Hatch Development, LLC v. Solomon , 240 Ariz. 171 ( 2016 )


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  •                                    IN THE
    ARIZONA COURT OF APPEALS
    DIVISION ONE
    HATCH DEVELOPMENT, LLC, an Arizona limited liability company;
    JASON HATCH and SHANNON HATCH, husband and wife,
    Plaintiffs/Counterdefendants/Appellees,
    v.
    GARY SOLOMON and BOBBIE SOLOMON, husband and wife; SOL’s
    CONSTRUCTION CO., INC., an Arizona corporation,
    Defendants/Counterclaimants/Appellants.
    No. 1 CA-CV 14-0767
    FILED 6-21-2016
    Appeal from the Superior Court in Navajo County
    No. S0900CV201100592
    The Honorable Robert J. Higgins, Judge
    AFFIRMED
    COUNSEL
    Holden Willits PLC, Phoenix
    By Michael J. Holden, R. Stewart Halstead
    Counsel for Plaintiffs/Counterdefendants/Appellees
    Berens, Kozub, Kloberdanz & Blonstein, PLC, Scottsdale
    By William A. Kozub, Michael T. DePaoli
    Counsel for Defendants/Counterclaimants/Appellants
    HATCH v. SOLOMON
    Opinion of the Court
    OPINION
    Judge John C. Gemmill delivered the opinion of the Court, in which
    Presiding Judge Diane M. Johnsen and Judge Kent E. Cattani joined.
    G E M M I L L, Judge:
    ¶1          Gary and Bobbie Solomon, husband and wife, and Sol’s
    Construction Co. (collectively “Solomon”) appeal from the trial court’s
    judgment imposing indemnity liability in favor of Jason and Shannon
    Hatch, husband and wife, and Hatch Development, LLC (collectively
    “Hatch”). For the following reasons, we affirm.
    BACKGROUND
    ¶2            Hatch filed a complaint seeking indemnity against Solomon
    in September 2011. The indemnity complaint alleged that Hatch, Solomon,
    and the Town of Taylor were sued in 2007 by Lee and Debbie Hunt
    (“Hunts”) for water damage caused by sewer and water line construction
    work Solomon performed on Hatch’s property. The indemnity complaint
    further alleged that Solomon was solely responsible for the sewer and water
    line construction and had left sewer line trenches open, resulting in the
    water damage to the Hunts’ property. Finally, the indemnity complaint
    alleged that Hatch and the Town of Taylor settled the lawsuit with the
    Hunts to avoid litigation costs. Hatch claimed that Solomon, who was not
    a party to the settlement agreement, was liable to Hatch for indemnity.
    ¶3            Solomon filed an answer and counterclaim denying liability
    and alleging that Hatch was not entitled to indemnification because he also
    was negligent and because the statute of limitations had run on the Hunts’
    claim against Solomon before the settlement agreement was signed. Both
    parties filed motions for summary judgment. Hatch submitted his own
    declaration and declarations from a civil engineer who had inspected the
    work site and from the attorney who represented Hatch in the settlement
    with the Hunts. Solomon submitted his own affidavit. After oral argument,
    the trial court granted Hatch’s motion for partial summary judgment on
    Solomon’s indemnity liability and denied Solomon’s motion for summary
    judgment.
    ¶4           Solomon filed motions to reconsider, asserting newly
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    HATCH v. SOLOMON
    Opinion of the Court
    discovered evidence. He submitted an inspection report and an affidavit
    from an engineer regarding sewer line approval. The trial court authorized
    Hatch to respond to the motions. Hatch submitted a second personal
    declaration, along with declarations from an engineer and also a legal
    secretary who had worked for the firm representing Hatch during
    settlement negotiations. After oral argument, the court denied the motions
    to reconsider. The trial court later granted Hatch’s motions for summary
    judgment on damages and on the counterclaim, and entered judgment in
    favor of Hatch in the amount of $263,697.65, plus costs, as well as attorney
    fees in the amount of $51,997.40.
