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Arizona Case Law Update

SUCCESSFUL PARTIES, ATTORNEYS FEES, AND RULE 68 OFFERS OF JUDGMENT

Lee v. ING Investment Management, LLC., 2016 WL 3360412 (June 16, 2016)

Facts and Procedural History

Lee began his employment as a chief-credit officer with ING in 2001. He was an at-will employee and never signed an employment contract. He did sign a one-page letter (the “Severance Agreement’) outlining his rights in the event ING terminated his employment without cause. It provided:

[I]n the event you are terminated without cause from your employment at [ING] . . . you will receive a lump sum payment equivalent to one year of your base salary and your average annual bonus, provided that you sign the attached Release of All Claims at the time of your termination.

The president and CEO at the time, James Hennessy, also signed the Severance Agreement.

In 2010, ING terminated Lee’s employment without cause. Lee filed a lawsuit against ING because it refused to pay him the amount owed under the Severance Agreement. Lee asserted claims of breach of contract, breach of the implied covenant of good faith and fair dealing, and entitlement to treble damages under A.R.S. §23-355. The parties filed cross-motions for summary judgment. The superior court granted partial summary judgment in favor of ING dismissing Lee’s claim under A.R.S. §23-355 and denying Lee’s calculation of the Severance Agreement’s bonus provision.

ING presented Lee with an offer of judgment for $900,000 exclusive of attorney’s fees and costs under Rule 68 of the Arizona Rules of Civil Procedure. Lee accepted the offer of judgment. After the court entered judgment, Lee filed a motion for attorney’s fees and costs, which the court granted in part. Both parties appeal. ING argues the superior court improperly determined Lee was the successful party for the purposes of awarding attorney’s fees under A.R.S. §12-341.01. Lee argues the court erred by rejecting his claim for treble damages under A.R.S. §23-355 and by not awarding him the entirety of his attorney fees and costs.

Holding

The determination of the successful party under A.R.S. §12-341.01(A) is within the discretion of the trial court and it will not be disturbed if any reasonable basis exists to support the award. ING argues because Lee’s recovery was less than the amount he sought in damages, he was not successful. But partial success does not preclude a party from prevailing and receiving a discretionary award of attorney’s fees. The superior court may find that a party is successful even when the recovery it obtains is significantly reduced. There was a reasonable basis for the award of fees to Lee.

A party’s acceptance of a Rule 68 offer of judgment ends the litigation and represents a final resolution of all claims at issue therein. Rule 68 seeks to help parties settle meritorious claims outside of court and avoid needless litigation. Allowing the parties to continue litigating issues no longer central to the resolution of the case would run contrary to Rule 68’s purpose of avoiding prolonged unnecessary legal disputes.

The Court of Appeals did not reach Lee’s argument about the superior court’s grant of partial summary judgment on his treble damage claim. This is because his right to appeal the interlocutory summary judgment ruling was extinguished when he accepted ING’s Rule 68 offer of judgment. ING’s offer of judgment encompassed all of Lee’s claims, including those addressed by the partial summary judgment ruling. This is consistent with the purpose of Rule 68. The Court of Appeals held that by accepting ING’s offer of judgment, Lee agreed to end the litigation on all claims encompassed by the complaint once judgment was entered against ING. Lee cannot appeal the interlocutory summary judgment rulings because he agreed to entry of judgment resolving those claims.

NEGLIGENCE OF CLIENT IN RELATION TO CAREGIVER AND THE FIREFIGHTER’S RULE

Sanders v. Alger, 2016 WL 3369223 (June 16, 2016)

Facts and Procedural History

Sanders worked for the Department of Economic Security (“DES”). In 2004, she began to provide in-home services to Alger as an independent provider and did so until 2011. Sanders was not an employee of either Alger or DES.

In June 2011, Sanders, then sixty years old, was assisting seventy year old Alger from his wheelchair to a vehicle when Alger began to fall. Sanders attempted to use cues and prompts to assist Alger in regaining his balance, but he did not respond. Alger landed on Sanders as she intervened to prevent the fall and Sanders was seriously injured. Sanders sued Alger for negligence. Alger moved for summary judgment claiming because Sanders had a contractual duty to protect Alger from falling, Alger did not owe Sanders a duty of care. The superior court agreed. Sanders appealed.

Holding

In 2006, the Arizona Supreme Court observed that the tort system is not the appropriate vehicle for compensating public safety employees for injuries sustained as a result of negligence that creates the very need for their employment. This is known as the firefighter rule. The superior court applied this rule to Sanders’ employment because she was injured by a vulnerable adult while being paid to care for him. Like a firefighter paid to put out fires, Sanders is paid for the hazard that caused her injury.

The Court of Appeals noted that other public policy concerns underlie the firefighter rule that do not apply as readily to caregivers. A fire poses a broader danger to the public, a public risk not only hazardous to the person who started the fire, but also to those persons and structures in proximity and members of the public should not be dissuaded from calling firefighters by fear of liability. The risk posed by Alger was a private risk. Falls that occur because of disease or physical limitations, unlike fires or automobile crashes, frequently occur without negligence on anyone’s part, and the tort system is well accustomed to determining whether a particular fall occurred due to negligence. Alger’s health condition created a risk that Alger would fall even in the absence of negligence.

The fact that Sanders was employed to respond to the type of event that caused her injury sounds in tort law as assumption of risk. The Arizona Supreme Court held that factor alone does not support the complete bar that the firefighter’s rule represents. The Court of Appeals did not find similarities between caregivers and firefighters sufficient to justify expanding the firefighter’s rule and declined to apply the rule to the case. Sanders may sue Alger so long as Alger owed Sanders a duty.

