holder/carter v. Arizona Board of Regents

NOTICE: 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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
HOLDER CONSTRUCTION GROUP, LLC, a Georgia limited liability
company, Plaintiff/Appellant,
v.
ARIZONA BOARD OF REGENTS, a body corporate acting and
purporting to act by and through Northern Arizona University; JOHN D.
HAEGER, President, Northern Arizona University, Defendants/Appellees.
_______________________________
CARTER & BURGESS, INC., a dissolved Texas Corporation, Plaintiff in
Intervention/Appellant,
v.
ARIZONA BOARD OF REGENTS, a body corporate acting and
purporting to act by and through Northern Arizona University; JOHN D.
HAEGER, President, Northern Arizona University, Defendants in
Intervention/Appellees.
No. 1 CA-CV 14-0390
FILED 6-25-2015
Appeal from the Superior Court in Maricopa County
No. LC2013-000110-001
The Honorable J. Richard Gama, Judge
AFFIRMED IN PART; VACATED AND REMANDED IN PART
COUNSEL
Jennings Haug & Cunningham LLP, Phoenix
By D. Kim Lough
Counsel for Plaintiff/Appellant
Holm Wright Hyde & Hays PLC, Phoenix
By Brad Holm and Justin Holm
Counsel for Plaintiff/Appellant
Lewis Roca Rothgerber LLP, Phoenix
By Robert F. Roos and Kimberly A. Demarchi
Counsel for Defendants/Appellees
MEMORANDUM DECISION
Judge Andrew W. Gould delivered the decision of the Court, in which
Presiding Judge Randall M. Howe and Judge Peter B. Swann joined.
G O U L D, Judge:
¶1 Appellants, Holder Construction Group (“Holder”) and
Carter & Burgess (“C&B”), appeal from the trial court’s order granting
Appellees’ motion to dismiss their complaints. For the reasons that follow,
we affirm in part, vacate in part, and remand for further proceedings.
FACTS AND PROCEDURAL BACKGROUND
¶2 Appellants contracted with Northern Arizona University
(“NAU”) to design and build a science lab building. In their contracts, both
C&B and Holder agreed to submit any disputes “relating to” the project to
an administrative dispute resolution process “handled in accordance with”
Arizona Board of Regents (“ABOR”) policy 3-809(C).
¶3 Because of alleged defects in the design and construction,
NAU filed an administrative claim with the NAU procurement officer
pursuant to the subject dispute resolution provision.
¶4 In an effort to avoid the dispute resolution procedure
designated in the contracts, Appellants filed a special action in superior
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Decision of the Court
court against ABOR1 and NAU’s president. The complaints sought a writ
of prohibition on the grounds that (1) Appellants were not contractually
bound to submit the dispute to the ABOR policy 3-809 procedures, and (2)
policy 3-809 violated Appellants’ due process right. Appellants’ due
process argument rested on the allegation that ABOR policy 3-809
permitted NAU to act as both claimant and final judge of the dispute in
violation of Appellants’ right to a fair and impartial tribunal.
¶5 Appellees filed a motion to dismiss the complaints, arguing
that Appellants had agreed to and were contractually bound to follow the
procedures outlined in ABOR policy 3-809. Appellees also asserted that
Appellants had waived any due process objections to policy 3-809 when
they signed the contract. Finally, Appellees contended that Appellants’ due
process argument failed because NAU’s president had delegated final
decision-making authority to a hearing officer, and as a result he was not
the final judge of the dispute.
¶6 Appellants responded by arguing the hearing officer could
not serve as an impartial judge because he was unilaterally chosen and paid
by Appellees, and thus, had an impermissible pecuniary interest in the
proceedings.
¶7 The trial court granted Appellees’ motion to dismiss. The
court interpreted the contracts to dictate that policy 3-809 outlined the
exclusive procedure for dispute resolution between the parties. After
concluding that Appellants had contractually waived any due process
arguments, the trial court went on to find that, because NAU’s president
had delegated final decision-making authority to a hearing officer, there
was no due process violation. The court dismissed Appellants’ arguments
that the hearing officer had a financial interest in the proceedings, finding
Appellants had failed to present “substantial evidence” showing that the
hearing officer had a direct and personal pecuniary interest. Appellees also
requested and received an award of attorneys’ fees. Appellants timely
appealed.
1 ABOR was sued in its capacity acting on behalf of, and through,
NAU.
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DISCUSSION
I. Standard of Review
¶8 We review a trial court’s grant of a motion to dismiss for
failure to state a claim de novo. Mirchandani v. BMO Harris Bank, N.A., 235
Ariz. 68, 70, ¶ 7 (App. 2014).
¶9 We will affirm the dismissal of a complaint “only if the
plaintiff is not entitled to relief ‘under any facts susceptible of proof under
the claims stated.’” Linder v. Brown & Herrick, 189 Ariz. 398, 402 (App. 1997)
(quoting Donnelly Constr. Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 186
(1984) (overturned on other grounds)). We assume the truth of all of the
complaint’s material allegations and give the plaintiff “the benefit of all
inferences which the complaint can reasonably support.” Luchanski v.
Congrove, 193 Ariz. 176, 179, ¶ 17 (App. 1998) (quoting Gatecliff v. Great
Republic Life Ins. Co., 154 Ariz. 502, 508 (App. 1987)).
II. Application of ABOR Policy 3-809
¶10 Appellants argue they are not contractually bound to submit
their dispute to ABOR policy 3-809’s procedure. They argue policy 3-809
only applies to disputes arising during the performance of the work and
not, as here, to disputes arising after the work is completed. C&B also
claims the contractual provision directing compliance with the ABOR
policy only applies to disagreements between ABOR and Holder.
