Legacy v. Citizens Clean

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
LEGACY FOUNDATION ACTION FUND, Plaintiff/Appellant,
v.
CITIZENS CLEAN ELECTIONS COMMISSION, Defendant/Appellee.
No. 1 CA-CV 19-0773
FILED 1-20-2022
Appeal from the Superior Court in Maricopa County
Nos. CV2018-004532
CV2018-006031
(Consolidated)
The Honorable Christopher T. Whitten, Judge
AFFIRMED
COUNSEL
Bergin Frakes Smalley & Oberholtzer PLLC, Phoenix
By Brian M. Bergin
Co-counsel for Plaintiff/Appellant
Holtzman Vogel Josefiak PLLC, Warrenton, VA
By Jason Brett Torchinsky
Co-counsel for Plaintiff/Appellant
Osborn Maledon PA, Phoenix
By Mary R. O’Grady, Joseph N. Roth
Counsel for Defendant/Appellee
LEGACY v. CITIZENS CLEAN
Opinion of the Court
OPINION
Presiding Judge Randall M. Howe delivered the opinion of the court, in
which Chief Judge Kent E. Cattani joined. Judge Cynthia J. Bailey dissented.
H O W E, Judge:
¶1 Legacy Foundation Action Fund appeals the trial court’s
dismissal of its special-action complaint and granting summary judgment
to the Citizens Clean Election Commission in the Commission’s separate
enforcement action. Legacy argues that its special-action complaint was an
appropriate collateral attack on the Commission’s jurisdiction. The
Commission argues that because Legacy had challenged its jurisdiction in
the administrative proceeding and failed to seek timely review of that
decision, Legacy is precluded from collaterally attacking its jurisdiction
now.
¶2 We hold that an administrative agency’s jurisdiction cannot
be collaterally attacked by a party that challenged the agency’s jurisdiction
administratively but failed to timely appeal the agency’s decision.
Accordingly, we affirm the trial court’s dismissal of Legacy’s special-action
complaint and its granting the Commission summary judgment.
FACTS AND PROCEDURAL HISTORY
¶3 Legacy is a non-profit corporation that aired political
advertisements in Arizona in 2014. The Commission then received a
complaint alleging that Legacy had violated the Citizens Clean Elections
Act, A.R.S. §§ 16–940 to –961. The Commission believed that Legacy had
violated the Act’s independent reporting requirements, and—after holding
a hearing—assessed Legacy $95,460 in penalties. See §§ 16–941(D),
–957(A)–(B). Legacy sought administrative review, arguing in part that the
Commission lacked subject-matter jurisdiction to assess the penalty. The
Commission, however, rejected that argument and, in March 2015, entered
a final administrative order imposing a civil penalty of $95,460 against
Legacy.
¶4 Eighteen days after the Commission issued its final
administrative order, Legacy sought judicial review, arguing that the
Commission lacked personal and subject-matter jurisdiction. The trial court
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LEGACY v. CITIZENS CLEAN
Opinion of the Court
dismissed the appeal, concluding that it lacked jurisdiction because Legacy
missed the 14-day deadline to appeal under A.R.S. § 16–957(B). Legacy
appealed the trial court’s dismissal of its appeal, but this court and our
supreme court upheld the dismissal. See Legacy Found. Action Fund v.
Citizens Clean Elections Comm’n, 243 Ariz. 404, 408 ¶¶ 19–20 (2018) (Legacy
I). In doing so, our supreme court noted that it “express[ed] no view on
whether Legacy [could] pursue alternative procedural means to challenge
the Commission’s penalty order as void.” Id. at ¶ 19.
¶5 On remand, the Commission sought judgment in the trial
court against Legacy for the full amount of the final administrative order.
The same day, Legacy brought a special action in the trial court, alleging in
part that the Commission lacked subject-matter jurisdiction over the matter,
and the court consolidated the two cases. Both parties moved to dismiss,
and the trial court granted the Commission’s motion, dismissed Legacy’s
special-action complaint, and denied Legacy’s motion to dismiss.
¶6 The parties then each moved for summary judgment on the
Commission’s enforcement of the final administrative order. In ruling on
the motions, the trial court characterized Legacy’s arguments as asking the
court to set aside the Commission’s factual findings. The court concluded
that the findings could not be set aside and granted the Commission
summary judgment. Legacy timely appealed.