    ¶5          Solomon timely appeals, and we have jurisdiction under
    Arizona Revised Statutes (“A.R.S.”) sections 12-120.21(A)(1) and 12-
    2101(A)(1).
    ANALYSIS
    ¶6            Solomon challenges the summary judgment holding him
    liable on Hatch’s indemnity claim. We review a trial court’s grant of
    summary judgment de novo, “viewing the evidence and reasonable
    inferences in the light most favorable to the party opposing the motion.”
    Felipe v. Theme Tech Corp., 
    235 Ariz. 520
    , 528, ¶ 31 (App. 2014) (quoting
    Andrews v. Blake, 
    205 Ariz. 236
    , 240, ¶ 12 (2003)). A trial court “shall grant
    summary judgment if the moving party shows that there is no genuine
    dispute as to any material fact and the moving party is entitled to judgment
    as a matter of law.” Ariz. R. Civ. Proc. 56(a).1
    I.     Consideration of the Statute of Limitations
    ¶7            To address Solomon’s arguments on appeal, a timeline of
    pertinent dates is instructive:
    1  As noted, the trial court denied Solomon’s motions for reconsideration
    before entering additional summary judgment rulings and a final
    judgment. Although the denial of a motion for reconsideration may
    ordinarily be reviewed for an abuse of discretion, Waltner v. JPMorgan Chase
    Bank, N.A., 
    231 Ariz. 484
    , 490, ¶ 24 (App. 2013), the motions for
    reconsideration here pertained to the prior summary judgment rulings,
    which are subject to de novo review. See Aranda v. Cardenas, 
    215 Ariz. 210
    ,
    212, ¶¶ 3-4 (App. 2007) (reviewing the grant of summary judgment de novo
    after trial court had also denied a motion for reconsideration of the
    summary judgment).
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    HATCH v. SOLOMON
    Opinion of the Court
       April 2007 — Solomon began work installing sewer lines on Hatch’s
    property.
       July 19, 2007 — A large rainfall occurred, and Hatch was informed
    that muddy water had appeared in the sewer line. Hatch informed
    Solomon of the muddy water and Solomon assured Hatch he would
    take preventative measures.
       July 22, 2007 — A second large rainfall occurred, overwhelming the
    sewer system, flooding the Hunts’ home and causing extensive
    damage.
       July 15, 2008 — The Hunts filed a complaint against Hatch, Solomon,
    and the Town of Taylor, seeking damages for the harm they
    sustained due to the water.
       July 14, 2009 — The Hunts’ complaint was dismissed for lack of
    prosecution.
       January 14, 2010 — According to declarations by Hatch and his
    attorney, an oral settlement agreement among Hatch, the Town of
    Taylor, and the Hunts was reached by this date. An uncontested
    declaration from Hatch’s attorney states that the Hunts had a right
    to refile the action after it was dismissed for lack of prosecution but
    did not do so “in reliance upon the representations of both Hatch
    and the Town of Taylor that each party would continue to pursue
    the settlement as agreed.”
       January 21, 2010 — The settlement was memorialized by a written
    settlement agreement and contract for sale and purchase of property
    (“SAC”) and full and final release of claims and covenant not to sue
    (“FFR”). Solomon was not a party to either document.
       March 9, 2010 — The SAC was fully executed.
       July 2, 2010 — The FFR was fully executed.
       September 2011 — Hatch filed his indemnity complaint against
    Solomon.
    ¶8              Solomon contends that the two-year statute of limitations for
    injuries to property had run on the Hunts’ claims against him by the time
    the settlement agreement was finalized. Citing a footnote in MT Builders,
    L.L.C. v. Fisher Roofing, Inc., 
    219 Ariz. 297
    , 303 n.2, ¶ 13 (App. 2008), Solomon
    then concludes that Hatch cannot prove essential elements of common law
    indemnity — that the indemnity plaintiff (Hatch) and indemnity defendant
    (Solomon) owed a legally enforceable obligation to the third party (the
    Hunts).
