Arizona Case Law Update

Author: Michelle Ronan

Guest Editor: Tiffany Rouhi

January 7, 2019 9:00am

Recently, the Arizona Court of Appeals issued several decisions of interest to insurance companies and those litigating in Arizona state court.

Industrial Commission of Arizona – Special Action

Aguirre v. The Industrial Commission of Arizona, et. al., No. 1 CA-IC 17-0017 (December 4, 2018)

Gilbert Aguirre, Jr. was a firefighter for the City of Goodyear. As part of his annual employment physical, he received a blood test which came back abnormal. Soon after, he was diagnosed with chronic myeloid leukemia. Aguirre filed a workers’ compensation claim which was denied by CopperPoint American Insurance Company (“CopperPoint”). Aguirre requested a hearing in front of the Administrative Law Judge (“ALJ”). Aguirre and two physicians testified at the hearing. Following the hearing, the parties filed simultaneous post-hearing memorandum. The ALJ stated he was more persuaded by CopperPoint’s memorandum and concluded Aguirre “failed to carry his burden of proving by a reasonable preponderance of the evidence that he sustained a work related injury on May 14, 2015.”  Aguirre appealed.

There are two issues on appeal: waiver and sufficiency of findings.

  1. Waiver.

CooperPoint argues Aguirre is precluded from seeking appellate review of the sufficiency of the ALJ’s findings because he failed to raise the issue in his request for review of the award by the ALJ. In rejecting CopperPoint’s arguments, the Court emphasized the party seeking to challenge an award from the Industrial Commission of Arizona (“ICA”) need only to request review under §23-943. The party has no obligation to include any specific arguments to preserve them for appellate review. The Court then distinguished Post v. Industrial Com’n of Ariz, 160 Ariz. 4, 70 P.2d 308 (1989) and Stephens v. Industrial Com’n, 114 Ariz. 92 (App. 1977) noting nothing in Post suggests a party is required to challenge the sufficiency of findings in a request for review as a condition of asserting that argument on appeal. Further, Stephens focuses on the exhaustion of remedies doctrine, which is not applicable here. Ultimately, the Court held Post’s requirement that an ALJ make findings sufficient to permit meaningful judicial review applies even if a party fails to raise that specific issue in a request for review.

  1. Sufficiency of Findings.

Alternatively, CopperPoint argued the ALJ’s award contains ample findings and conclusions to permit the appellate court to uphold the award. The Court of Appeals disagreed finding the ALJ did not resolve conflicting evidence, make ultimate factual findings or provide appropriate legal analysis. Instead, the ALJ summarized facts and testimony and came to the bare conclusion Aguirre failed to meet his burden. CopperPoint then argues the ALJ’s reliance on the post-hearing memorandum makes the findings sufficient. Again dismissing CopperPoint’s argument, the court stated, “regardless of the format in which the findings are presented, if the award requires us to speculate about how the ALJ resolved material disputes in the case, then the findings are insufficient.” The Court of Appeals set aside the award because the lack of findings left the Court unable to meaningfully review the ALJ’s decision.

Takeaway: If a party notices an obvious issue of insufficient findings, the best practice would be to bring it to the ALJ’s attention but failure to do so does not preclude judicial review.

Default and Summary Judgment

Best Western International, Inc. v. Oakland Park Inn Inc. et al., No. 1 CA-CV 17-0775 (December 6, 2018) – Memorandum Decision

In 2002, Alice Marquez signed an agreement with Best Western to become a Best Western member and use Best Western’s trademarks and other services for her hotel, Oakland Park Inn. In 2014, Best Western notified Marquez she was late in paying dues and fees owed under the Membership Agreement. Best Western then terminated the membership in September 2014 and demanded defendants stop using Best Western’s trademark. In January 2015, Best Western filed a complaint alleging breach of contract, open and stated account, unfair competition, trademark dilution, trademark infringement and unjust enrichment. Defendants asserted several counterclaims and the parties engaged in extensive motion practice.

In January 2017, defendants’ former counsel withdrew from the case. In April 2017, the court set a five-day jury trial to begin November 6, 2017. In July, defendant’s counsel informed Best Western his representation was complete. The court set two status conferences demanding the parties appear in person and neither the defendants nor the attorney appeared. As a result, the court struck defendants’ answer and directed Best Western to proceed in default.  In September, defendants’ attorney filed a notice of withdraw and several emergency motions to overturn the default and continue the trial claiming he did not receive the minute entries setting the status conference. The court denied defendants’ motions and entered default for $429,452.41. Defendants appealed.

The Court of Appeals found the trial court abused its discretion by striking defendants’ answer and counterclaim as a sanction stating there is no evidence in the record that defendants themselves were at fault for their nonappearance or for their counsel’s nonappearance, or that they failed to appear willfully or in bad faith.

Before striking defendants answer, the trial court granted summary judgment on Best Western’s motions for summary judgment on breach of contract and breach of fiduciary duty. The Court of Appeals reviewed these rulings on appeal.

Defendants argued there was not a breach of contract because Best Western had agreed to modify the Membership Agreement to allow defendants to make delinquent payments on a revised payment schedule. Best Western argued no enforceable modification exists because Marquez had not signed the modification. In upholding the trial court’s ruling granting Best Western’s motion, the Court of Appeals found there was no evidence Marquez herself signed the agreement. While she authorized Oakland Park Inn’s CEO to accept the revised plan on behalf of Oakland Park, she must personally signed the agreement on her own behalf. There was no evidence Marquez granted the CEO to act on Marquez’s behalf.

To defend against Best Western’s motion it did not breach any fiduciary duty, defendants argued a fiduciary duty arose out of the language in the Best Western Bylaw and Articles and the Membership Agreement’s language:

The relationship of Best Western to its members is one of an independent contractor. Neither party has the power to obligate or bind the other in any way. No relationship of partners, joint ventures or agents is created. Best Western only provides services as directed by the membership. Best Western has no responsibility for the …operation of [the Oakland Park Inn] …. Best Western has no control over or responsibility for any decision affecting the employment or supervision of any person employed in connection with [the Oakland Park Inn].

The Court of Appeals rejected defendants’ arguments and found the above language only created a commercial relationship, not a fiduciary one. Defendants further argue a fiduciary relationship was created through their reliance on Best Western’s “knowledge and skill.” In rejecting this argument the Court explained the “mere trust in Best Western’s competence, however, is insufficient to create a fiduciary relationship, particularly when the parties have entered a commercial transaction – a franchise agreement – without agreeing to form such a relationship.”

Takeaway

Choosing a qualified and knowledgeable attorney is important. Engage with your attorney frequently to ensure he or she is handling the case appropriately because sanctions may be assessed if the case is mishandled. During motion practice, it is important to understand what evidence is needed to overcome the summary judgment standard. Evaluate the facts to your case thoroughly and determine whether a genuine issue of fact exists. If not, a summary judgment motion may not be the proper tool.

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