DISCUSSION
¶7 Legacy argues that the trial court erred in dismissing its
special-action complaint and granting the Commission summary
judgment, thereby enforcing the Commission’s final administrative order.
Legacy contends that its special-action complaint was an appropriate
collateral challenge to the Commission’s subject-matter jurisdiction. We
review the dismissal of a complaint de novo, assuming as true the
complaint’s well-pleaded facts, and we will affirm when, as a matter of law,
the plaintiffs would not be entitled to relief under any interpretation of the
facts susceptible of proof. Hopi Tribe v. Ariz. Snowbowl Resort Ltd. P’ship, 245
Ariz. 397, 400 ¶ 8 (2018).
¶8 Legacy is precluded from collaterally attacking the
Commission’s exercise of subject-matter jurisdiction. “[A]dministrative
decisions which go beyond an agency’s statutory power are vulnerable for
lack of jurisdiction and may be questioned in a collateral proceeding.” Ariz.
Bd. of Regents for & on Behalf of Univ. of Ariz. v. State, 160 Ariz. 150, 156 (App.
1989). However, “[f]ailure to appeal a final administrative decision makes
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LEGACY v. CITIZENS CLEAN
Opinion of the Court
that decision final and res judicata.” Gilbert v. Bd. of Med. Exam’rs, 155 Ariz.
169, 174 (App. 1987), superseded on other grounds by statute as stated in
Goodman v. Samaritan Health Sys., 195 Ariz. 502, 508 ¶ 25 n.7 (App. 1999).
¶9 Under the doctrine of res judicata (now referred to as “claim
preclusion”), “a final judgment on the merits bars further claims by parties
or their privies based on the same cause of action.” In re Gen. Adjud. of All
Rights to Use Water in Gila River Sys. & Source, 212 Ariz. 64, 69 ¶ 14 (2006)
(quoting Montana v. United States, 440 U.S. 147, 153 (1979)). Final
administrative orders are final judgments for purposes of claim preclusion.
See Hawkins v. State, 183 Ariz. 100, 104 (App. 1995) (“Where a party does not
appeal a final administrative decision that decision becomes final and res
judicata.”). The principles of claim preclusion “apply to jurisdictional
determinations—both subject matter and personal.” Ins. Corp. of Ireland, Ltd.
v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 n.9 (1982). “A party
that has had an opportunity to litigate the question of subject-matter
jurisdiction may not . . . reopen that question in a collateral attack upon an
adverse judgment.” Id.; see also Restatement (Second) of Judgments § 12
(1982) (parties are precluded from litigating the court’s subject-matter
jurisdiction in subsequent litigation except in limited circumstances).
¶10 Legacy and the Commission were parties to the
administrative proceeding, and Legacy challenged the Commission’s
subject-matter jurisdiction in that proceeding. Eighteen days after the
Commission issued its final order, Legacy appealed to the trial court,
arguing that the Commission had lacked personal and subject-matter
jurisdiction over the matter. But the trial court dismissed the appeal as
untimely because Legacy had appealed after the 14-day deadline under
A.R.S. § 16–957(B). The Commission’s administrative order became final
after our supreme court affirmed the trial court’s dismissal of Legacy’s
untimely appeal.
¶11 Having litigated subject-matter jurisdiction in the
administrative proceeding and having failed to timely appeal the final
ruling on the merits by direct review, Legacy cannot raise the issue again in
a new proceeding. See Gilbert, 155 Ariz. at 176 (“No timely appeal having
been taken, the decision of the board is conclusively presumed to be just,
reasonable[,] and lawful.”); see also Restatement (Second) of Judgments § 17
(1982) (a final judgment in a civil defendant’s favor on a claim “bars a
subsequent action on that claim”). This is no less true when the collateral
attack targets the Commission’s subject-matter jurisdiction because “[e]ven
subject-matter jurisdiction . . . may not be attacked collaterally” once the
decision becomes final on direct review. See Travelers Indem. Co. v. Bailey,
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Opinion of the Court
557 U.S. 137, 152 (2009) (quoting Kontrick v. Ryan, 540 U.S. 443, 455 n.9
(2004)). “[T]he need for finality forbids a court called upon to enforce a final
order to ‘tunnel back . . . for the purpose of reassessing prior jurisdiction de
novo.’” Id. at 154 (quoting In re Optical Techs., Inc., 425 F.3d 1294, 1308 (11th
Cir. 2005)); see Willy v. Coastal Corp., 503 U.S. 131, 137 (1992) (“[T]he practical
concern with providing an end to litigation justifies a rule preventing
collateral attack on subject-matter jurisdiction.”).