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    HATCH v. SOLOMON
    Opinion of the Court
    A.     Solomon’s Legal Obligation to the Hunts
    ¶9         Footnote 2 in MT Builders sets forth a three-pronged test for
    proving common law indemnity under certain circumstances:
    In general, in an action for common law indemnity, the
    indemnity plaintiff must show, first, it has discharged a legal
    obligation owed to a third party; second, the indemnity
    defendant was also liable to the third party; and third, as
    between itself and the defendant, the obligation should have
    been discharged by the defendant. Absent consent or fault of
    the defendant, the plaintiff must show it has extinguished its
    own and the defendant’s liability to prove it has discharged
    the obligation to the third party in satisfaction of the first
    
    element. 219 Ariz. at 303
    n.2, ¶ 13 (emphasis added). Solomon’s reliance on these
    three prongs is misplaced, however, because — as the second sentence
    quoted above reveals — the three-pronged test in the MT Builders footnote
    applies only when the indemnity defendant is not at fault and has not
    consented to the indemnity plaintiff’s payment to the third party.
    ¶10           Restatement (First) of Restitution (1937) (“Restatement”) § 76
    states the general rule:
    A person who, in whole or in part, has discharged a duty which
    is owed by him but which as between himself and another should
    have been discharged by the other, is entitled to indemnity from
    the other, unless the payor is barred by the wrongful nature of
    his conduct.
    (Emphasis added.)2 Restatement § 78, entitled “Where Principal Obligor Is
    Not Liable,” provides in pertinent part:
    A person who with another became subject to an obligation or
    supposed obligation upon which, as between the two, the other
    2  See Schweber Elecs. v. Nat’l Semiconductor Corp., 
    174 Ariz. 406
    , 410 (App.
    1992) (citing Restatement § 76 favorably); Am. & Foreign Ins. 
    Co., 139 Ariz. at 225
    (same); Radcliffe v. Hilton Inn, 
    119 Ariz. 306
    , 308 (App. 1978) (applying
    Restatement § 96 and noting that when there is no other case on point,
    Arizona courts will generally follow the Restatement).
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    HATCH v. SOLOMON
    Opinion of the Court
    had a prior duty of performance, and who has made payment
    thereon although the other had a defense thereto . . .
    (b) is entitled to restitution if he became subject to the
    obligation with the consent of or because of the fault of the
    other and, if in making payment, he acted . . .
    (ii) in the justifiable belief that such duty [owed by
    the indemnity plaintiff to the injured third
    party] existed.
    Restatement § 78(b)(ii) (emphasis added). Accordingly, a duty to
    indemnify may arise in at least two alternative circumstances: First, when
    the party seeking indemnity has “extinguished an obligation owed by the
    party from whom it seeks indemnification,” or second, when the indemnity
    defendant is “at fault.” KnightBrook Ins. Co. v. Payless Car Rental Sys., Inc.,
    
    100 F. Supp. 3d 817
    , 827 (D. Ariz. 2015) (identifying the MT Builders three-
    pronged test as dicta and explaining that “a party seeking indemnification
    must show either that it extinguished an obligation owed by the party from
    whom it seeks indemnification or that the other party was at fault”) (emphasis
    added). See also KnightBrook Ins. Co. v. Payless Car Rental Sys., Inc, 
    43 F. Supp. 3d
    , 965, 977 (D. Ariz. 2014) (discussing Restatement § 76 Comment (b)); Am.
    & Foreign Ins. Co. v. Allstate Ins. Co., 
    139 Ariz. 223
    , 225 (App. 1983) (quoting
    Restatement § 76 and explaining that it applies only if “the payor becomes
    obligated to pay because of the consent or fault” of the indemnity defendant
    and that “[i]n absence of consent or fault, the duty of indemnity to the payor
    can be based only upon the ground that the payment is beneficial” to the
    indemnity defendant) (internal quotations omitted); Restatement § 76
    Comment (b) (“it is important to note that if the payor became liable without
    the consent or fault of the principal obligor, the latter’s duty of indemnity to
    the payor can be based only upon the ground that the payment is beneficial
    to him.”) (emphasis added).
