sanction above and beyond the award of attorney[] fees and costs." We affirmed on appeal. Smith v. D.C. Concrete Co., No. 2 CA-CV 2021-0135, ¶¶ 11, 13.
¶9 NGM, which had not joined in D.C.'s motion for summary judgment, subsequently filed a motion for judgment on the pleadings pursuant to Rule 12(c), Ariz. R. Civ. P. The trial court granted NGM's motion, stating the Smiths' complaint "is undisputedly an independent action to set aside the awards of attorney fees" to D.C. in the 2013 case and the Smiths' "failed appeal therefrom." The court explained the Smiths' claims against NGM "for the acts of its alleged law firm agents" were legally invalid for the same reasons it had previously concluded the Smiths' claims against D.C. in the 2019 lawsuit were invalid, expressly incorporating those reasons by reference. In a supplemental ruling, the court also "adopt[ed] and incorporate[d]" the ruling in the Smiths' 2020 action against RBPC, noting that the ruling and related judgment in favor of RBPC "legally bar [the Smiths]' claims here against the NGM principal." The court then cited Jamerson v. Quintero, 233 Ariz. 389, ¶ 14 (App. 2013), for the principle that where an "agent has been adjudicated not liable, as a matter of law, the principal is not liable."
¶10 In the same ruling granting NGM's motion for judgment on the pleadings, the trial court denied the Smiths' Rule 16, Ariz. R. Civ. P., motion for sanctions against NGM, concluding the "requested sanction . . . is unjust" and NGM's failure to participate in Rule 16 proceedings was "substantially justified and with good cause under the totality of the circumstances." Further, the court awarded NGM attorney fees and costs in the amount of $35,403.25 pursuant to A.R.S. §§ 12-341.01 and 12-349 "for the same reasons stated . . . on July 16, 2021" in awarding fees to D.C. This appeal followed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and 12-2101(A)(1).
Motion for Judgment on the Pleadings
¶11 First, the Smiths challenge the trial court's grant of NGM's motion for judgment on the pleadings pursuant to Rule 12(c), arguing "there is nothing to support" the court's conclusion that their claims against NGM are "legally invalid." "'A motion for judgment on the pleadings . . . tests the sufficiency of the complaint,' and a defendant is entitled to judgment 'if the complaint fails to state a claim for relief.'" Mobile Cmty. Council for Progress, Inc. v. Brock, 211 Ariz. 196, ¶ 5 (App. 2005) (alteration in Giles) (quoting Giles v. Hill Lewis Marce, 195 Ariz. 358, ¶ 2 (App. 1999)). In reviewing a grant of a motion for judgment on the pleadings, we accept the complaint's allegations as true and review the court's legal conclusions de novo. See Muscat by Berman v. Creative Innervisions LLC, 244 Ariz. 194, ¶ 7 (App. 2017).
¶12 As noted, in its ruling granting NGM's motion, the trial court concluded the Smiths' claims against NGM were legally invalid for the same reasons it had previously determined the Smiths' claims against D.C. were invalid, one of which was issue preclusion. Issue preclusion, otherwise known as collateral estoppel, applies when an issue or fact essential to a prior judgment "was actually litigated in a previous suit, a final judgment was entered, and the party against whom the doctrine is to be invoked had a full opportunity to litigate the matter and actually did litigate it." Bridgestone/Firestone N. Am. Tire, L.L.C. v. Naranjo, 206 Ariz. 447, ¶ 19 (App. 2003) (quoting F.D.I.C. v. Adams, 187 Ariz. 585, 593 (App. 1996)). Arizona permits defensive collateral estoppel "when a defendant seeks to prevent a plaintiff from asserting a claim the plaintiff previously litigated unsuccessfully against another party." Campbell v. SZL Props., Ltd., 204 Ariz. 221, ¶ 10 (App. 2003). "When an issue is properly raised by the pleadings or otherwise, and is submitted for determination, and is determined, the issue is actually litigated." Chaney Bldg. Co. v. City of Tucson, 148 Ariz. 571, 573 (1986).
