COLLINS v. TRI-RANCH, et al.

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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 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE MARY and CHRISTOPHER COLLINS, husband and wife, ) ) ) Plaintiffs/Appellants/ ) Cross-Appellees, ) ) v. ) ) TRI-RANCH PROPERTIES, LLC; ) CAPSTONE HOLDINGS, LLC, ) ) Defendants/Appellees, ) ) ELONICA SAVILLE; SCOTT SAVILLE, ) ) Defendants/Appellees/ ) Cross-Appellants. ) __________________________________) DIVISION ONE FILED: 4/16/2013 RUTH A. WILLINGHAM, CLERK BY: mjt 1 CA-CV 12-0470 DEPARTMENT A MEMORANDUM DECISION (Not for Publication Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause No. CV2010-080556 The Honorable John R. Ditsworth, Judge AFFIRMED IN PART; REMANDED IN PART; VACATED IN PART Fidelis V. Garcia Attorney for Plaintiffs/Appellants/Cross-Appellees Chandler Cullimore & Coleman, PLC Phoenix By B. Aaron Coleman Attorneys for Defendants/Appellees Tri-Ranch Properties, LLC and Capstone Holdings, LLC Elonica Saville & Scott Saville Cave Creek Defendants/Appellees/Cross-Appellants in propria persona S A N D E R S, Judge ¶1 Mary and Appellants ) Christopher appeal the superior Collins (collectively, court s dismissal with prejudice of their complaint against Tri-Ranch Properties, LLC, Capstone Holdings, LLC, and (collectively, Appellees ).1 remand superior to the court Elonica For to the and Scott following consider Saville reasons, whether we Appellants fraud claim constitutes a permitted independent action alleging fraud upon the court pursuant to Arizona Rule of Civil Procedure ( Rule ) 60(c). In light of this decision, we also vacate the court s award of attorney s fees and costs. FACTS AND PROCEDURAL BACKGROUND ¶2 Appellants leased a home in Peoria owned and operated by Appellees. On October 31, 2008, Appellants informed Appellees that they were terminating their lease prematurely and vacating the premises on uninhabitable. November 8, 2008, claiming the property was They provided a prorated rent check for November, which Appellees returned as an unauthorized partial payment for Nov. rent. detainer Appellees subsequently brought a forcible entry and ( FED ) action against Lake Pleasant Justice Court ( justice court ) and secured a judgment against 1 Appellants in Only Tri-Ranch and Capstone filed an answering brief with this court. For the sake of clarity, we refer to Tri-Ranch, Capstone and the Savilles as Appellees, though note that our determination of arguments raised by Appellees refer only to those in Tri-Ranch and Capstone s answering brief. 2 Appellants for the entire November rent amount plus fees and costs, totaling $4,794.00 ( rent judgment ). A few days later on November 23, 2008, Appellees rented the home to new tenants. ¶3 Appellees then commenced garnishment proceedings in the justice court to satisfy the rent judgment. during all future appearances in the At that time and justice court, however, Appellees failed to disclose that the home had been re-rented on November 23. Though the new renters lease provided that they did not pay rent for the final seven days of November during which time they resided in the home, Appellees do not dispute that Appellants wages were garnished to satisfy all of November s rent. ¶4 Upon independently discovering that the home had been re-let during part of the same period Appellants were subject to the rent judgment, Appellants filed suit against Appellees. They alleged six counts: (1) fraud for knowingly and intentionally making misrepresentations property was re-rented, or (2) failing to negligent disclose that misrepresentation the in failing to exercise reasonable care by providing [Appellants] with false, misleading, incorrect and incomplete material information, (3) failure to supervise their employees negligent acts, (4) conversion of Appellants property through wage garnishment, (5) breach of contract for failing to maintain the property in a habitable condition and 3 not mitigating Appellants lease obligations when the property was re-rented, and (6) breach of the covenant of good faith and fair dealing. Appellants sought compensatory damages in an amount to be established at trial for all six counts. ¶5 In lieu of an answer, Appellees filed a motion to dismiss pursuant to Rule 12(b)(6) arguing Arizona s economic loss rule barred Appellants tort claims, the action was a collateral attack on the justice court judgment, the complaint failed to state facts sufficient to support the contract claims and the complaint failed to state a valid claim for damages. ¶6 dismissed After oral argument on the motion, the superior court Appellants complaint with prejudice. The court reasoned that the economic loss rule barred the tort claims and the action constituted a collateral attack on the rent judgment. Moreover, the court found Appellants failed to state sufficient facts to support the three contract claims and failed to state a valid claim for damages. Appellees then sought attorney s fees, costs and sanctions against Appellants. In response, Appellants counsel noted for the first time that Appellants were indigent and obtained counsel through the Volunteer Lawyers Program of the Maricopa County Bar Association. The court awarded Appellees over $10,000 in fees and costs, but denied their request for sanctions. 