Az Public v. Maricopa ( 2015 )

ANOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
ARIZONA PUBLIC INTEGRITY ALLIANCE, INC. and
PACE ELLSWORTH,
Plaintiffs/Appellants,
v.
MARICOPA COUNTY SPECIAL HEALTH CARE DISTRICT;
BETSEY BAYLESS; MARY A. HARDEN; MARK DEWANE;
SUSAN GERARD; ELBERT BICKNELL;
TERENCE McMAHON; and MERCY MARICOPA
INTEGRATED CARE,
Defendants/Appellees.
No. 1 CA-CV 14-0604
FILED 10-8-2015
Appeal from the Superior Court in Maricopa County
No. CV2013-009292
The Honorable Randall H. Warner, Judge
The Honorable Douglas Rayes, Judge (Retired)
AFFIRMED
COUNSEL
Tiffany & Bosco, PA, Phoenix
By Christopher A. LaVoy, Richard E. Oney
Counsel for Plaintiffs/Appellants
Dickinson Wright, PLLC, Phoenix
By Gary L. Birnbaum, Andrew L. Pringle, Bradley A. Burns
Counsel for Defendants/Appellees Maricopa County Special Health Care District,
Bayless, Harden, Dewane, Gerard, Bicknell & McMahon
Coppersmith Brockelman, PLC,
By Roopali H. Desai, Andrew S. Gordon, Melissa A. Soliz
Counsel for Defendant/Appellee Mercy Maricopa Integrated Care
MEMORANDUM DECISION
Judge Patricia A. Orozco delivered the decision of the Court, in which
Presiding Judge Margaret H. Downie and Judge Maurice Portley joined.
O R O Z C O, Judge:
¶1 Arizona Public Integrity Alliance, Incorporated (APIA) and
Pace Ellsworth (collectively Appellants) appeal the trial court’s grant of a
motion to dismiss in favor of Maricopa County Special Health Care District
(the District), Betsey Bayless, Mary A. Harden, Mark Dewane, Susan
Gerard, Elbert Bicknell, Terence McMahon, and Mercy Maricopa Integrated
Care (MMIC) (collectively Appellees). For the following reasons, we affirm.
FACTS AND PROCEDURAL HISTORY
¶2 APIA is an Arizona nonprofit corporation founded to
“advance the principles of limited, constitutional government[,] integrity
and accountability in government and public officials[,] government fiscal
responsibility[,] and lower taxes.” Ellsworth serves as an APIA director.
¶3 The District is “a special healthcare district and a political
subdivision of the State of Arizona.” It operates several healthcare centers
including the Maricopa Medical Center, which is the largest public hospital
in Arizona. In both 2012 and 2013, Bayless, the District’s President
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Emeritus, together with Appellees Harden, Dewane, Gerard, Bicknell, and
McMahon served as board members.
¶4 The District holds a minority membership interest in MMIC,
also a nonprofit Arizona corporation. In 2013, the Arizona Department of
Health Services awarded MMIC a contract to become the Maricopa County
Regional Behavioral Health Authority (RBHA) to provide integrated
medical and behavioral healthcare services to Medicaid eligible adults with
serious mental illnesses. The District provided an initial $5 million capital
contribution to MMIC and subsequently executed a $5 million promissory
note payable upon commencement of the RBHA contract (the transaction).
¶5 Appellants brought suit, arguing the District’s membership
interest in MMIC violated Article 9, Section 7, of the Arizona Constitution.
Appellants also alleged the District’s initial $5 million contribution was
paid “from one or more accounts containing funds derived from the
District’s property tax levy or comingled with them” in violation of Article
9, Sections 3 and 9, of the Arizona Constitution and Arizona Revised
Statutes (A.R.S.) section 48-5561. Moreover, Appellants claimed that the
amount of property taxes levied for the District increased from $57.9 million
in 2013 to $62.5 million in 2014 and by 56% since 2006.
¶6 Appellants asserted that APIA had standing to sue in a
representative capacity on behalf of its directors. Alternatively, Appellants
claimed that Ellsworth had standing as a taxpayer and that both Appellants
had “common law standing” to bring suit. Appellants sought, inter alia,
declaratory and injunctive relief and an award for civil penalties.
¶7 The trial court granted Appellees’ motion to dismiss, finding
Appellants lacked standing to assert their claims. The court also denied
Appellants’ request for leave to file a second amended complaint.
Appellants timely appealed and we have jurisdiction pursuant to Article 6,
section 9, of the Arizona Constitution and A.R.S. §§ 12-120.21.A.1
and -2101.A.1 (West 2015).1
DISCUSSION
¶8 We review an order granting a motion to dismiss de novo.
Coleman v. City of Mesa, 230 Ariz. 352, 355, ¶ 7 (2012). We accept all facts
1 We cite the current version of applicable statutes when no revisions
material to this decision have since occurred.
