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Arizona Case Law Update

DECEASED PARTY SUBSTITUTION

Zanowick v. Baxter Healthcare, U.S. Court of Appeals for the Ninth Circuit, No. 15-56034 (March 9, 2017) – Opinion

In this case, the U.S. Court of Appeals for the Ninth Circuit clarified courts applying Federal Civil Procedure Rule 25(a)(1), which governs deceased party substitution, are not required to dismiss a case with prejudice if a party fails to timely file a motion to substitute a new party for a deceased party.

In July 2014, plaintiff Richard Zanowick sued defendants in state court, and alleged their products exposed him to asbestos, leading to terminal mesothelioma. Plaintiff Joan Clark-Zanowick also sued defendants for loss of consortium. Defendants subsequently removed the case to federal court on diversity grounds.

On October 12, 2014, Mr. Zanowick died. Plaintiffs filed and served a notice of Mr. Zanowick’s death on November 17, 2014. Federal Rule of Civil Procedure 25(a)(1) then required plaintiffs to file, by February 19, 2015, a motion to substitute a new party for Mr. Zanowick. Plaintiffs failed to do so.

Meanwhile, on February 13, 2015, Mrs. Zanowick and her children filed a new lawsuit in state court alleging the same claims (except her loss of consortium claim) against the same defendants, plus additional defendants.

In April 2015, defendants filed a motion to dismiss the federal case with prejudice for noncompliance with Federal Rule of Civil Procedure 25(a)(1)’s 90-day substitution requirement. On May 1, 2015, after the 90-day substitution deadline expired, plaintiffs moved to voluntarily dismiss the federal action without prejudice or in the alternative, to substitute a new party to extend the 90-day substitution deadline.

The district court granted plaintiffs’ motion to dismiss without prejudice and defendants appealed.

The U.S. Court of Appeals for the Ninth Circuit affirmed. The Court held Federal Rule of Civil Procedure 25(a)(1) permitted the district court to allow a late substitution if requested, and did not require the district court to dismiss the federal action with prejudice. The Court reasoned the history of Federal Rule of Civil Procedure 25(a) made clear the 90-day substitution deadline was not intended to act as a bar to otherwise meritorious actions and extensions of the period were to be liberally granted. The Court pointed out when the advisory committee amended Federal Rule of Civil Procedure 25(a)(1) in 1963, it noted an “unyielding requirement” for deceased party substitution led to “hardship and inequities.”

INDEMNIFICATION

Amberwood Development, Inc. v. Swann’s Grading, Inc., 1 CA-CV 15-0786 (Ariz. App. Feb. 23, 2017) – Memorandum Decision

In this case, the Arizona Court of Appeals interpreted an indemnity clause and found the indemnitor subcontractor liable for all of the indemnitee general contractor’s damages, including damages attributable to other subcontractors.

Despite the harsh end result, this case had innocuous beginnings. Amberwood Development, Inc. (“Amberwood”) was awarded a contract to serve as a general contractor on a housing development in Gilbert, Arizona in the early 2000s. Amberwood subsequently employed Swann’s Grading, Inc. (“Swann’s) as one of several subcontractors to work on the development. Swann’s subcontract contained an indemnity provision, providing Swann’s to indemnify Amberwood for all claims arising out of or in connection with Swann’s work for Amberwood, except those claims arising from Amberwood’s sole negligence or willful misconduct.

Shortly after the housing development was completed, eighteen homeowners sued Amberwood, alleging numerous defects. Amberwood sought indemnification from its subcontractors, including Swann’s, under the terms of their subcontracts. Ten of the eighteen homeowners arbitrated their claims, resulting in a $1,750,000 award against Amberwood. The remaining eight homeowners settled with Amberwood for $723,900. Amberwood settled its third-party indemnity claims against all of its subcontractors, except Swann’s, for $479,400.