¶12 Legacy points to our supreme court’s Legacy I opinion in
arguing that its special-action complaint was a proper collateral attack on
the Commission’s subject-matter jurisdiction. Our supreme court, however,
noted that it expressed no view whether Legacy could pursue alternative
procedural means to challenge the Commission’s penalty order as void.
This question was not before the court at that time. Our supreme court’s
statement, therefore, does not support Legacy’s argument.
¶13 Legacy also cites this court’s prior decisions to argue that its
special-action complaint is a proper collateral attack on the Commission’s
subject-matter jurisdiction. But those decisions do not support allowing
Legacy to collaterally attack the Commission’s subject-matter jurisdiction
after it failed to properly seek appellate review of the Commission’s ruling
rejecting Legacy’s argument. While this court previously stated in those
decisions that a collateral attack on jurisdictional grounds is allowed, each
involved a situation in which the party did not have an opportunity to raise
that issue in the prior proceeding. See Miller v. Ariz. Corp. Comm’n, 227 Ariz.
21, 24 ¶ 9 (App. 2011); Sprang v. Petersen Lumber, Inc., 165 Ariz. 257, 264
(App. 1990); Ariz. Bd. of Regents, 160 Ariz. at 154–55; see also Tucson
Warehouse & Transfer Co. v. Al’s Transfer, Inc., 77 Ariz. 323, 324–28 (1954)
(although not directly stated, party did not have opportunity to raise issue
in prior proceeding). None of those decisions held that a party that
challenged an administrative agency’s jurisdiction in a prior proceeding
may do so again in a collateral proceeding. They are therefore inapplicable.
¶14 Here, Legacy challenged the Commission’s subject-matter
jurisdiction in the administrative proceeding and then forfeited its right to
challenge that decision by failing to timely appeal. Our supreme court
noted in Legacy I that A.R.S. § 12–902(B) does not “provide limitless
entitlement to challenge an administrative agency’s jurisdiction through
direct appeal.” Similarly, Legacy’s right to challenge the Commission’s
jurisdiction through collateral attack is not unlimited. “It is just as
important that there should be a place to end as that there should be a place
to begin litigation.” Travelers Indem. Co., 557 U.S. at 154 (quoting Stoll v.
Gottlieb, 305 U.S. 165, 172 (1938)). Allowing Legacy to challenge the
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Opinion of the Court
Commission’s subject-matter jurisdiction after it already did so in the
administrative proceeding would short-circuit the principles of claim
preclusion. See id.; see also Willy, 503 U.S. at 137. Because Legacy challenged
the Commission’s jurisdiction in the administrative proceeding and failed
to timely appeal, it cannot collaterally attack the Commission’s
subject-matter jurisdiction now.
¶15 Legacy concedes that the Restatement (Second) of Judgments
§ 12 provides that a party may not challenge a tribunal’s subject-matter
jurisdiction in subsequent litigation but argues that the Restatement does
not apply in Arizona when contrary state court decisions, statutes, or rules
of procedure apply. The difficulty with this argument, however, is that no
Arizona appellate court decision, statute, or rule has addressed whether a
party that has already raised jurisdictional issues can do so again in a
collateral proceeding. Legacy also argues that Arizona Rule of Procedure
for Special Actions 3(b) specifically permits a party to raise questions
concerning jurisdiction in a special action. But that rule, as with the other
authorities Legacy cites, does not address whether a party may raise
subject-matter jurisdiction in a special action when the party already
litigated that issue to judgment in a previous proceeding. We therefore
follow the Restatement and hold that Legacy may not collaterally attack the
Commission’s exercise of subject-matter jurisdiction in the prior
administrative proceeding. See Delci v. Gutierrez Trucking Co., 229 Ariz. 333,
337 ¶ 16 (App. 2016) (“[A]bsent Arizona law to the contrary, Arizona courts
will usually apply the law of the Restatement.”).
¶16 Legacy notes that the Restatement identifies two exceptions
to claim preclusion. First, claim preclusion does not apply to collateral
attacks on subject-matter jurisdiction if “[t]he subject matter of the action
was so plainly beyond the court’s jurisdiction that its entertaining the action
was a manifest abuse of authority.” Restatement (Second) of Judgments
§ 12(1). Legacy argues that the Commission’s exercise of subject-matter
jurisdiction was a manifest abuse of authority because the Commission’s
jurisdiction “extends to expenditures made ‘by or on behalf of any
candidate,’” and Legacy is not a candidate.