    ¶11           Applying these indemnity principles to the parties in this
    dispute, Solomon is correct that Hatch was not entitled to summary
    judgment on indemnity based on discharging a current obligation owed by
    Solomon because the two-year statute of limitations for property damage
    had run on the Hunts’ claim against Solomon. See A.R.S. § 12-542(3). But
    Hatch was entitled to summary judgment on indemnity from Solomon
    under Restatement § 78(b)(ii) because Hatch presented undisputed facts
    establishing his justifiable belief that the statute of limitations would not
    bar his obligation to the Hunts under the circumstances and indemnity
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    HATCH v. SOLOMON
    Opinion of the Court
    under § 78 is appropriate based on Solomon’s undisputed fault. In other
    words, even though the three-pronged test from MT Builders was not
    satisfied, Hatch was entitled to judgment based on Restatement 78(b)(ii)
    instead.
    ¶12           We therefore reject Solomon’s argument that Hatch must
    show that the settlement of the Hunts, Hatch, and the Town of Taylor
    discharged an obligation of Solomon to the Hunts.3 Even if the statute of
    limitations barred the Hunts’ property damage claim against Solomon at
    the time of the settlement, that would not prevent Hatch from establishing
    an indemnity claim against Solomon under Restatement § 78(b)(ii).
    B.     Hatch’s Legal Obligation to the Hunts
    ¶13            Under Arizona common law, Hatch, as the indemnity
    plaintiff, was required to satisfy a duty, actual or apparent, owed by him to
    the third party (Hunts). See Restatement §§ 76, 78. Solomon claims that
    because the statute of limitations also had run on the Hunts’ claim against
    Hatch, the Hunts had no valid claim against Hatch at the time of the
    settlement.
    ¶14           The uncontroverted evidence in the record indicates that
    Hatch justifiably believed the Hunts had a claim against him. Hatch
    submitted an uncontested declaration from his attorney stating that the
    Hunts’ lawsuit could have been refiled pursuant to A.R.S. § 12-504, that
    Hatch and the Town of Taylor had represented to the Hunts that “each
    party would continue to pursue the settlement as agreed,” and that if Hatch
    had backed out of the settlement negotiations, further litigation would have
    ensued.
    ¶15           On this record, and with no contrary evidence offered, the
    trial court properly determined that Hatch in good faith believed that he
    owed an obligation to the Hunts at the time of the settlement. See
    Restatement § 78(b)(ii). Accordingly, the trial court did not err in granting
    summary judgment to Hatch on indemnity.
    3  We also necessarily reject Solomon’s argument that the settlement
    agreement and release documents did not specifically name him or his
    construction company and therefore Hatch cannot prove that Solomon’s
    debt to the Hunts was in fact discharged.
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    HATCH v. SOLOMON
    Opinion of the Court
    C.     Statute of Limitations Regarding Hatch’s Attorney Fees Claim
    Against Solomon
    ¶16            Solomon asserts that the statute of limitations bars Hatch’s
    indemnity claim for attorney fees spent defending against the Hunts’ suit.
    Solomon raises this specific argument for the first time on appeal. We
    conclude, therefore, that the argument has been waived. See Airfreight Exp.
    Ltd. v. Evergreen Ctr., Inc., 
    215 Ariz. 103
    , 109, ¶ 17 (App. 2007) (holding “a
    party must timely present his legal theories to the trial court so as to give
    the trial court an opportunity to rule properly”) (quoting Payne v. Payne, 
    12 Ariz. App. 434
    , 435 (1970)).
    II.    Sewer Line Approval
    ¶17            Solomon also argues that Hatch is barred from obtaining
    indemnity because Hatch illegally hooked up his sewer system to the town
    lines without Arizona Department of Environmental Quality (“ADEQ”)
    approval. Hatch argues Solomon waived this allegation by not raising it
    until his second motion for reconsideration, after the trial court had granted
    Hatch’s motion for summary judgment on liability.
