Opinion
No. 1 CA-CV 18-0636
11-21-2019
LAWRENCE WARFIELD, Trustee for the Cheryl Sam and Carleen Sam Bankruptcy Estates, Plaintiff/Appellant, v. THE LEDBETTER LAW FIRM PLC, an Arizona professional limited liability company; STATE FARM FIRE AND CASUALTY COMPANY, an Illinois corporation, Defendants/Appellees.
COUNSEL Ahwatukee Legal Office PC, Phoenix By David L. Abney Co-counsel for Plaintiff/Appellant The McClellan Law Firm PLC, Phoenix By Matthew L. McClellan Co-counsel for Plaintiff/Appellant Plattner Verderame PC, Phoenix By Richard S. Plattner Co-counsel for Plaintiff/Appellant Snell & Wilmer LLP, Phoenix By Don Bivens, Andrew M. Jacobs, Amanda Z. Weaver Counsel for Defendant/Appellee Ledbetter Christian Dichter & Sluga PC, Phoenix By David M. Bell, Cara Lynn Christian Counsel for Defendant/Appellee State Farm
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 UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.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 Yavapai County
No. V1300CV201880096
The Honorable Christopher L. Kottke, Judge Pro Tempore
AFFIRMED IN PART AND REVERSED IN PART
COUNSEL Ahwatukee Legal Office PC, Phoenix
By David L. Abney
Co-counsel for Plaintiff/Appellant The McClellan Law Firm PLC, Phoenix
By Matthew L. McClellan
Co-counsel for Plaintiff/Appellant Plattner Verderame PC, Phoenix
By Richard S. Plattner
Co-counsel for Plaintiff/Appellant Snell & Wilmer LLP, Phoenix
By Don Bivens, Andrew M. Jacobs, Amanda Z. Weaver
Counsel for Defendant/Appellee Ledbetter Christian Dichter & Sluga PC, Phoenix
By David M. Bell, Cara Lynn Christian
Counsel for Defendant/Appellee State Farm
MEMORANDUM DECISION
Presiding Judge Randall M. Howe delivered the decision of the Court, in which Judge David D. Weinzweig and Judge Maurice Portley joined. HOWE, Judge:
The Honorable Maurice Portley, Retired Judge of the Court of Appeals, Division One, has been authorized to sit in this matter pursuant to Article VI, Section 3 of the Arizona Constitution.
¶1 Lawrence Warfield, trustee for Cheryl Sam's and Carleen Sam's bankruptcy estates, appeals the trial court's ruling granting State Farm's motion to dismiss and The Ledbetter Law Firm's motion to dismiss, motion for summary judgment, and motion for change of venue. Warfield also appeals the trial court's ruling denying his request to file a second amended complaint. For the following reasons, we affirm in part, reverse in part, and remand for further proceedings.
Upon State Farm's request, this Court has amended the caption to reflect Lawrence Warfield, trustee for the Cheryl Sam and Carleen Sam bankruptcy estates, as the sole plaintiff/appellant.
FACTS AND PROCEDURAL HISTORY
¶2 In October 2009, Carleen Sam borrowed Cheryl Sam's car (collectively, the "Sams"), and was in a car accident on Navajo tribal land with the Tabaha family, who sustained injuries. The Arizona Health Care Cost Containment System ("AHCCCS") paid the medical bills incurred to treat the Tabaha family and AHCCCS acquired a lien against any tort recovery for the amount of those medical bills. In October 2011, the Tabaha family filed a personal injury tort action against the Sams in the Navajo Nation District Court. The Sams were insured by State Farm, which retained The Ledbetter Law Firm ("Ledbetter") to represent them. The Tabaha family made multiple offers to settle the case for the policy limits but none of them assured a release of AHCCCS's liens on any damages the Tabaha family might receive. This was important to Ledbetter because it believed that the Sams would remain liable for AHCCCS's medical liens. To address this concern, Ledbetter submitted a settlement offer to the Tabaha family for the $30,000 policy limits in January 2014 that required AHCCCS to release the liens. The Tabaha family rejected Ledbetter's settlement offer. In October 2014, State Farm submitted a separate settlement offer to the Tabaha family for the $30,000 policy limits, which was also rejected by the Tabaha family.