Sanders, by contract, undertook to care for Alger. In it she agreed to maintain Alger’s health and safety and to assist him with ambulation and transfer to and from a wheelchair. Arizona law provides that a contract that purports to relieve a defendant of any duty of care is the legal equivalent to expressly assuming the risk, a factual question for the jury. Contractual provisions that arguably shift risks have no effect on the parties’ respective duties to each other. Although the contract here imposed a higher duty of care on Sanders, it did not relieve Alger of his own duty. The Court of Appeals also noted that were they to conclude that no duty of care was owed by Alger, it would preclude any negligence claim by the caregiver of a patient at risk for falling, even in cases of gross negligence. As a result, patients who required a cane or walker, but declined to use it, who declined to take prescribed medication that would assist in maintaining balance, or who deliberately ignored directives from their caregiver would all be protected from suit, even if a jury believed that behavior was unreasonable. The Court of Appeals was reluctant to globally conclude a patient owes no duty to his caregiver as Alger suggests. It concluded the lawsuit could proceed against Alger.

NEGLIGENT ENTRUSTMENT CLAIMS AND VALET COMPANIES

Verduzco et al v. American Valet, et al., 2016 WL 3463323 (June 21, 2016)

Facts and Procedural History

The owner of a racing edition Porsche Carrera parked the car with American Valet while visiting a resort in Scottsdale. John Morken approached American Valet employee, Daniel Casey. Morken had not parked the vehicle with American Valet, did not have a claim ticket for the car, did not know the owner of the car and did not have permission to take the car. Morken demanded the car from Daniel Casey. Although Morken did not provide Casey a claim ticket, identification, or his name, and was high on drugs and behaving erratically, Casey gave him the keys to the Porsche. Morken sped away.

While driving the Porsche at a high rate of speed on Interstate 10, Morken collided with a Chevrolet Suburban driven by plaintiff, seriously injuring or killing the occupants. Plaintiffs sued American Valet, the hotel, and Daniel Casey, alleging common law negligent entrustment, general negligence claims, and corresponding wrongful death claims. The defendants moved to dismiss for failure to state a claim upon which relief can be granted. The superior court granted the motion. Plaintiffs appealed.

Holding

Arizona recognizes a cause of action for negligent entrustment as set forth in Restatement (Second) of Torts §390 which provides:

One who supplies directly or through a third person a chattel for the use of another whom the supplier knows or has reason to know to be likely because of his youth, inexperience, or otherwise, to use it in a manner involving unreasonable risk of physical harm to himself and others whom the supplier should expect to share in or be endangered by its use, is subject to liability for physical harm resulting to them.

The elements of a negligent entrustment claim are: 1) the defendant owned or controlled a vehicle; 2) the defendant gave the driver permission to operate a vehicle; 3) the driver by virtue of physical or mental condition was incompetent to drive safely; 4) the defendant knew or should have known that the driver by virtue of his physical or mental condition was incompetent to drive safely; 5) causation; and 6) damages. Defendants argued that plaintiffs failed to adequately allege that defendants knew Morken was incompetent to drive safely. Defendants also argued plaintiffs’ complaint failed to state a claim because Arizona should exempt valet parking services from claims of negligent entrustment.

With respect to the adequacy of pleading, the court of appeals found plaintiffs’ complaint was sufficient. Under Arizona’s notice pleading rules, it is not necessary to allege the evidentiary details of a claim for relief. A short and plain statement of the claim showing that the pleader is entitled to relief is sufficient.

The 20-page complaint alleges:

  • Morken was under the influence of drugs and extremely intoxicated and impaired
  • By virtue of his physical and mental condition (e.g. intoxication and drug use) was incompetent to drive safely
  • At the time of the incident, Morken was high on drugs and behaving erratically
  • Under the circumstances, defendants knew or should have known Morken had no right to drive off with the vehicle and Morken posed a significant threat to the safety of others because of his being under the influence of drugs
  • Defendants should have known that Morken, by virtue of his physical or mental condition, was incompetent to drive safely
  • Defendants should have known of Morken’s incompetence to drive when they permitted him to do so.

The court of appeals held that given the nature of an Arizona common law negligent entrustment claim and Arizona’s liberal pleading standard, plaintiffs were not required to allege more detail about Morken’s actions than they did. Plaintiffs were not required to speculate about what defendants actually knew.

The heart of defendant’s argument that negligent entrustment claims should not apply to valet companies rest on the idea that as bailee of the vehicle the valet company had transitory control that did rise to the level of control required for a negligent entrustment claim. But under Arizona law, a valet takes possession and has complete control of and responsibility for the car against the world other than the rightful owner. A bailment is defined as the bailee having sole custody and control of the property in question.

It is undisputed American Valet acted as bailee by taking possession of the Porsche. American Valet had sole custody and control of the Porsche when Morken asked for the keys. The complaint properly alleged a negligent entrustment claim. Defendants entrusted the Porsche to Morken, who, defendants had reason to know, was under the influence and behaving erratically, was incompetent to drive, and who had no right or lawful authority to the car.

The court of appeals held the motion to dismiss should not have been granted and the wrongful death claim also should not have been dismissed.

ABOUT THE AUTHOR: Lynn Allen is a partner at Tyson & Mendes, LLP. She specializes in general liability defense, insurance coverage, and bad faith litigation. Contact Lynn at 602.386.5660 or lallen@tysonmendes.com.