¶17 This exception does not apply because the Commission’s
exercise of subject-matter jurisdiction here was not a manifest abuse of
authority. The exception is narrowly applied to “egregious cases where a
court lacks the power to hear a particular class of case.” In Interest of A.E.H.,
468 N.W.2d 190, 206 (Wis. 1991). Legacy does not argue that the
Commission improperly exercised subject-matter jurisdiction over an
entire category of cases. Rather, it argues that the Commission’s exercise of
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Opinion of the Court
jurisdiction over this particular case was improper. But the question is “not
whether a court makes a proper or improper determination of
subject-matter jurisdiction in a particular case[,]” but whether it lacks
jurisdiction over an entire category of cases, In re C.L.S., 225 A.3d 644,
650–51 (Vt. 2020), such as a bankruptcy court handling a criminal trial,
Travelers Indem. Co., 557 U.S. at 153 n.6. “Otherwise, every jurisdictional
error could arguably be characterized as a manifest abuse of authority, and
the exception would be rendered meaningless.” In Interest of A.E.H., 468
N.W.2d at 206. Therefore, Legacy has not shown a manifest abuse of
authority by the Commission’s exercise of subject-matter jurisdiction.
¶18 Second, Legacy argues, claim preclusion does not apply to
collateral attacks on subject-matter jurisdiction when “[a]llowing the
judgment to stand would substantially infringe the authority of another
tribunal or agency of government.” Restatement (Second) of Judgments
§ 12(2). Legacy argues that the Commission’s exercise of subject-matter
jurisdiction infringes on the authority of the Arizona Secretary of State as
well as the Arizona Attorney General, which it contends have exclusive
enforcement authority over independent campaign contributions. The
Commission’s enforcement of the Act does not have that effect, however,
because A.R.S. § 16–956(A)(7) expressly authorizes the Commission to
enforce the Act, and the Commission has the sole power to investigate and
enforce violations of the Act. See Ariz. Advocacy Network Found. v. State, 250
Ariz. 109, 121 ¶¶ 56–57 (App. 2020). This exception is therefore
inapplicable.
¶19 Legacy argues further that claim preclusion does not apply
because the Commission infringed on its free speech rights. Legacy’s
argument, however, does not relate to any of the exceptions provided by
the Restatement (Second) of Judgments § 12 and is instead an argument on
the merits. Legacy also fails to show how enforcing the principles of finality
interferes with its free speech rights. It therefore has not shown that this
case fits under one of the narrow exceptions to the application of claim
preclusion. As a result, Legacy is precluded from collaterally attacking the
Commission’s exercise of subject-matter jurisdiction in the administrative
proceeding.
¶20 The dissent asserts that subject-matter jurisdiction—
especially of administrative agencies—is of such importance that a party
must be able to raise it anytime. Infra ¶¶ 29–31. But no matter how
important an issue is—even one as important as subject-matter
jurisdiction—a system of ordered litigation and final resolution of disputes
cannot function effectively if an unsuccessful litigant can attack a final
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Opinion of the Court
resolution in a subsequent collateral proceeding. See Travelers Indem. Co.,
557 U.S. at 152; Kontrick, 540 U.S. at 455 n.9; Willy, 503 U.S. at 137.
Application of claim preclusion to subject-matter jurisdiction has been the
law for more than a century, see Des Moines Navigation & R. Co. v. Iowa
Homestead Co., 123 U.S. 552, 557–59 (1887) (citing cases), and no Arizona
decision contradicts this principle.
¶21 This is not a situation in which a litigant had no earlier
opportunity to litigate the agency’s jurisdiction. Legacy challenged the
Commission’s subject-matter jurisdiction in proceedings before the
Commission itself, and when the Commission rejected Legacy’s argument,
Legacy had the statutory right to seek review of that determination, A.R.S.
§ 16–957(B), but forfeited that right by not asserting it timely. Legacy’s
forfeiture does not entitle it to a second opportunity. See Legacy I, 243 Ariz.
at 406 ¶ 8 (“[W]e are ‘not free to ignore the clear statutory language of A.R.S.
§ 16–957(B) and create jurisdiction in the superior courts where the
legislature has provided to the contrary.’”).