    ¶18            Although Solomon asserted this argument for the first time in
    his motion for reconsideration, we will consider it because the trial court
    allowed Hatch to respond and held oral argument on the motion before
    ruling. See Crown Life Ins. Co. v. Howard, 
    170 Ariz. 130
    , 132 (App. 1991)
    (considering an argument raised for the first time on appeal because the
    trial court presumably considered the argument on its merits); cf. Ramsey v.
    Yavapai Family Advocacy Center, 
    225 Ariz. 132
    , 137-38, ¶ 18 (App. 2010)
    (noting that we generally do not consider arguments raised for the first time
    in a motion for reconsideration because the “prevailing party below is
    routinely deprived of the opportunity to fairly respond”) (quoting Evans
    Withycombe, Inc. v. W. Innovations, Inc., 
    215 Ariz. 237
    , 240, ¶ 15 (App. 2006)).
    We therefore turn to the merits of Solomon’s argument.
    ¶19             A party seeking common law indemnity must be without
    independent or active fault. Herstam v. Deloitte & Touche, LLP, 
    186 Ariz. 110
    ,
    117-18 (1996); see also INA Ins. Co. of N. Am. v. Valley Forge Ins. Co., 
    150 Ariz. 248
    , 255 (App. 1986); Busy Bee Buffet v. Ferrell, 
    82 Ariz. 192
    , 197-98 (1957);
    Restatement § 96 (“[a] person who, without personal fault, has become subject
    to tort liability for the unauthorized and wrongful conduct of another, is
    entitled to indemnity from the other”) (emphasis added).
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    HATCH v. SOLOMON
    Opinion of the Court
    ¶20           Solomon presented the trial court with evidence that ADEQ
    had not approved the project as required by Taylor Town Code § 13.10.020
    before work could commence. He contends this violation made Hatch
    negligent per se and but for that negligence, the flooding and damage to the
    Hunts would not have occurred.
    ¶21            “The right of a municipal corporation to regulate and control
    the use of its sewers has been generally recognized as a necessary incident
    of its ownership and it may permit appropriate use to be made of its sewers
    subject to reasonable conditions.” Payson Sanitary Dist. of Gila Cnty. v.
    Zimmerman, 
    119 Ariz. 498
    , 501 (1978). When a law or regulation has been
    enacted for public safety, failure to comply with that law or regulation is
    negligence per se if such conduct is the proximate cause of an injury. See
    Salt River Valley Water Users’ Ass’n v. Compton, 
    39 Ariz. 491
    , 496 (1932)
    (abrogated on other grounds by MacNeil v. Perkins, 
    84 Ariz. 74
    (1958)). “The
    proximate cause of an injury is that which, in a natural and continuous
    sequence, unbroken by any efficient intervening cause, produces an injury,
    and without which the injury would not have occurred.” Robertson v.
    Sixpence Inns of Am., Inc., 
    163 Ariz. 539
    , 546 (1990) (internal quotations
    omitted). Additionally, the plaintiff must demonstrate that he or she is
    within the class of persons the statute is designed to protect. Hall v. Mertz,
    
    14 Ariz. App. 24
    , 26 (1971).
    ¶22            Although Hatch’s failure to obtain authorization may have
    violated the town code, this alleged omission was not the proximate cause
    of the damage to the Hunts’ property.4 The uncontroverted facts before the
    trial court on summary judgment support the conclusion that the damage
    was most immediately and directly caused by Solomon’s failure to properly
    cover a manhole and fill in trenches at the worksite. Douglas Brimhall, a
    civil engineer, submitted a declaration in which he opined that the flooding
    was caused by water filling the trenches, flowing into the manhole, and
    thereby directly into the town’s sewer line. The record shows that the
    overflow and resulting damage were not proximately caused by the mere
    connection of pipes into the sewer line — even less so by failure to obtain
    town or ADEQ approval — but rather, by Solomon’s negligence in leaving
    trenches and a manhole uncovered.
    ¶23            The premise of Solomon’s argument is that if Hatch had
    4  Proximate cause is also sometimes referred to as legal cause. See Barrett
    v. Harris, 
    207 Ariz. 374
    , 378, ¶ 11 (App. 2004); see also Alcombrack v. Ciccarelli,
    
    238 Ariz. 538
    , 540, ¶ 6 (App. 2015).