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asserted by the non-moving party as true. McMurray v. Dream Catcher USA,
Inc., 220 Ariz. 71, 73, ¶ 2 (App. 2009).
I. Standing
¶9 Appellants first assert that their amended complaint alleged
sufficient facts to establish their standing to bring suit as taxpayers. We
review a trial court’s determination of whether a party has standing de
novo. Aegis of Ariz., L.L.C. v. Town of Marana, 206 Ariz. 557, 562, ¶ 16 (App.
2003).
¶10 To determine a taxpayer's standing, a court must consider
what interest a taxpayer is protecting. Dail v. City of Phoenix, 128 Ariz. 199,
201 (App. 1980). In Dail, a taxpayer (Dail) brought an action against the
City of Phoenix and Presley of Arizona, requesting that the court void the
contract between the city and Presley. Dail, 128 Ariz. at 200. The trial court
granted a motion for summary judgment against Dail, finding that he
lacked standing. Id. We held that in order “to have standing a [taxpayer]
must be able to demonstrate a direct expenditure of funds that were
generated through taxation, an increase levy of tax, or a pecuniary loss
attributable to the challenged transaction.” Id. at 202. Moreover, we noted
that the rationale behind taxpayer standing is to permit taxpayers to protect
their “equitable ownership” of expended funds and their liability to
replenish them. Id. at 201-02 (citation omitted). We concluded that Dail did
not have standing because the disputed transaction was not funded from
taxpayer funds. Id. at 202.
¶11 In this case, the trial court found that Appellants did not have
standing to challenge the transaction because they failed to allege sufficient
facts that the transaction fell into one of the Dail categories and to state a
claim upon which relief could be granted. The court concluded, “At best,
an inference could be drawn that tax funds might have been expended. This
falls short of Ellsworth’s burden under Dail.”
¶12 It is undisputed that the District is funded, in part, through
property tax revenues. The first amended complaint asserted that the taxes
levied on behalf of the District increased from $57.9 million in 2013 to $62.5
million in 2014. However, the amended complaint did not allege a causal
relationship between the transaction and the tax-levy increase. Because
Appellants did not allege an increased tax levy attributable to the challenged
transaction, the trial court correctly found that Appellants cannot predicate
their standing under the second Dail factor. Id. (emphasis added).
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¶13 The amended complaint also alleged the District’s $5 million
payment to MMIC came from “one or more accounts containing funds
derived from the District’s property tax levy or commingled with them.”
Appellees argue Appellants failed to allege a direct expenditure of tax
funds under Dail. The amended complaint alleged the District is funded,
in part, through property tax revenues and Appellants alleged that the
transaction was funded via an account containing or comingled with
property tax funds. And, Appellants conceded in oral argument before
this court that they cannot allege that the $5 million came from an account
“containing funds derived from the District’s property tax levy.”
¶14 As Appellees correctly contend “[t]he allegation that payment
was made from an account containing ‘commingled’ funds from multiple
sources[,] without more[,] does not allege that funds from a particular
source were expended.” Thus, we affirm the trial court’s ruling that
Appellants lacked standing.
II. Leave to Amend
¶15 Appellants requested leave to further amend their complaint.
The trial court denied Appellant’s motion “based on undue delay and
futility in the amendment.” We review the trial court’s denial for an abuse
of discretion. Tumacacori Mission Land Dev., Ltd. v. Union Pac. R.R. Co., 231
Ariz. 517, 519, ¶ 4 (App. 2013).
¶16 “Leave to amend shall be freely given when justice requires.”
Ariz. R. Civ. P. 15(a)1.B. The trial court has discretion to grant leave, but
amendments should be granted liberally so that cases may be decided on
the merits instead of on “mere technicalities of pleadings.” Cathemer v.
Hunter, 27 Ariz. App. 780, 786 (App. 1976). “While leave to amend may be
denied when the proposed amendment is futile, it should be granted when
the underlying facts or circumstances relied upon may be a proper subject
of relief.” Yes on Prop 200 v. Napolitano, 215 Ariz. 458, 471, ¶ 40 (App. 2007)
(citations and punctuation omitted).
¶17 The trial court properly denied Appellants’ request to amend
its complaint on grounds of futility. We agree with the trial court that
Appellants’ requested amendment would be futile because Appellants
conceded at oral argument that they cannot allege a direct expenditure from
tax funds.
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II. Fees
¶18 Appellants request an award for their attorney fees under the
private attorney general doctrine. See Cave Creek Unified Sch. Dist. v. Ducey,
231 Ariz. 342, 353, ¶ 34 (App. 2013) (“The doctrine is an equitable rule which
permits courts in their discretion to award attorneys’ fees to a party who
has vindicated a right that: (1) benefits a large number of people; (2)
requires private enforcement; and (3) is of societal importance.”) (citation
and internal punctuation omitted). Because Appellants were not successful
on appeal, we deny the request.
CONCLUSION
¶19 For the forgoing reasons, we affirm the trial court’s dismissal
of Appellants’ complaint.
:ama
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