Al Carranza v. madrigal/investigation Services, Inc.

IN THE
SUPREME COURT OF THE STATE OF ARIZONA
AL CARRANZA, A MARRIED MAN
Plaintiff/Cross-Defendant/Appellant,
v.
MARIO A. MADRIGAL, AN INDIVIDUAL; MARTHA C. MADRIGAL,
Defendants/Cross-Defendants/Appellees
and
BRYANT C. MADRIGAL,
Defendant/Cross-Claimant/Appellee,
INVESTIGATION SERVICES, INC.,
Intervenor/Appellee.
No. CV-14-0192-PR
Filed July 22, 2015
Appeal from the Superior Court in Maricopa County
The Honorable Emmet J. Ronan, Judge
No. CV2010-092356
CV2011-004777
AFFIRMED
Memorandum Decision of the Court of Appeals, Division One
1 CA-CV 12-0359
1 CA-CV 12-0643
(Consolidated)
Filed March 18, 2014
VACATED IN PART
COUNSEL:
Edward D. Fitzhugh (argued), Tempe, Attorney for Al Carranza
CARRANZA v. MADRIGAL
Opinion of the Court
Ben R. Jemsek (argued), Thrasher Jemsek PLLC, Phoenix, Attorney for
Martha and Bryant Madrigal
JUSTICE BRUTINEL authored the opinion of the Court, in which CHIEF
JUSTICE BALES, VICE CHIEF JUSTICE PELANDER, and JUSTICES
BERCH and TIMMER joined.
JUSTICE BRUTINEL, opinion of the Court:
¶1 Arizona Rule of Civil Procedure 17(a) requires a trial court to
allow a reasonable opportunity to substitute parties before it dismisses an
action for lack of prosecution by the real party in interest. We hold that in
order to substitute a party, one must file a Rule 15(a) motion to amend, and
the motion may be denied if the court finds undue delay or prejudice.
I.
¶2 Martha and Mario Madrigal brought a wrongful death action
against the City of Mesa. Attorney Edward Fitzhugh represented the
Madrigals, but later withdrew. The contingent fee agreement between
Fitzhugh and the Madrigals provided that if Fitzhugh withdrew for any
reason, he would be entitled to 25% of any recovery the Madrigals later
obtained in the case. The Madrigals hired another lawyer, Raymond
Slomski, who settled the case for $3 million.
¶3 Fitzhugh demanded 25% of the settlement pursuant to the
agreement. Slomski and the Madrigals rejected the demand, but Slomski
retained the disputed amount in his client trust account pending a final
resolution. Instead of suing the Madrigals, Fitzhugh assigned his rights
under the fee agreement to Al Carranza. Carranza sued the Madrigals for
the claimed contingency amount, asserting claims for breach of contract,
breach of the covenant of good faith and fair dealing, unjust enrichment,
and quantum meruit (“fee-collection action”). The Madrigals asserted,
among other defenses, that the assignment to Carranza was invalid.
¶4 The Madrigals subsequently divorced. The divorce decree
provided that, upon resolution of the fee-collection action, any remaining
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CARRANZA v. MADRIGAL
Opinion of the Court
funds would be split equally among Martha, Mario, and their son, Bryant.
Later, Mario and Carranza entered into a settlement agreement that called
for $300,000 of the disputed funds to be released to Mario and Carranza
(“settlement agreement”). The Joint Notice of Settlement erroneously
stated that the divorce decree did not allocate the proceeds of the fee-
collection action and that Mario was entitled to half of the proceeds as
community property. The superior court approved the settlement and
ordered Slomski to pay $300,000 to Mario and Carranza. To resolve the
conflicting claims, Slomski filed an interpleader action.
¶5 Martha Madrigal moved for reconsideration and to set aside
the order approving the settlement agreement. The superior court granted
relief under Rule 60(c), Arizona Rules of Civil Procedure, and vacated the
order releasing the funds. Martha then moved for summary judgment in
the fee-collection action.