¶3 Shortly thereafter, the Tabaha family offered to settle the case for the $30,000 policy limits if the Sams would pursue litigation against their attorneys. Ledbetter interpreted the condition of the settlement offer as an allegation that it had a conflict of interest and that it had committed legal malpractice and moved to continue trial so the Sams and it could review and respond to the Tabaha family's allegations. The Navajo Nation District Court granted the motion and required Ledbetter to consult with its clients about any misconduct and inform the court of the outcome. Ledbetter hired independent counsel, who submitted a written opinion to the court stating that no conflict of interest existed and that Ledbetter's settlement actions were reasonable. Without deciding whether Ledbetter committed legal malpractice, the court permitted Ledbetter to continue representing the Sams.
¶4 In November 2015, days before trial, Ledbetter recommended that the Sams declare bankruptcy. Ledbetter contacted a firm to represent the Sams in filing an emergency bankruptcy petition. The Sams traveled to Flagstaff, filed their bankruptcy petitions, and obtained a stay in the trial with the Tabaha family. Because of the bankruptcy filings, the Navajo Nation District Court vacated the trial. The Tabaha family's claims against the Sams were listed on the Sams' bankruptcy schedules as creditor claims. The bankruptcy court discharged the Sams' personal liability for pre-bankruptcy debts. The parties disagreed on the effect of the orders of discharge. Warfield claimed the orders of discharge enjoined the Tabaha family from collecting any debt from the Sams' post-petition assets, while Ledbetter claimed the orders discharged any personal injury liability to the Tabaha family.
¶5 Warfield brought an action against State Farm and Ledbetter in Maricopa County Superior Court. Warfield alleged breach of contract, breach of the implied covenant of good faith and fair dealing, aiding and abetting bad faith, legal malpractice, and punitive damages.
¶6 Ledbetter removed the case to federal court, where both State Farm and Ledbetter moved to dismiss the case for failure to state a claim upon which relief could be granted. The federal court remanded the case to Maricopa County Superior Court because it involved substantial questions of state law and comity. After the remand, Ledbetter moved for a change of venue. The trial court granted the motion and transferred the case to Yavapai County. Warfield filed a first amended complaint and moved for leave to file a second amended complaint, which the trial court denied. In April 2018, Ledbetter moved for summary judgment for lack of subject matter jurisdiction. The parties also—by stipulation—filed in the superior court the motions to dismiss that had been filed in federal court and requested that the trial court rule on them.
¶7 The trial court granted the motions, dismissing Warfield's breach of the implied covenant of good faith and fair dealing and aiding and abetting bad faith claims. The trial court also granted Ledbetter's motion for summary judgment for lack of subject matter jurisdiction, dismissing Warfield's legal malpractice claim. Following the dismissal of those claims, the trial court denied Warfield's claim for punitive damages. The parties then stipulated to dismissing the remaining breach of contract claim with prejudice. Warfield timely appealed.
Warfield does not challenge the parties' stipulation to dismiss the breach of contract claim with prejudice, so we need not address it.
DISCUSSION
1. Third-Party Bad Faith
¶8 Warfield argues that the trial court erred in granting State Farm's motion to dismiss his breach of the implied covenant of good faith and fair dealing claim. Dismissal of a complaint under Arizona Rule of Civil Procedure 12(b)(6) is reviewed de novo. Coleman v. City of Mesa, 230 Ariz. 352, 356 ¶ 8 (2012). In reviewing a trial court's decision to dismiss a complaint for failure to state a claim, we assume the facts alleged are true and will affirm the dismissal if the plaintiff would not be entitled to relief under any interpretation of the facts susceptible to proof. Fidelity Sec. Life Ins. Co. v. State Dep't of Ins., 191 Ariz. 222, 224 ¶ 4 (1998).