4 ¶7 Appellants timely appeal followed. The Savilles also timely cross-appealed the superior court s denial of the motion for sanctions. Section 9, of We the have jurisdiction Arizona pursuant Constitution and to Article Arizona 6, Revised Statutes ( A.R.S. ) sections 12-120.21 (West 2013) and -2101(A) (West 2013).2 DISCUSSION A. Standard of Review. ¶8 Dismissal reviewed de novo. of a complaint under Rule 12(b)(6) is Coleman v. City of Mesa, 230 Ariz. 352, 355, ¶ 7, 284 P.3d 863, 866 (2012). We will affirm if Appellants would not be entitled to relief under any facts susceptible to proof in the statement of the claim. T.P. Racing, L.L.L.P. v. Ariz. Dep t of Racing, 223 Ariz. 257, 259, ¶ 8, 222 P.3d 280, 282 (App. 2009) (citation omitted). Additionally, we review an award of attorney s fees and costs for an abuse of discretion and will affirm the award if it was supported by any reasonable basis. Fulton Homes Corp. v. BBP Concrete, 214 Ariz. 566, 569, ¶ 9, 155 P.3d 1090, 1093 (App. 2007). Finally, while we review the superior court s denial of Rule 11 sanctions for an abuse of discretion, Roberts v. City of Phoenix, 225 Ariz. 112, 123, ¶ 45, 235 P.3d 265, 276 (App. 2010), we review the denial of sanctions 2 Absent material revisions after the relevant date, we cite a statute s current version. 5 requested under A.R.S. § 12-349 (West 2013) de novo, Hormel v. Maricopa Cnty., 224 Ariz. 454, 461, ¶ 27, 232 P.3d 768, 775 (App. 2010). B. Appellants Tort Claims. ¶9 The complaint superior with court prejudice. dismissed Appellants, Appellants however, entire present no argument on appeal concerning the superior court s dismissal of their breach Appellants of contract challenge their tort claims. only claims. the In court s their reasons opening for brief, dismissing We therefore address only those arguments raised in Appellants brief and consider any arguments regarding the court s dismissal of the contract claims waived. See Phoenix Newspapers, Inc. v. Molera, 200 Ariz. 457, 462, ¶ 26, 27 P.3d 814, 819 (App. 2001). 1. ¶10 Economic loss rule. Appellants first argue the superior court erred by applying the economic loss rule to dismiss their tort claims. Appellees, on the other hand, maintain that the economic loss rule controls because, [a]t its core, this case is a contract case that is governed by a lease agreement. We agree with Appellants that the court misapplied the economic loss rule in dismissing their tort claims. ¶11 The economic loss rule is a common law rule limiting a contracting party to contractual remedies for the recovery of 6 economic losses unaccompanied by physical injury to persons or other property. Flagstaff Affordable Hous. Ltd. P ship v. Design Alliance, Inc. (Flagstaff II), 223 Ariz. 320, 323, ¶ 12, 223 P.3d 664, 667 (2010). When a contracting party suffers purely economic loss related to the subject of the contract, the party is limited wholly to its contractual remedies. 326, ¶ 28, 223 P.2d at 670. See id. at Here, however, Appellants tort claims do not relate to the subject of their contract. ¶12 Appellants repeatedly asserted in their complaint that they were harmed by Appellees concealment during the garnishment proceedings that the home was re-rented on November 23, 2008. This alleged misconduct not only occurred after the contractual relationship between the parties ceased, but was also extraneous to any contractual relationship. See id. at 323, ¶ 14, 223 P.3d at 667 (court considers underlying policies of tort and contract law in the context of the facts and claim made to determine whether the economic loss rule applies). The factual context of Appellants tort claims does not stem from any alleged breach of contract; rather, Appellants alleged that Appellees conduct in the justice court, distinct from any duties under the lease, constituted fraud. Thus, because the alleged misrepresentations forming Appellants tort claims were not linked to any contract claim, the court erred in applying the economic loss rule. 7 2. ¶13 Negligent misrepresentation and failure to supervise. Though the superior court erred in applying the economic loss rule, because we review de novo, we nonetheless affirm the court s dismissal of Appellants negligent misrepresentation and failure to supervise counts because the complaint failed to state claims upon which relief could be granted. ¶14 Appellants complaint alleged that Appellees committed negligent misrepresentation by providing false, misleading and incomplete material information namely, failing to disclose that the home was re-rented. however, that incorrect or Appellants incomplete The complaint failed to allege, relied to information. their See detriment Taeger v. on the Catholic Family & Cmty. Servs., 196 Ariz. 285, 294, ¶ 29, 995 P.2d 721, 730 (App. 1999) (to establish negligent