The Smiths appear to argue that NGM waived the defense of issue preclusion by not affirmatively pleading it in its answer. But because they fail to develop this argument and support it with legal authority, we consider it waived. See Polanco v. Indus. Comm'n, 214 Ariz. 489, n.2 (App. 2007) (argument waived when appellant fails to develop and support it); Ariz. R. Civ. App. P. 13(a)(7)(A) (opening brief must include "contentions concerning each issue presented for review, with supporting reasons for each contention, and with citations of legal authorities").
¶13 As discussed, the Smiths raised the same allegations in their 2019 complaint against NGM and D.C. that they had unsuccessfully litigated in the 2013 case. Smith, No. 2 CA-CV 2021-0110, ¶ 7; Smith, No. 2 CA-CV 2021-0135, ¶ 6. Although the Smiths have asserted new causes of action in this case, the facts and issues underlying the 2019 complaint are the same as those raised in opposition to D.C.'s attorney fee application in the initial lawsuit. Those facts and issues were essential to the final attorney fee judgment entered in 2017, and the Smiths had a full opportunity to, and actually did, litigate them. See Bridgestone/Firestone, 206 Ariz. 447, ¶ 19. The Smiths then challenged that ruling on appeal, and we affirmed it. SK Builders, 246 Ariz. 196, ¶¶ 8, 29-30. Thus, we agree with the trial court that these issues "cannot properly be re-litigated here in this new lawsuit." See Campbell, 204 Ariz. 221, ¶ 10. The court did not err in granting NGM's motion for judgment on the pleadings.
The trial court, in the 2013 case, implicitly rejected the Smiths' arguments by ruling against them and in favor of D.C. on its application for fees and costs. See Lowe v. Pima County, 217 Ariz. 642, ¶ 1 & n.3 (App. 2008) (although court did not expressly reject plaintiff's argument, rejection was implicit in court's grant of defendant's motion for summary judgment and final judgment stating all claims had been resolved).
As another basis for their claims, the Smiths allege D.C. and SK Builders made false representations to the court in a motion, during the 2013 proceeding, to join an additional judgment debtor. This allegation is directed at D.C. and SK Builders, not NGM; thus, it is not relevant in this appeal, which only concerns NGM.
The Smiths contend the trial court erred in concluding their claims were legally invalid on several other grounds in addition to issue preclusion, including the prohibition against horizontal appeals, claim preclusion, agency rationale, and insufficient evidence. However, because issue preclusion is dispositive here, we need not address the Smiths' arguments on these other bases. See Muscat, 244 Ariz. 194, ¶ 7 ("We will affirm the court's disposition if it is correct for any reason."); Tumacacori Mission Land Dev., Ltd. v. Union Pac. R.R. Co., 231 Ariz. 517, n.1 (App. 2013) (we need not resolve issues that do not affect our disposition).
Motion for Sanctions
¶14 The Smiths next contend the trial court erred in denying their motion for sanctions pursuant to Rule 16(h) based on its finding that NGM's failure to participate in Rule 16 proceedings "was substantially justified and with good cause under the totality of the circumstances." Additionally, they argue the court should have required NGM to comply with Rule 16 procedures before ruling on its motion for judgment on the pleadings. Intertwined with these arguments are allegations that the court improperly engaged in ex parte communications with NGM's counsel. However, because the Smiths fail to cite legal authority supporting their arguments, we consider them waived. See Ritchie v. Krasner, 221 Ariz. 288, ¶ 62 (App. 2009) ("Opening briefs must present and address significant arguments, supported by authority[,] that set forth the appellant's position on the issue in question."); Ariz. R. Civ. App. P. 13(a)(7)(A) (opening brief must include "contentions concerning each issue presented for review, with supporting reasons for each contention, and with citations of legal authorities"); Boswell v. Fintelmann, 242 Ariz. 52, n.3 (App. 2017) (claims not supported by legal argument waived).
Attorney Fees
¶15 Finally, the Smiths argue the trial court erred in awarding NGM its attorney fees under §§ 12-341.01 and 12-349. We review the court's application of these statutes de novo but review its findings of fact related to its award of attorney fees for clear error, viewing the evidence in the light most favorable to affirming the award. See Rogone v. Correia, 236 Ariz. 43, ¶ 23 (App. 2014); Sunland Dairy LLC v. Milky Way Dairy LLC, 251 Ariz. 64, ¶ 23 (App. 2021).
