AZ-Tech v. AZ Escrow

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 DIVISION ONE FILED: 03/01/11 RUTH WILLINGHAM, ACTING CLERK BY: DLL IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE ) AZ-TECH MANUFACTURING, INC., an ) Arizona corporation; REED BJORKLUND and PEGGY BJORKLUND, husband and wife, ) ) Plaintiffs/Appellees, ) ) ) v. ) ) ARIZONA ESCROW AND FINANCIAL ) CORPORATION, an Arizona corporation; ) HELEN O. WESTBROOK, ) Defendants/Appellants. ) _______________________________________ ) 1 CA-CV 10-0330 DEPARTMENT D MEMORANDUM DECISION (Not for Publication - Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause Nos. CV 2006-005469 CV 2007-001720 CV 2007-003788 CV 2007-015694 (Consolidated) The Honorable Jeanne M. Garcia, Judge REVERSED AND REMANDED Tidmore Law Offices, L.L.P. By Mick Levin Attorneys for Plaintiffs/Appellees Phoenix Jaburg & Wilk, P.C. By Roger L. Cohen and Kathi Mann Sandweiss Attorneys for Defendants/Appellants Phoenix N O R R I S, Judge ¶1 This appeal arises from the superior court s denial of attorneys fees under an indemnity provision to appellants Arizona Escrow and Financial Corporation and its employee, Helen O. Westbrook (collectively, Escrow Defendants ). Because the indemnity provision authorized payment of attorneys fees, we reverse the judgment of the superior court and remand for the superior court to determine the amount of fees Escrow Defendants should be awarded. FACTS AND PROCEDURAL BACKGROUND ¶2 Appellees AZ-Tech Manufacturing, Inc., Reed Bjorklund, and Peggy Bjorklund (collectively, Plaintiffs ) sued a number of defendants, including Escrow Defendants, for claims stemming from Plaintiffs assertion they did not receive the full agreedupon price Technology summary complaint when they sold Manufacturing, judgment was their Inc. asserting, time-barred. machine Escrow inter The shop to Defendants alia, superior the court Advanced moved for Plaintiffs granted the motion, finding Plaintiffs claims were based on negligence and thus time-barred by the two-year statute of limitations. ¶3 Escrow Defendants sought reimbursement of their attorneys fees by Plaintiffs pursuant to an indemnity provision 2 included in the escrow instructions. The indemnity provision, as relevant, stated, Seller and Buyer[1]: . . . . d) Will indemnify and save harmless Escrow Agent against all costs, damages, attorney s fees, expenses and liabilities, which it may incur or sustain in connection with these instructions of the escrow or any court action arising therefrom and will pay same upon demand. The superior court denied Escrow Defendants request for attorneys fees, reasoning that [g]iven the court s conclusion that the claims against [Escrow] Defendants are based on negligence, not on contract, the indemnification language in the escrow instructions cannot be a basis for an award of attorney fees. ¶4 After Escrow reconsideration timely of appealed. the We Defendants order have unsuccessfully denying fees, jurisdiction Escrow pursuant moved for Defendants to Arizona Revised Statutes ( A.R.S. ) section 12-2101(B) (2003). DISCUSSION ¶5 Escrow required the 1 Defendants superior court argue to the award indemnity them fees provision whether The escrow instructions listed AZ-Tech Manufacturing, Inc., as the Seller and Advanced Technology Manufacturing, Inc., as the Buyer. 3 We agree. 2 Plaintiffs claims were in tort or contract. As an initial matter, we note the parties dispute the basis for the claims in this case, but we do not need to decide the issue because the provision, in on connection its face, with is language the indemnity broad sufficiently of to indemnify attorneys fees for defending against the claims here, whether they sounded in tort, contract, 3 or some other legal theory. ¶6 A contractual provision awarding attorneys fees is enforced according to its terms, and a superior court has no discretion to refuse to award fees under such a provision. Chase Bank of Ariz. v. Acosta, 179 Ariz. 563, 575, 880 P.2d 1109, 1121 (App. 1994). To enforce the indemnity provision here, we must interpret the breadth of the phrase in connection with. ¶7 Courts have consistently held connection with should be broadly construed. Comm r of Revenue (listing cases). Servs., 983 A.2d 1, 8 the phrase in Key Air, Inc. v. n.11 (Conn. 2009) We have interpreted in connection with to 2 Because this appeal involves interpretation of a contract, we review de novo. Rand v. Porsche Fin. Servs., 216 Ariz. 424, 434, ¶ 37, 167 P.3d 111, 121 (App. 2007). 3 On appeal, as they did in the superior court, the parties dispute whether A.R.S. § 12-341.01 (2003) authorized reimbursement of fees in this case. This statute, which allows a court to award fees in any contested action arising out of a contract, express or implied, is not pertinent here, and, instead, the language of the contract controls. 4 represent a relationship or association in thought. State v. Bews, 177 Ariz. 334, 336, 868 P.2d 347, 349 (App. 1993) (quoting Webster s Third (pretrial interview official New proceeding International was -- Appeals held use conducted in criminal trial a false-statement statute). of Dictionary 481 connection -- for (1971)) with an purposes of Similarly, the Third Circuit Court of in connection with required interpretation covering a wide range of relationships. States v. Loney, 219 F.3d 281, 284 (3d Cir. 2000) an United (quoting varied uses of in connection with to hold defendant possessed a firearm in connection with his drug offense). ¶8 Case law shows the use of in connection with serves to broaden the reach of a provision, so we construe the term in that manner. Here, the indemnity provision covered all costs in connection with these instructions of[4] the escrow, which means any costs related to, associated with, or in some way linked to the escrow instructions Plaintiffs sued Escrow Defendants would for be indemnified. allegedly inserting incorrect figures in the escrow instructions which caused them 4 On appeal, Escrow Defendants argue the word of in the indemnity provision is a typographical error and of should be or. Plaintiffs argue Escrow Defendants attempt to change the word is actually an attempt to seek reformation of the contract that should not be allowed on these facts. We do not need to address this issue and simply read the indemnity provision as written. 