misrepresentation, plaintiff must allege it relied on the incorrect information and that such reliance caused its damages); Ariz. R. Civ. P. 9(b) (claims of fraud or mistake must be pled with particularity). ¶15 Appellants also supervise their employees. alleged that Appellees failed to We simply do not see how Appellants would be entitled to relief under any facts susceptible to proof in their statement of this claim. They alleged the Savilles were employees of the real estate companies, Tri-Ranch and Capstone, and that these companies were responsible 8 under a theory of respondeat negligent superior for failing to supervise But nowhere did Appellants actions. the employees indicate negligent actions by the employees caused them harm. what If failing to disclose the re-rental of the home was negligent, that action was not taken by any employee. represented by proceedings. counsel Thus, Rather, Tri-Ranch and Capstone as appeared the at the superior FED court and garnishment properly dismissed Appellants claims for negligent misrepresentation and failure to supervise because Appellants did not state claims upon which relief could be granted. 3. ¶16 Fraud. Pursuant to fraud claim remains. the above discussion, only Appellants Having disposed of the economic loss rule, we now turn to whether the court properly dismissed the fraud claim as a collateral attack on the FED judgment obtained in the justice Appellees court. contend Appellants the ruling argue was the proper court erred, because while Appellants waived their right to appeal the Justice Court judgment and most certainly would be turned away judgment set aside or vacated. in any attempt to have that We hold the superior court erred in dismissing the fraud claim because, though it constituted a collateral attack, it may be considered a permissible one under Rule 60(c). 9 ¶17 Rule 60(c) provides that a party may file a motion for relief from a final judgment for reasons such as mistake or excusable neglect and discovery of new evidence. Rule 60(c) also states that its provisions do[] not limit the power of a court to entertain an independent action to relieve a party from a judgment . . . or to set aside a judgment for fraud upon the court. The procedure for obtaining any relief from a judgment shall be by motion as prescribed in these rules or by an independent action. (Emphases added). In other words, a collateral attack of a judgment, i.e. an independent action, may be maintained pursuant to Rule 60(c) if the plaintiff alleges the judgment was obtained by fraud upon the court. See Roberson v. Teel, 20 Ariz. App. 439, 449, 513 P.2d 977, 987 (App. 1973) ( [E]xtrinsic fraud, that is, fraud which operates upon the manner in which the judgment was procured, is grounds for a collateral attack upon the judgment. ). alleging just that. Appellants fraud claim can be read as See Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 419, ¶ 7, 189 P.3d 344 346 (2008) (we must indulge all reasonable inferences from the factual allegations of the complaint). ¶18 The heart of Appellants fraud claim was that Appellees allegedly knowingly and intentionally failed to disclose to the justice court and Appellants that the home had been re-rented on November 23 despite the FED judgment against Appellants for all 10 of November s rent. did not pay fraudulently Appellees note that because the new renters November rent, Appellants double-dipped by judgment for that same month. cannot obtaining claim rent via Appellees the FED Appellees claim that if the case is not about double dipping, then one can only venture a guess as to why it would be relevant that [Appellees] did or did not inform [Appellants] that the Property had been re-rented. ¶19 Appellees fail to realize the significance of their omission to the justice court. Because the new tenants resided in the property rent-free for the last seven days of November, Appellants should not have been subject to a rent judgment for all of November. See Tempe Corporate Office Bldg. v. Ariz. Funding Servs., Inc., 167 Ariz. 394, 399, 807 P.2d 1130, 1135 (App. 1991) (landlord can recover unpaid rent due only prior to reletting the premises). opportunity to consider The justice court did not have the this argument, however, because as Appellants alleged in their complaint nearly ten times, Appellees knowingly and intentionally failed to disclose to the justice court and Appellants that the property had been re-rented. a party obtains a judgment by concealing material When facts and suppressing the truth with the intent to mislead the court, this constitutes a fraud upon the court, and the court has the power to set aside the judgment at any time. 11 Cypress on Sunland Homeowners Ass n v. Orlandini, 227 Ariz. 288, 299, ¶ 42, 257 P.3d 1168, 1179 (App. 2011). ¶20 Additionally, we do not agree with Appellees that it would have been inconsequential if they had disclosed the rerental because Appellees acted for the benefit of Appellants. Appellees contend that, [h]ypothetically, if [Appellants] would have claimed that [Appellees] double dipped, collecting rent from both [Appellants] and the subsequent tenant for the same time period, this might have reduced the amount owed . . . in the garnishment. But Appellees are incorrect that only a double rent payment is relevant. In Mesilla Valley Mall Co. v. Crown Industries, a commercial tenant abandoned the premises and the landlord allowed a museum to occupy the space rent free in the interest of promoting good community relations. 