¶9 Because Warfield would not be entitled to relief under any interpretation of the facts, the trial court correctly granted the motion to dismiss. A third-party bad faith failure-to-settle claim does not accrue until an excess judgment against the insured becomes final and non-appealable. Taylor v. State Farm Mut. Auto. Ins. Co., 185 Ariz. 174, 179 (1996); Uyleman v. D.S. Rentco, 194 Ariz. 300, 303 ¶ 15 (App. 1999). The complaint does not allege that the Sams faced a non-appealable judgment in excess of the policy limits. Warfield only alleges damage to credit reputation, emotional distress, humiliation, inconvenience, and anxiety. Because the Sams declared bankruptcy, the Tabaha family never secured a final judgment against the Sams in excess of the policy limits. Therefore, Warfield failed to state a claim upon which relief could be granted.
¶10 Warfield argues no excess judgment is required because this bad faith claim is premised on damage to credit reputation, emotional distress, humiliation, inconvenience, and anxiety. But an excess judgment is still required to pursue those damages. After all, a bad faith failure-to -settle claim exists to protect an insured from the added risk of liability for a judgment in excess of the policy limits. See Clearwater v. State Farm Mut. Auto. Ins. Co., 164 Ariz. 256, 259 (1990); see also Twin City Fire Ins. Co. v. Burke, 204 Ariz. 251, 255 ¶ 17 (2003) (noting that an action for bad faith refusal to settle is premised on the notion that "the excess insurer should not have to pay a judgment if the primary insurer caused the excess judgment by a bad faith failure to settle within primary limits"). Further, a bad faith failure-to -settle claim is recognized in the third-party context because the insurer typically has exclusive authority to accept or reject settlement offers. Clearwater, 164 Ariz. at 259.
¶11 The damages Warfield alleged do not replace a judgment in excess of the policy limits but are instead damages that may result from the excess judgment and thus be awarded after a judgment is entered. See Revised Ariz. Jury Instructions, Bad Faith 12 (noting that the plaintiff is entitled to the full amount of the judgment entered against him or her, but that the jury may also award additional damages such as emotional distress, damage to credit reputation, etc.). And while State Farm had exclusive authority to accept or reject the Tabaha family's settlement offers, the Sams had exclusive authority to accept or reject Ledbetter's and the bankruptcy attorney's advice. Had the Sams chosen not to declare bankruptcy, State Farm would have remained liable for any judgment in excess of the policy limits. The Sams' decision to declare bankruptcy, however, extinguished any potential judgment in excess of the policy limits and, with it, any potential third-party bad faith claim against State Farm for failing to settle. The first amended complaint asserts a third-party bad faith failure-to-settle claim against State Farm but fails to allege that a judgment in excess of the policy limits was entered against the Sams. Therefore, Warfield failed to state a claim upon which relief could be granted and the trial court properly dismissed Warfield's breach of the covenant of good faith and fair dealing claim.
Warfield also complains that the trial court erred in dismissing his claim against Ledbetter for aiding and abetting State Farm's bad faith failure to settle. But because the trial court correctly dismissed the bad faith claim, the aiding and abetting claim necessarily fails. See Federico v. Maric, 224 Ariz. 34, 36 ¶ 8 (App. 2010) (a claim for aiding and abetting requires proof that the primary tortfeasor committed a tort that caused injury to the plaintiff).
¶12 Despite no final judgment in excess of the policy limits, Warfield argues, for the first time on appeal, that the Sams' bad faith cause of action still accrued when State Farm inflicted harm on the Sams. We will not consider Warfield's argument, however, because he failed to raise it below. See Henderson v. Henderson, 241 Ariz. 580, 586 ¶ 13 (App. 2017). We will also not consider Warfield's argument that the bad faith cause of action accrued when the underlying lawsuit was discharged in bankruptcy because his argument was first raised in his reply brief. See State v. Edmisten, 220 Ariz. 517, 522 ¶ 10 n.2 (App. 2009).
Warfield's argument that the bad faith claim is part of the bankruptcy estate is moot because no claim for bad faith accrued.
2. Subject Matter Jurisdiction
¶13 Warfield argues that the trial court erred by granting Ledbetter's motion for summary judgment for lack of subject matter jurisdiction on the legal malpractice claim. Subject matter jurisdiction and the trial court's grant of summary judgment are questions of law that we review de novo. Glover v. Glover, 231 Ariz. 1, 6 ¶ 18 (App. 2012) (subject matter jurisdiction); Tritschler v. Allstate Ins. Co., 213 Ariz. 505, 519 ¶ 48 (App. 2006) (summary judgment).