5 to receive less money from the sale than they expected. Because these allegedly erroneous figures were actually included in the escrow instructions, the resulting costs of litigating the dispute over these figures is related to, associated with, or in some way linked to those instructions. 5 ¶9 Additionally, Plaintiffs claims for breach of fiduciary duties and breach of contract would not have existed without the instructions. escrow relationship created by the escrow See Maganas v. Northroup, 135 Ariz. 573, 576, 663 P.2d 565, 568 (1983) ( relationship of the escrow agent to the parties to the escrow escrow relationship duties (emphasis is gives one of rise added)). trust and to two Because the confidence distinct escrow and fiduciary instructions created the contractual relationship and fiduciary duties at the center of the dispute, the attorneys fees Escrow Defendants paid to litigate the dispute were in connection with the escrow instructions. ¶10 Therefore, we hold the attorneys fees paid by Escrow Defendants to defend against Plaintiffs suit were incurred in connection with these instructions of the escrow and thus subject to the indemnity provision. 5 On appeal, Plaintiffs argue enforcing the indemnity provision to cover attorneys fees goes beyond [their] reasonable expectations. Plaintiffs did not raise this argument in the trial court, and thus it is waived. 6 ¶11 Although not identified as a cross-issue on appeal, Plaintiffs argue individuals because the the Peggy escrow indemnity Bjorklund, Reed instructions listed as Buyer and Seller. 6 provision does Bjorklund, only bind See supra note 1. not apply and Westbrook the to corporations We disagree. In their pleadings and motion papers, the Bjorklunds treated the escrow instructions as binding on them individually, and thus they cannot now assert the instructions do not apply to them. ¶12 The Bjorklunds, in their individual capacities, sued Escrow Defendants for breach of fiduciary duties and breach of contract, and, as shown above, these duties only arose because the parties had a contractual relationship through the escrow instructions. After basing their claims on being individual parties to a contract that included the indemnity provision, the Bjorklunds are estopped from denying they are subject to the 6 Peggy Bjorklund signed the escrow instructions as President of AZ-Tech Manufacturing, Inc. Reed Bjorklund did not sign the escrow instructions. In their response to Escrow Defendants application for attorneys fees, Plaintiffs argued that because Reed Bjorklund did not sign the escrow instructions, he could not be liable for fees. Additionally, Plaintiffs asserted the escrow instructions did not apply to Westbrook. Plaintiffs repeated these arguments in their response to the motion for reconsideration. Although Plaintiffs did not argue in the superior court that the indemnity provision did not apply to Peggy Bjorklund, we consider the argument on appeal nonetheless because we prefer to decide cases on the merits. See Adams v. Valley Nat l Bank of Ariz., 139 Ariz. 340, 342, 678 P.2d 525, 527 (App. 1984). 7 indemnity provision. See Armer v. Armer, 105 Ariz. 284, 288, 463 P.2d 818, 822 (1970) ( Parties are bound by their pleadings and evidence may not be introduced to contradict or disprove what has been admitted or asserted as fact in their pleadings, and a party may not introduce evidence in contradiction of express allegations of his complaint. ); cf. Spurlock v. Santa Fe Pac. R.R., 143 Ariz. 469, 484, 694 P.2d 299, 314 (App. 1984) (parties who estopped contract with from denying its an entity as corporate a corporation existence in a are later lawsuit). ¶13 The indemnity provision also covers Westbrook because the escrow instructions listed her as the escrow officer, and she signed the escrow instructions on behalf of Arizona Escrow and Financial Corporation as an Authorized Employee. Additionally, Plaintiffs complaint alleged that [a]t all times herein mentioned, Westbrook acted within the scope and authority of her employment with Arizona Escrows and within the power granted to her as an officer of Arizona Escrows. ¶14 Escrow Defendants request attorneys fees on appeal, asserting they are entitled to them under the indemnity provision. We award them their fees and costs on appeal because such and fees costs are in 8 connection with the escrow instructions, contingent on their timely compliance with Arizona Rule of Civil Appellate Procedure 21. CONCLUSION ¶15 denying For the attorneys foregoing fees to reasons, Escrow we reverse Defendants and the order remand for further proceedings consistent with this decision. /s/ ___________________________________ PATRICIA K. NORRIS, Presiding Judge CONCURRING: /s/ ____________________________________ JOHN C. GEMMILL, Judge /s/ ____________________________________ PATRICIA A. OROZCO, Judge 9

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