¶22 The dissent posits that we are establishing an exception to the
well-settled rule that subject-matter jurisdiction can be neither waived nor
stipulated to. Instead, we are simply applying the well-settled rule—as
announced by the United States Supreme Court—that principles of claim
preclusion apply to jurisdictional determinations—both subject matter and
personal. See Ins. Corp. of Ireland, Ltd. 456 U.S. at 702 n.9 (citing Chicot County
Drainage Dist. v. Baxter State Bank, 308 U.S. 371 (1940); Stoll v. Gottlieb, 305
U.S. 165 (1938)). After losing its jurisdictional challenge before the
Commission, Legacy had the statutory right under A.R.S. § 16–957(B) to
seek review of the Commission’s subject-matter jurisdiction within 14 days
of the Commission’s ruling but failed to do so. The appeal was a necessary
part of vindicating Legacy’s legal position. Cf. Rancho Pescado, Inc. v. Nw.
Mut. Life Ins. Co., 140 Ariz. 174, 181–82 (App. 1984) (party failed to take
advantage of a statutory right to appeal denial of a motion to arbitrate and
filed breach of contract action instead; party cannot challenge denial of
motion to arbitrate on appeal on the breach of contract action).
¶23 Although the dissent emphasizes that the only determination
of jurisdiction has been by the administrative agency itself, the hearing
before the administrative agency was merely the beginning of a judicial
process that allowed an appeal of the administrative agency’s jurisdiction
to the superior court, this court, and the Arizona Supreme Court. See A.R.S.
§§ 12–901 to –914, 16–957(B). And Legacy’s failure to timely appeal from the
administrative agency’s decision is no different than a failure to timely
appeal from a superior court decision, or a failure to seek review from one
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Opinion of the Court
of this court’s decisions. Under either scenario, the failure to properly seek
review results in a final judgment that cannot be collaterally attacked in a
subsequent proceeding.
¶24 Our decision does not give special consideration or deference
to an administrative agency. Nor does it suggest that a litigant would be
better off by not diligently contesting an agency’s jurisdiction in an
administrative proceeding. Instead, we hold simply that procedural bars
created by a failure to appeal from the superior court or from the court of
appeals likewise apply to a failure to appeal from an administrative agency
decision.
¶25 The dissent also takes issue with our citation to principles of
claim preclusion set forth in the Restatement (Second) of Judgments § 12.
Infra ¶ 32–36. But Arizona typically applies the Restatements of Law when
no statute, rule, or appellate decision contradicts them and “when [they]
set[] forth sound legal policy.” In re Sky Harbor Hotel Prop., 246 Ariz. 531,
533 ¶ 6 (2019) (quoting CSA 13-101 Loop, LLC v. Loop 101, LLC, 236 Ariz. 410,
414 ¶ 18 (2014)). Not only does § 12 set forth the sound legal policy of
establishing an endpoint to litigation that is consistent with United States
Supreme Court authority, but no controlling Arizona legal authority
contradicts it. Furthermore, our primary analysis of and reliance on the
Restatement is in connection with our conclusion that the exceptions to claim
preclusion proffered under the Restatement do not apply to the facts here.
Under these circumstances, the analytic framework the Restatement sets
forth is persuasive and compelling.
¶26 The dissent cites State v. Espinoza, 229 Ariz. 421 (App. 2012),
as authority for declining to follow § 12. Infra ¶ 35. But that decision
addressed whether an adult could be criminally prosecuted for failing to
register as a sex offender, holding that the court that had originally imposed
the registration requirement lacked jurisdiction to do so. Espinoza, 229 Ariz.
at 429 ¶ 34. The decision involved issues of criminal liability and the loss of
personal liberty that are not present in this case, and for that reason it does
not guide our decision. Moreover, the decision specifically recognized that
its holding was an exception to Arizona’s adoption of “a modern
approach[] in conformity with the Restatement” in addressing the effect of
a final judgment.1 Id.
1 The Arizona Supreme Court recognized that the consequences of an
incorrect jurisdictional decision in a criminal prosecution is so great that it
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Opinion of the Court
¶27 The trial court therefore did not err in dismissing Legacy’s
special-action complaint or in granting the Commission summary
judgment. Because Legacy’s collateral attack is precluded, we do not
consider its argument that this court can independently review the
Commission’s subject-matter jurisdiction.