¶14 Warfield argues that the Sams, as members of the Navajo Nation, had the right to file this lawsuit in state court, but the Sams are not the real-parties-in-interest here. The real-party-in-interest is Warfield, as the trustee of the bankruptcy estates of Carleen Sam and Cheryl Sam, and those estates are distinct entities from Carleen and Cheryl Sam. See JNC Companies v. Meehan, 165 Ariz. 144, 146 (App. 1990) (noting that the bankruptcy trustee was the real-party-in-interest and that the bankruptcy estate created an entity distinct from the debtor). Warfield, as trustee, is not a member of the Navajo Nation. And because Ledbetter likewise is not a member of the Navajo Nation, jurisdiction presumptively lies in state court. See State v. Zaman, 190 Ariz. 208, 209 (1997).
¶15 Ledbetter nevertheless argues that the tribal court had exclusive jurisdiction over the legal malpractice claim under the two exceptions outlined in Montana v. U.S., 450 U.S. 544, 565-66 (1981). The first allows a tribal court to exercise jurisdiction over non-Indians who engage in consensual business relationships with the tribe or its members and the second allows jurisdiction over non-Indians whose conduct on tribal land "threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe." Id. at 565-66. Montana, however, never held that a tribal court had exclusive jurisdiction when one of the exceptions is met. See id. at 565-66. Rather, the Court established that the two exceptions give a tribal court jurisdiction over non-Indians. Id. Even if the tribal court had jurisdiction in this case, the existence of jurisdiction in tribal court does not preempt jurisdiction in state court. Smith Plumbing Co., Inc. v. Aetna Cas. & Sur. Co., 149 Ariz. 545, 550 (App. 1984) (disagreeing that the existence of jurisdiction in tribal court preempts jurisdiction in state court). State court jurisdiction is divested only if the action would unduly infringe on Indian self-governance, known as the infringement test, established in Williams v. Lee, 358 U.S. 217 (1959). Zaman, 190 Ariz. at 210. The infringement test exists to protect Indians and does not preclude state court jurisdiction in an action between two non-Indians. See id.; Smith, 149 Ariz. at 551 (finding no basis for preemption of state court jurisdiction in an action between two non-Indian parties). Because Warfield and Ledbetter are not members of the Navajo Nation, the infringement test is inapplicable, and the trial court is not divested of jurisdiction. See id. Therefore, the trial court erred by dismissing the legal malpractice claim on this ground.
¶16 Ledbetter argues that even if the trial court had jurisdiction, the trial court correctly granted its motion for summary judgment because the principle of comity applied to Warfield's legal malpractice claim. "The principle of comity is that 'the court of one state of jurisdiction will give effect to the laws and judicial decisions of another state or jurisdiction, not as a matter of obligation, but out of deference and mutual respect.'" Tracy v. Superior Court of Maricopa Cty., 168 Ariz. 23, 34 (1991) (quoting Brown v. Babbitt Ford, Inc., 117 Ariz. 192, 198 (App. 1977)). We will not recognize a tribal court judgment if the parties were not afforded due process or if recognition would conflict with public policy. Beltran v. Harrah's Ariz. Corp., 220 Ariz. 29, 33 ¶ 11 (App. 2008).
¶17 The principle of comity does not apply because no judicial decision was made about Ledbetter's alleged legal malpractice. Rather, counsel for the Tabaha family accused Ledbetter of misconduct. The Navajo Nation District Court ordered a continuation of the trial and ordered Ledbetter to resolve the issue of misconduct and provide the court with an outcome. This Court has no record indicating that the Navajo Nation District Court made any factual or legal determinations about any legal malpractice Ledbetter allegedly committed. With no judicial decision resolving the Ledbetter's alleged malpractice, the principle of comity cannot apply. See Tracy, 168 Ariz. at 34. As a result, the trial court erred by granting Ledbetter's motion for summary judgment for lack of subject matter jurisdiction.