¶6 The following day, Carranza moved to substitute Fitzhugh as
the real party in interest in both the fee-collection action and the
interpleader action pursuant to Rule 17(a). He did not seek to amend the
pleadings in either case under Rule 15(a). The superior court initially
granted the motion in the interpleader action, but later vacated that order
and denied the substitution request in both actions.1 The court reasoned
that, in the interpleader case, Carranza was the real party in interest because
he—and not Fitzhugh—was a party to the settlement agreement and the
beneficiary of the order releasing the $300,000. As to the fee-collection
action, the court reasoned that the Madrigals had objected to the validity of
the assignment from Fitzhugh to Carranza for well over a year. It found
that Fitzhugh made a “conscious decision” not to name himself as the real
party in interest, there was no understandable mistake or difficulty
determining the proper party, and the Madrigals had been prejudiced by
Fitzhugh’s lengthy and deliberate delay in seeking substitution. The court
granted summary judgment in favor of Martha Madrigal in the fee-
collection action, reasoning that both the contingent fee agreement between
Fitzhugh and the Madrigals and Fitzhugh’s assignment of his claim against
1 The court consolidated the fee-collection action and interpleader
action before ruling on the motions for substitution, but continued to refer
to both actions separately in its rulings.
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CARRANZA v. MADRIGAL
Opinion of the Court
the Madrigals were unethical and therefore unenforceable.
¶7 The court of appeals agreed that the fee agreement was
unenforceable and affirmed summary judgment, but it reversed the denial
of Carranza’s motion to substitute, presumably in the fee-collection action.
Carranza v. Madrigal, 1 CA-CV 12-0359, at *6 ¶ 32 (Ariz. App. Mar. 18, 2014)
(mem. decision). The court reasoned that Carranza, as assignee of “all
rights, title and interest” under the fee agreement, had standing to pursue
only those claims brought under the agreement. Id. at *5–6 ¶¶ 28–29.
Therefore, Fitzhugh was the real party in interest for equitable claims such
as unjust enrichment or quantum meruit, and Rule 17(a) requires every
action to be prosecuted in the name of the real party in interest. Id. at *6 ¶¶
29–30. Relying on our opinion in Preston v. Kindred Hospitals West, L.L.C.,
the court noted that substitution of a real party in interest “does not require
a plaintiff to show that an initial failure to name the real party in interest
resulted from an understandable mistake or difficulty in identifying the
proper party.” Id. at *6 ¶ 31 (quoting Preston v. Kindred Hospitals W., L.L.C.,
226 Ariz. 391, 392 ¶ 1, 249 P.3d 771, 772 (2011)).
¶8 We granted review to clarify the meaning of Rules 17(a) and
15(a), an issue of statewide importance. We have jurisdiction pursuant to
Article 6, Section 5(3) of the Arizona Constitution and A.R.S. § 12-120.24.
II.
¶9 Rule 17(a) provides as follows:
Every action shall be prosecuted in the name of the real party
in interest. . . . No action shall be dismissed on the ground that it
is not prosecuted in the name of the real party in interest until
a reasonable time has been allowed after objection for
ratification of commencement of the action by, or joinder or
substitution of, the real party in interest . . . .
Ariz. R. Civ. P. 17(a) (emphasis added). The rule is not self-executing, nor
does it provide a mechanism for substitution of a party. Instead, it limits a
court’s ability to dismiss an action on the ground that it is not being
prosecuted by the real party in interest.
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CARRANZA v. MADRIGAL
Opinion of the Court
¶10 Citing Preston, the court of appeals correctly found that
substitution does not require a plaintiff to show understandable mistake or
difficulty in identifying the proper party. But that principle is not
applicable here, and the court erred in holding that Fitzhugh had a right to
substitution merely because he was a real party in interest. Preston
recognized that an abuse of Rule 17(a) “can be addressed by the trial court’s
exercise of its discretion under Rule 15(a) in ruling on motions to amend.”
226 Ariz. at 394 ¶ 13, 249 P.3d at 774.
¶11 Here, the trial court did not abuse its discretion when it
denied the motions to substitute. First, Rule 17(a) did not preclude
summary judgment because the trial court granted the motion based on the
unenforceability of the fee agreement and assignment—not Fitzhugh’s
failure to prosecute the action as the real party in interest. Second, the
parties never argued in the trial court that Fitzhugh’s joinder was required
to prosecute the equitable claims, but even if they had, Carranza still failed
to seek leave to amend pursuant to Rule 15(a).