¶16 Under § 12-341.01, a trial court may award a successful party reasonable attorney fees in any contested action arising out of a contract. An action arises out of a contract if it could not exist "but for" the contract. Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 543 (1982). And, under § 12-349(A), a party is entitled to attorney fees if the opposing party "[b]rings or defends a claim without substantial justification," "[b]rings or defends a claim solely or primarily for delay or harassment," or "[u]nreasonably expands or delays the proceeding." A claim is "without substantial justification" if it is "groundless" and "not made in good faith." § 12-349(F). "'Groundless' and 'frivolous' are equivalent terms, and a claim is frivolous 'if the proponent can present no rational argument based upon the evidence or law in support of that claim.'" Rogone, 236 Ariz. 43, ¶ 22 (quoting Evergreen W., Inc. v. Boyd, 167 Ariz. 614, 621 (App. 1991)).
¶17 Here, the trial court awarded NGM attorney fees under §§ 12-341.01 and 12-349 "for the same reasons stated by the court on July 16, 2021." In July, the court awarded D.C. its attorney fees pursuant to § 12-349, finding the Smiths' claims had been "brought without substantial justification and solely or primarily for delay and harassment." Additionally, the court awarded D.C. its fees under § 12-341.01, stating, "This case is indisputably an independent action to set aside a[ §] 12-341.01 attorney[] fee award contained in a judgment that arose out of contract," and therefore "this case, too, ultimately arises out of contract." And, as discussed above, the court warned the Smiths that "[i]f they bring another lawsuit arising from the outcome in [the 2013 case], and that case is determined, as this one has, to be devoid of legal merit, the plaintiffs and/or their counsel will be subject to serious sanction above and beyond the award of attorney[] fees and costs."
¶18 On appeal, the Smiths assert an award of attorney fees under § 12-349 was not warranted because they had substantial justification to file their claims against NGM. In addition, because the case "was in its infancy," they maintain their "purpose could not [have been] to delay or harass," nor could they have expanded or delayed the proceedings. However, the Smiths fail to make any meaningful argument that their claims against NGM were justified. On the record before us, we cannot say the trial court's determination that the Smiths' claims against NGM were brought without substantial justification was clearly erroneous, particularly in light of the fact that the Smiths filed the 2019 lawsuit against D.C. and NGM after unsuccessfully litigating the same issues in the 2013 case. Because we conclude the court did not err in awarding NGM its fees under § 12-349, we need not determine whether an award under § 12-341.01 was appropriate.
To the extent the Smiths attempt to rely on arguments made in their response to NGM's application for attorney fees below, their reference to this filing does not satisfy the requirements of Rule 13(a)(7)(A), Ariz. R. Civ. App. P. See Lake Havasu City v. Ariz. Dep't of Health Servs., 202 Ariz. 549, n.4 (App. 2002).
¶19 The Smiths further argue the trial court failed to comply with the requirements of A.R.S. § 12-350 by not "set[ting] forth specific reasons" for its award of attorney fees under § 12-349, including a finding that the Smiths had acted in bad faith. We disagree. For an award under § 12-349, the court must include findings of fact that are specific enough to test the validity of the judgment on appeal. § 12-350; Bennett v. Baxter Grp., Inc., 223 Ariz. 414, ¶ 28 (App. 2010). The court's finding that the Smiths' claims against NGM "were brought without substantial justification and solely or primarily for delay and harassment," as incorporated into the ruling now at issue by reference to the July 2021 transcript of the hearing on D.C.'s motion for summary judgment, sufficiently set forth the specific reasons for its award of attorney fees to NGM. See Bennett, 223 Ariz. 414, ¶¶ 28-30 (trial court's explanation that claims were in the nature of harassment and were brought without "substantial justification causing unreasonable delay" sufficient for purposes of § 12-350).
Attorney Fees and Costs on Appeal
¶20 As the prevailing party on appeal, we award NGM its costs under A.R.S. § 12-341 upon compliance with Rule 21, Ariz. R. Civ. App. P., and its attorney fees under Rule 25, Ariz. R. Civ. App. P., as a sanction for the Smiths' filing of a frivolous appeal. See In re Wade, 168 Ariz. 412, 426 (1991).
Disposition
¶21 For the foregoing reasons, we affirm the trial court's grant of NGM's motion for judgment on the pleadings, denial of the Smiths' motion for sanctions, and award of attorney fees to NGM.