3. Punitive Damages
¶18 Warfield argues that the trial court erred in dismissing his punitive damages claim. We review de novo whether punitive damages are awardable on an equitable claim. Medasys Acquisition Corp. v. SDMS, P.C., 203 Ariz. 420, 422 ¶ 8 (2002). A claim for bad faith and punitive damages are inextricably linked. Sisemore v. Farmers Ins. Co. of Ariz., 161 Ariz. 564, 566 (1989). "Punitive damages may not be awarded unless it is first found that the insurance company acted in bad faith." Id.
¶19 The trial court did not err by dismissing the punitive damage claim against State Farm. Because the bad faith claim was properly dismissed, Warfield's first amended complaint failed to state a claim for punitive damages upon which relief could be granted. See id. While Warfield argues that he alleged enough evidence to support an award of punitive damages, his argument depends on the bad faith claim remaining in the lawsuit. Because the bad faith claim was properly dismissed, Warfield's argument is moot. As a result, the trial court did not err by dismissing Warfield's punitive damage claim against State Farm.
¶20 The trial court erred, however, by dismissing Warfield's punitive damage claim against Ledbetter concerning the legal malpractice claim. Punitive damages may be awarded in legal malpractice actions. Elliot v. Videan, 164 Ariz. 113, 119 (App. 1989). A claim for punitive damages carries no special pleading requirements. Ezell v. Quon, 224 Ariz. 532, 538 ¶ 23 (App. 2010). A general prayer for punitive damages is enough. Id. Warfield alleges in the first amended complaint that the Sams are entitled to punitive damages. Because the trial court erred by granting Ledbetter's motion for summary judgment concerning legal malpractice, it also erred by dismissing Warfield's punitive damage claim against Ledbetter.
4. Leave to File Second Amended Complaint
¶21 Warfield argues that the trial court erred by denying his motion for leave to file a second amended complaint. We review a trial court's denial of leave to amend a complaint for an abuse of discretion. Alosi v. Hewitt, 229 Ariz. 449, 452 ¶ 13 (App. 2012). Warfield cites the general rules addressing leave to amend a complaint but fails to argue how the trial court erred in denying his request for leave to file a second amended complaint. Instead, he merely asks this Court not to foreclose the possibility of amending his complaint on remand. Failure to develop an argument on appeal constitutes abandonment. See Ariz. R. Civ. App. P. 13(a)(7)(A); FIA Card Servs., N.A. v. Levy, 219 Ariz. 523, 524 ¶ 5 n.1 (App. 2008). Because Warfield failed to develop his argument on appeal, his argument is waived. See id.
5. Venue
¶22 Warfield argues that venue in Maricopa County was proper under A.R.S. §§ 12-401(1) and (18) and that the Maricopa County Superior Court abused its discretion in transferring venue to Yavapai County. We review a trial court's venue ruling for an abuse of discretion. Behrens v. O'Melia, 206 Ariz. 309, 310 ¶ 5 (App. 2003). "[A]n order granting or denying a change of venue is not an appealable order[.]" Goff v. Superior Courts In and For Pima and Maricopa Counties, 2 Ariz.App. 344, 347 (App. 1965). Special action jurisdiction is the appropriate procedure for raising challenges to pre-trial rulings relating to venue. Sierra Tucson, Inc. v. Lee ex rel. Cty. of Pima, 230 Ariz. 255, 257 (App. 2012) (noting that such orders are appropriately reviewable by special action because an appeal cannot adequately cure an incorrect venue ruling). Because an order granting Ledbetter's motion to change venue is not an appealable order, we have no jurisdiction to decide the issue.
ATTORNEYS' FEES
¶23 Warfield requests his reasonable costs incurred on appeal. Because Warfield does not state the basis for his entitlement to costs, this Court declines to award them. See Ariz. R. Civ. App. P. 21. Ledbetter also requests its attorneys' fees and costs incurred on appeal pursuant to A.R.S § 12-341.01(A) and A.R.S. § 12-342(B). Ledbetter did not prevail on each claim so, in our discretion, we deny its request for attorneys' fees and costs.
CONCLUSION
¶24 For the foregoing reasons, we affirm the trial court's dismissal of Warfield's claims against State Farm, as well as the dismissal of the aiding and abetting bad faith claim against Ledbetter. We reverse the trial court's grant of summary judgment concerning the legal malpractice claim and its dismissal of the punitive damage claim against Ledbetter and remand for further proceedings.