¶12 Rule 15(a) governs the amendment of pleadings to substitute
or add a party. See id. at 394 ¶ 13, 249 P.3d at 774. Carranza’s failure to
move for leave to amend under Rule 15(a) was a sufficient basis for the trial
court to deny his motions to substitute. Rule 15(a) requires the party
seeking amendment to “attach a copy of the proposed amended pleading
as an exhibit to the motion” and “indicate in what respect it differed from
the pleading that it amends.” Carranza did not attach copies of the
proposed amended pleadings, and the motions failed to notify the court
and opposing counsel how the proposed substitution would amend the
pleadings.
¶13 Even if Carranza had properly moved to amend (or if we
deem his motions to substitute as motions for leave to amend under Rule
15(a)), the trial court did not err in denying the motions. We review the
denial of a request to amend for an abuse of discretion. See Owen v. Superior
Court, 133 Ariz. 75, 80, 649 P.2d 278, 283 (1982). A court may deny leave to
amend if it finds “‘undue’ delay, bad faith, dilatory motive, repeated failure
to cure deficiencies by previous amendments or undue prejudice to the
opposing party.” Id. at 79, 649 P.2d at 282; see also Preston, 226 Ariz. at 394
¶ 13, 249 P.3d at 774 (reasoning that trial court’s exercise of discretion under
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CARRANZA v. MADRIGAL
Opinion of the Court
Rule 15(a) can serve to prevent abuse, “such as substitution of a plaintiff on
the eve of trial after prolonged litigation”). “Prejudice is ‘the inconvenience
and delay suffered when the amendment raises new issues or inserts new
parties into the litigation.’” Owen, 133 Ariz. at 79, 649 P.2d at 282 (quoting
Spitz v. Bache & Co., 122 Ariz. 530, 531, 596 P.2d 365, 366 (1979)). A finding
of “undue delay” requires more than a party merely seeking to amend late
in the proceedings. Id. Denial of leave to amend is “a proper exercise of the
court’s discretion when the amendment comes late and raises new issues
requiring preparation for factual discovery which would not otherwise
have been necessitated nor expected, thus requiring delay in the decision of
the case.” Id. at 81, 649 P.2d at 284.
¶14 Here, the trial court did not abuse its discretion by denying
the request to substitute in the interpleader action or the fee-collection
action. In the former, the trial court correctly ruled that Fitzhugh was not
the real party in interest because Carranza, not Fitzhugh, was a party to the
settlement agreement that was the subject of the interpleader action. With
respect to the fee-collection action, the court found that the Madrigals had
been “prejudiced by the lengthy and deliberate delay” in naming Fitzhugh
as the plaintiff, the Madrigals had questioned and objected to the validity
of the assignment “for well over a year,” and Fitzhugh’s absence as a party
was a “conscious decision.” Fitzhugh admittedly knew that he was the real
party in interest. Nevertheless, he inexplicably had Carranza bring the
action and forced the Madrigals to incur expenses pursuing defenses
unique to Carranza. Despite the Madrigals’ repeated objections, Carranza
did not seek to substitute Fitzhugh into the case until the day after Martha
moved for summary judgment—more than a year after Carranza filed the
complaint. Denying the motion to substitute was a proper exercise of the
court’s discretion based on the undue delay caused by Fitzhugh’s tactical
decision and the prejudice substitution would have caused the Madrigals.
See Grand v. Nacchio, 225 Ariz. 171, 177 ¶ 34, 236 P.3d 398, 404 (2010) (finding
no abuse of discretion in denying motion to amend given “the long history”
of the case and the party’s “considered decision to abandon” a claim); Lans
v. Digital Equip. Corp., 252 F.3d 1320, 1328–29 (Fed. Cir. 2001) (affirming
denial of motion for leave to amend complaint because plaintiff’s “personal
choices occasioned his standing problems and the need to amend”).
¶15 Because the trial court did not abuse its discretion in denying
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CARRANZA v. MADRIGAL
Opinion of the Court
the motions to substitute, whether Fitzhugh is the real party in interest is
irrelevant to this appeal. Accordingly, the court of appeals improperly
addressed this issue, and we do not reach it.
III.
¶16 We affirm the trial court’s order denying the motions to
substitute and vacate ¶¶ 26–32 of the court of appeals’ memorandum
decision.
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