Both Amberwood and Swann’s moved for partial summary judgment on the scope of Swann’s indemnity obligations. The trial court granted Amberwood’s motion and denied Swann’s motion, finding Swann’s was obligated to indemnify Amberwood for claims related to Swann’s work. A bench trial was subsequently held, and the trial court found Swann’s was obligated to indemnify Amberwood for 72.7 percent of the arbitration award and 70.6 percent of the litigation settlements. The trial court found Swann’s could offset the $479,400 Amberwood received in settlement from the other subcontractors. The trial court also found to the extent Swann’s was liable for more than its fair share of Amberwood’s losses, its remedy is to seek equitable contribution from the other subcontractors. The trial court awarded Amberwood costs and attorneys’ fees.

Following the entry of final judgment, Swann’s moved for a new trial, arguing: (1) the trial court erred in finding Swann’s could pursue the other subcontractors for equitable contribution; (2) Swann’s was only severally liable for Amberwood’s damages; (3) Amberwood’s settlement with the other subcontractors were unreasonable; and (4) Amberwood’s attorneys’ fees claim should have been apportioned among Swann’s and the settling subcontractors. The trial court denied the motion and Swann’s appealed. Amberwood cross-appealed, challenging the offset.

The Arizona Court of Appeals affirmed the trial court’s judgment and denied Amberwood’s cross-appeal. The court held Amberwood was not required to prove Swann’s was negligent or Swann’s acts or omissions caused Amberwood’s damages to recover under the indemnity provision. The court reasoned the indemnity provision required Swann’s to indemnify Amberwood for all claims in connection with Swann’s work for Amberwood, not just those caused by Swann’s or those that arose because of Swann’s negligence. The court held the Uniform Contribution among Tortfeasors Act (“UCATA”), which abolished joint and several liability, did not overcome the indemnity provision, because the UCATA does not impair indemnity rights under existing law.

The court held Swann’s waived its objections to the costs award and Amberwood’s failure to properly notice the litigation settlements because Swann’s did not raise these issues in its motion for a new trial. The court upheld the attorneys’ fees award because Swann’s did not show the award lacked a reasonable basis.

The court held the trial court did not abuse its discretion admitting Amberwood’s expert testimony on the repair costs list, because Swann’s did not object to this evidence when it was offered and did not rebut the testimony or show that the repair costs on the list were previously unknown or not timely disclosed.

The court held Swann’s could offset the $479,400 Amberwood received in settlement from the other subcontractors. Amberwood already received the $479,400 settlement funds before trial and did not dispute it would receive a double recovery, absent the offset.

The court denied Amberwood’s request for attorneys’ fees incurred on appeal.

NEGLIGENCE CLAIM & SUMMARY JUDGMENT

Knox v. Staples, 1 CA-CV 16-0043 (Ariz. App. Feb. 23, 2017) – Memorandum Decision

In this case the Arizona Court of Appeals decided the parties should “make more happen ” by overturning the trial court’s summary judgment award in favor of Staples and ruling the case should, instead, go to trial.

This case arose when Staples’ customer Walter Knox tripped and fell on a sign lying on the floor of the entrance to a Staples store. The sign had been displayed outside, but due to wind, a Staples employee placed the sign against the store entrance wall.

Knox sued Staples and alleged Staples’ failure to maintain its premises in a reasonably safe condition caused him damage. Staples moved for summary judgment, arguing Knox failed to show Staples created the dangerous condition by placing the sign in the walkway or that it had notice of hazard for a sufficient amount time that it should have remedied it. The trial court granted the motion and Knox appealed.

On appeal, the Arizona Court of Appeals reversed the trial court’s judgment. The Court held a reasonable jury could conclude that by placing the sign against the wall, Staples created a dangerous condition which resulted in an injury to Knox. The court reasoned there was no evidence in the record of any other cause for the sign to fall other than the wind. The store manager testified the wind had previously knocked the sign over and it could have happened again in the incident that caused Knox to fall.

ABOUT THE AUTHOR: Arman Nafisi is an associate in Tyson & Mendes’ Phoenix, AZ office. Mr. Nafisi specializes in insurance defense, personal injury, professional liability, and general civil litigation. Contact him at (602)385-5656 or anafisi@tysonmendes.com.