    9
    HATCH v. SOLOMON
    Opinion of the Court
    applied for ADEQ approval he would have been rejected, and therefore the
    work by Solomon would not have begun, the pipe and trenches would not
    have been left uncovered when the rains came, and the flooding would not
    have occurred. Although the damage to the Hunts thereby might not have
    occurred “but for” Hatch’s failure to obtain ADEQ approval, Solomon
    offered no evidence of proximate cause — no evidence that ADEQ’s
    approval somehow would have prevented his own negligence in installing
    the pipes. Mere “but for” causation is not enough. See Christy v. Baker, 
    7 Ariz. App. 354
    , 356-57 (1968) (determining that a car rental business’s
    negligence in allowing a driver to rent a car without a driver’s license — in
    violation of statute — was not the proximate cause of his accident). Thus,
    the record does not demonstrate a triable issue of fact on proximate
    causation regarding Hatch’s failure to obtain ADEQ approval.
    III.   Liability of Hatch to the Hunts
    ¶24              Solomon further contends that as the owner of the property,
    Hatch was actively negligent and directly liable to the Hunts, thereby
    precluding indemnification under Shea v. Superior Court of Maricopa County,
    
    150 Ariz. 271
    , 274 (1986), in which a failure to act was determined to be a
    positive act precluding indemnity. See also Restatement § 76 (noting, inter
    alia, that a party may be precluded from claiming common law indemnity
    by its wrongful conduct). Solomon points to the fact that Hatch was alerted
    after the first storm that there was mud in the sewer system and did nothing
    to remedy the situation. However, the record presented to the trial court
    shows that Hatch took appropriate remedial action by contacting Solomon,
    the contractor on the job, and insisting Solomon make sure no water was
    getting into the lines through the construction. Hatch’s uncontested
    declaration states that he spoke to Solomon directly and that Solomon
    assured him that he (Solomon) would “take measures to prevent the flow
    of water into the sewer system.” Furthermore, the trial court determined
    that at all relevant times, Solomon was in control of the job site.
    ¶25           Based on this record, the trial court did not err in determining
    that Hatch was not an active participant in causing the water flow issue and
    that his only liability was a result of his status as owner of the property
    rather than as an actively negligent party. See 
    Shea, 150 Ariz. at 274
    ; Valley
    
    Forge, 150 Ariz. at 252
    ; see also Busy 
    Bee, 82 Ariz. at 197-98
    (holding that the
    indemnity plaintiff’s liability was due only because of its legal duty as the
    property owner and not because of any active or independent negligence);
    cf. Transcon Lines v. Barnes, 
    17 Ariz. App. 428
    , 434 (1972) (describing the
    evolution of common law indemnity in Arizona, and holding that
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    HATCH v. SOLOMON
    Opinion of the Court
    indemnity plaintiff was more than just technically liable and therefore not
    entitled to indemnity).
    ATTORNEY FEES
    ¶26           Both Hatch and Solomon asserted at the trial court and on
    appeal that this case arises from a contract and they each claim to be entitled
    to attorney fees under A.R.S. § 12-341.01. We accept their agreement
    regarding application of A.R.S. § 12-341.01; and, in our discretion, we will
    award Hatch an amount of reasonable attorney fees and taxable costs,
    pending compliance with Arizona Rule of Civil Appellate Procedure 21.
    CONCLUSION
    ¶27            Based on the record before us, Solomon did not present a
    genuine issue of material fact and Hatch was entitled to summary judgment
    as a matter of law. The uncontroverted evidence established that Solomon
    was in control of the job site during the relevant time; Solomon’s negligence
    damaged the Hunts; Hatch was liable to the Hunts for that damage due to
    his status as the landowner and not because of any active, personal fault or
    negligence on his part; Hatch settled that liability; and because of the
    relationship between Hatch and Solomon and the actions of Solomon, that
    liability should be borne by Solomon under Restatement § 78(b)(ii). The
    judgment is therefore affirmed.
    :AA
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