CONCLUSION
¶28 For the foregoing reasons, we affirm the trial court’s dismissal
of Legacy’s special-action complaint and its granting the Commission
summary judgment in the enforcement action.
adopted rules of criminal procedure that exempt jurisdictional issues from
the application of normal rules of preclusion in post-conviction
proceedings. See Ariz. R. Crim. P. 32.1(b); 32.2(b). The supreme court has
not created a similar exception in civil proceedings. This highlights that
Espinoza’s holding is limited to criminal proceedings and has no greater
application.
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LEGACY v. CITIZENS CLEAN
Bailey, J., dissenting
B A I L E Y, Judge, dissenting:
¶29 I respectfully dissent. In my view, by failing to timely appeal
the agency’s final ruling, Legacy forfeited the right to challenge nearly all
the agency’s actions. But for the reasons set forth below, it did not, and
could not, forfeit the right to challenge the agency’s subject-matter
jurisdiction.
¶30 The majority recognizes that “administrative decisions which
go beyond an agency’s statutory power are vulnerable for lack of
jurisdiction and may be questioned in a collateral proceeding.” Supra
¶ 8 (quoting Ariz. Bd. of Regents ex rel. Univ. of Ariz. v. State, 160 Ariz. 150,
156 (App. 1989) (citations omitted)). This principle extends broadly, even
to courts of general jurisdiction, and pervades our procedural rules. Our
courts have long recognized that judgments of a court or agency lacking
subject-matter jurisdiction are void and subject to collateral attack. See, e.g.,
Chaparro v. Shinn, 248 Ariz. 138, 142-43, ¶ 22 (2020) (citing Walker v. Davies,
113 Ariz. 233, 235 (1976)); Sch. Dist. #1 of Navajo Cnty. v. Snowflake Union
High Sch. Dist., 100 Ariz. 389, 391-92 (1966) (citing Dockery v. Cent. Ariz. Light
& Power Co., 45 Ariz. 434, 449-50 (1935) (citations omitted)). Our procedural
rules likewise go to great lengths to provide parties relief from such
judgments. For example, Arizona Rule of Civil Procedure 60(c) allows a
party only six months to raise most challenges to a judgment, but the rule
imposes no deadline on a challenge to a void judgment. See Legacy Found.
Action Fund v. Citizens Clean Elections Comm’n (Legacy I), 243 Ariz. 404, 407-
08, ¶¶ 15-17 (2018) (contrasting time limit imposed by statute to appeal
from an agency determination under A.R.S. § 12-902 and the ability to seek
relief from void judgments beyond the normal time limits under Rule 60(c)
or otherwise collaterally challenge a void judgment). And, contrary to the
majority’s framing, Rule 3(b) of the Arizona Rules of Procedure for Special
Actions imposes no limit on a collateral challenge to a judgment on
jurisdictional grounds.
¶31 Subject-matter jurisdiction can neither be waived nor
conferred by stipulation. A court simply cannot hear a case over which it
has no jurisdiction. See State v. Maldonado, 223 Ariz. 309, 311, ¶ 14 (2010).
Even A.R.S. § 12-902(B), a statute Legacy I made clear does not directly apply
to this case, does not in my view grant extended appeal rights to some
litigants. Instead, it merely recognizes Arizona precedent on challenges to
subject-matter jurisdiction.
¶32 Here, the majority chooses to establish an exception to this
well-settled rule where an agency has made a contested determination as
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Bailey, J., dissenting
to its own jurisdiction. The majority largely bases its decision on the
Restatement (Second) of Judgments § 12 (1982) and federal procedural law,
which has long been inconsistent with Arizona’s approach. I am not
persuaded that the majority’s “turn to the Restatement” is appropriate, and
I find the federal cases inapposite.
¶33 The comment to Restatement § 12 notes that the issue we
confront presents a “sharp conflict of basic policies,” i.e., a clash between
principles of finality and validity. Restatement (Second) of Judgments § 12
cmt. a. As Comment a explains,
If the question is decided erroneously, and a judgment is
allowed to stand in the face of the fact that the court lacked
subject matter jurisdiction, then the principle of validity is
compromised. On the other hand, if the judgment remains
indefinitely subject to attack for a defect of jurisdiction, then
the principle of finality is compromised.
¶34 Under the “traditional doctrine,” the conflict is resolved in
favor of validity. See id. By contrast, the “modern procedural regime”
grants preclusive effect to judgments issued without subject-matter
jurisdiction. See id. at cmt. c, e.