808 P.2d 633, 634 an (N.M. 1991). The landlord then initiated action collect rent from the tenant who abandoned the premises. 635. Id. at The court held that the landlord re-let the premises solely for its own benefit. both to the original Id. at 636. tenant and If re-letting does not benefit the landlord, the landlord s actions would be inconsistent with a continued landlord-tenant relationship to which the landlord seeks to hold the tenant. Id. The landlord, therefore, could not hold the original tenant liable for rent as of the date the premises were re-rented. Id. Likewise here, even if the new tenants did not pay rent for their 12 November occupancy, Appellees cannot hold Appellants liable for all of November s rent when Appellees clearly benefitted by the new tenant s occupancy during that time. ¶21 Appellees acknowledge Appellants under Rule 60(c). the mechanisms afforded They argue that [d]espite being aware of the judgment and the garnishment, [Appellants] took no action to vacate the judgment or object to the garnishment. Appellants otherwise maintain, seek however, recourse that because they they property was re-rented on November 23. did were not object unaware or that the Once aware, Appellants asserted in their complaint the alleged fraud upon the court. This is just contemplates. the type of independent action Rule 60(c) See Andrew R. v. Ariz. Dep t of Econ. Sec., 223 Ariz. 453, 459, ¶ 22, 224 P.3d 950, 956 (App. 2010); Honk v. Karlsson, 80 Ariz. 30, 33, 292 P.2d 455, 457 (1956) (extrinsic fraud defined as that by which the defrauded person has thereby been prevented from learning of the proceeding or asserting his claim therein ) (citation omitted). ¶22 Because Appellants fraud claim could be read as alleging fraud upon the court, the superior court should have considered whether Appellants complaint was a proper independent action under Rule 60(c). Thus, the court erred in dismissing the fraud claim as an improper collateral attack because under Rule 60(c), such an independent action may be permitted at any time to 13 remedy fraud upon the court. We remand to the superior court to consider the fraud allegations in light of Rule 60(c). C. Award of Attorney s Fees and Costs. ¶23 Appellants also argue the superior court abused its discretion by awarding Appellees their attorney s fees and costs. Because we remand to the superior court to consider whether Appellants fraud claim constitutes a valid independent action under Rule 60(c), we also vacate the court s award of attorney s fees and costs. D. Cross-Appeal on Denial of Sanctions. ¶24 Lastly, the Savilles cross-appeal from the superior court s denial of their motion for sanctions under A.R.S. § 12349(A) and Rule 11. They argue sanctions were warranted given Appellants motive to harass and intimidate them by filing a frivolous complaint. by taking into They also contend the superior court erred consideration [Appellants ] claim they were indigent. ¶25 Because we remand to the superior court to consider whether Appellants fraud claim constitutes an independent action alleging fraud on the court under Rule 60(c), we cannot say Appellants action was brought without substantial justification under § 12-349(A) or for an improper purpose, such as to harass under Rule 11. We therefore superior court s denial of the motion for sanctions. 14 affirm the ATTORNEY S FEES & COSTS ON APPEAL ¶26 Appellees request this court to impose sanctions and/or attorneys fees because this appeal is frivolous and pursued to harass Appellees. Because we remand on the fraud claim, we deny Appellees request. ¶27 Appellants, as the prevailing party on appeal, are entitled to their costs upon compliance with ARCAP 21. CONCLUSION ¶28 For the foregoing reasons, we affirm the superior court s dismissal of all of Appellants claims except the fraud claim and attorney s fees and costs. We remand to the superior court to consider whether Appellants fraud claim constitutes an independent action under Rule 60(c). We also vacate the award of attorney s fees and costs. /S/ _____________________________________ TERESA A. SANDERS, Judge Pro Tempore* CONCURRING: /S/ ____________________________________ PATRICIA A. OROZCO, Presiding Judge /S/ ____________________________________ PETER B. SWANN, Judge *The Honorable Teresa A. Sanders, Judge of the Maricopa County Superior Court, is authorized by the Chief Justice of the Arizona Supreme Court to participate in the disposition of this appeal pursuant to Article 6, Section 3, of the Arizona Constitution and A.R.S. §§ 12-145 to -147 (2003). 15

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