¶35 The majority favors the “modern procedural regime,”
appealing to general principles of finality that until now have peacefully
coexisted with an exception for subject matter jurisdiction. In so doing, the
majority gives no heed to the fact that the subject-matter jurisdiction of an
administrative agency to act in a quasi-judicial role is established by statute,
not by the agency itself. Thus, the result disregards the danger of
administrative overreach when an agency is allowed to determine for itself
the extent of its jurisdictional power. Though I think the majority’s new
rule is especially problematic in the administrative context, the majority’s
decision to look to the Restatement to resolve this issue is itself problematic.
We turn to the Restatement only when Arizona law is silent. Here, in
another case, this court has noted that Arizona still follows the traditional
doctrine on “true” questions of subject-matter jurisdiction:
In the context of challenges to criminal judgments that have
become final, our state has adopted a modern approach, in
conformity with the Restatement, which resists the
temptation to characterize even serious procedural
irregularities as violations of jurisdictional court
authority. See, e.g., Maldonado, 223 Ariz. [at 312], ¶ 18 . . . . But
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Bailey, J., dissenting
true jurisdictional limitations on a court’s authority remain
and it is our conclusion that one of those boundaries has been
breached here.
State v. Espinoza, 229 Ariz. 421, 429, ¶ 34 (App. 2012). The majority
summarily distinguishes Espinoza as relating to “criminal liability.” I see
Espinoza as affirming that, for “true jurisdictional limitations,” validity still
trumps finality, even for courts of general jurisdiction.
¶36 Moreover, the modern approach advanced by the majority
(and the Restatement) contorts basic principles of Arizona law, and logic
itself, toward the end of judicial economy and finality, neither of which is
meaningfully threatened by the more consistent traditional approach.
¶37 Claim and issue preclusion, on their own terms, apply only to
a judgment or ruling issued by a body with subject-matter jurisdiction.
Among the elements of issue preclusion is that the earlier decision be “a
valid and final decision on the merits.” Garcia v. Gen. Motors Corp., 195 Ariz.
510, 514, ¶ 9 (App. 1999). Likewise, for claim preclusion to be effective,
there must be “a final, valid judgment,” Banner Univ. Med. Ctr. Tucson
Campus, LLC v. Gordon, 249 Ariz. 132, 136, ¶ 9 (App. 2020) (quoting Circle K
Corp. v. Indus. Comm’n, 179 Ariz. 422, 425 (App. 1993)), “rendered by a court
of competent jurisdiction,” Hall v. Lalli, 194 Ariz. 54, 57, ¶ 7 (1999) (citations
omitted).
¶38 The requirements of a “valid” decision and a “court of
competent jurisdiction” mean that a court must have subject-matter
jurisdiction over a dispute before its ruling may acquire preclusive effect.
Here, any application of preclusion to the agency findings must include a
determination that the agency had subject-matter jurisdiction. If the agency
did not have subject-matter jurisdiction, there is no preclusion. If the
agency had subject-matter jurisdiction, Appellant’s petition for relief fails.
Either way, Appellant’s challenge to jurisdiction must be considered.
¶39 Further, the majority’s rule seems to punish parties for raising
defenses. On one hand, if an agency exercises excessive power against a
party whose counsel is lackadaisical and fails to raise a genuine
jurisdictional issue, the party later may collaterally challenge the agency’s
abuse of authority, presumably long after the expiration of any time to
appeal (a right that survives this majority opinion). On the other hand, if
an administrative agency exercises powers beyond its authority, over the
party’s objection, then its abuse of authority cannot be challenged
collaterally. Waiver is rewarded, while a diligent defense is punished.
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Bailey, J., dissenting
¶40 Finally, the majority raises the specter that our system would
not function effectively if this court were to recognize Appellant’s
challenge. But if courts have not, until now, applied the majority’s limits to
subject-matter jurisdiction challenges, then there is no reason to expect
anything different than we’ve seen in the past, i.e., that other restraints
sufficiently limit frivolous collateral challenges to subject-matter
jurisdiction.
¶41 In the end, we err by applying the so-called modern rule from
the Restatement and the federal procedural law on which the majority
relies. Instead, under Arizona statutes and rules, the potential injustice
when an agency acts beyond its statutory authority outweighs any interest
in finality and judicial economy.
AMY M. WOOD • Clerk of the Court
FILED: AA
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