¶11 The trial court properly considered the underlying contracts
and ABOR policy 3-809 in deciding the motion to dismiss. Where, as here,
a party attaches a contract to its complaint, the contract may be considered
as part of the complaint for the purposes of a motion to dismiss. Ariz. R.
Civ. P. 10(c); See Gorog v. Best Buy Co., Inc., 760 F.3d 787, 791 (8th Cir. 2014)
(stating that documents necessarily embraced by the complaint are not
matters outside the pleadings).
¶12 When interpreting a contract, the court must give effect to the
parties’ intent. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9
(App. 2009). “A general principle of contract law is that when parties bind
themselves by a lawful contract, the terms of which are clear and
unambiguous, a court must give effect to the contract as written.” Id.(quoting Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C., 213 Ariz. 83,
86, ¶ 12 (App. 2006)). We look to “the plain meaning of the words in the
context of the contract as a whole” to give effect to the parties’ intent.
Grosvenor, 222 Ariz. at 593, ¶ 9.
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¶13 The procedures outlined in policy 3-809 may be applied to the
parties’ dispute. The parties agreed to submit any unresolved dispute or
disagreement to the dispute resolution process outlined in ABOR policy 3-
809. Although policy 3-809 is, by its terms, limited to disputes arising
during the performance of the work, the parties had the power to apply
those dispute resolution procedures to any disputes that would arise from
their contractual relationship.
¶14 Here, under the plain terms of both contracts it is clear that
the dispute resolution procedure, including ABOR policy 3-809, applies to
the parties’ dispute. The disputes and remedies section of the contract
between C&B and ABOR states that all disputes, disagreements, claims and
controversies relating to the project “shall be handled in accordance with
[ABOR] Policy Section 3-809(C).” Likewise, Article 11.2.2 of the contract
between Holder and ABOR directs the parties to submit all disputes or
disagreements to the procedures outlined in section 3-809. The terms
“dispute” or “disagreement” in each of these provisions are not limited to
those arising during the performance of the work.
¶15 Contrary to C&B’s assertion, policy 3-809 applies to ABOR’s
claim against C&B even though ABOR also has a claim against Holder.
C&B’s contract provides that any dispute involving both C&B and Holder
“shall be handled . . . subject to the procedures” set forth in Article 11 of
Holder’s contract with ABOR. The parties’ intent is made clear by the
provision directing them to handle disputes in accordance with Article 11
of the Holder agreement “even if the matter involves [C&B].”
¶16 Additionally, Article 11.3.1 of Holder’s contract provides
that the claims of all the parties may be consolidated into a single ABOR
proceeding. Article 11 contains broad language stating that “all other
parties involved in any claim, controversy, dispute or disagreement
relating to the [w]ork . . . can be made parties to . . . any dispute resolution
proceeding initiated pursuant to this Agreement.”
¶17 The parties’ dispute arises from Holder and C&B’s allegedly
defective design and construction work. This work undeniably was carried
out “during the [p]roject.” Accordingly, we affirm the trial court’s
conclusion that the parties contracted to submit this dispute to
ABOR/NAU’s administrative process, which was governed by the
procedures set forth in ABOR policy 3-809.
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III. Exhaustion of Administrative Remedies
¶18 Appellees argue we should affirm the trial court’s dismissal
of Appellants’ due process claims because Appellants failed to exhaust their
administrative remedies before seeking judicial review. As a general rule,
parties are required to exhaust administrative remedies before seeking the
relief in superior court that could be granted in the administrative
proceedings. Smith v. Ariz. Citizens Clean Elec. Comm’n, 212 Ariz. 407, 416,
¶ 48 (2006). The purpose of requiring exhaustion of administrative
remedies is “to allow an administrative agency to perform functions within
its special competence—to make a factual record, to apply its expertise, and
to correct its own errors so as to moot judicial controversies.” Medina v.
Ariz. Dep’t of Transp., 185 Ariz. 414, 417 (App. 1995).
¶19 However, where the administrative proceeding would add
nothing to the court’s ability to evaluate and resolve the legal issues
presented by a claim, we may address an unexhausted issue. Ariz. Assoc’n
of Providers for Persons with Disabilities v. State, 223 Ariz. 6, 14, ¶ 23 (App.
2009) (stating that exhaustion is not required when “the individual facts of
[a plaintiff’s] particular grievances would not aid judicial economy or
sharpen the legal issues”). Exhaustion is not required when “[t]here is
nothing about the administrative process in th[e] case that would be
harmed, and nothing about the judicial process that would be helped, if
exhaustion were required.” Id. (quoting Bailey-Null v. ValueOptions, 221
Ariz. 63, 71, ¶ 26 (App. 2009)).
¶20 The trial court was not barred from considering Appellants’
due process claim based on Appellants’ failure to exhaust administrative
remedies. Appellants argue their due process rights are violated because
the final decisionmaker is a designee of the claimant who is unilaterally
chosen and paid by the university. Resolution of this claim does not
implicate the factual record of the parties’ disputes nor does it require the
expertise of the administrative agency.
IV. Due Process
¶21 Appellees argue that Appellants waived any due process
challenge they may have to ABOR policy 3-809 and its application in this
case. In support of this contention, Appellees point to the contractual
provision that “waives any objections” to the ABOR procedures.
¶22 “A valid waiver of constitutional rights must be voluntary,
knowing, and intelligent.” Webb v. State ex rel. Ariz. Bd. of Med. Exam’rs, 202
Ariz. 555, 558, ¶ 10 (App. 2002). “The right to a ‘fair trial in a fair tribunal’
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is, of course, intrinsic to due process.” Pavlik v. Chinle Unified Sch. Dist. No.
24, 195 Ariz. 148, 152, ¶ 12 (App. 1999). Due process similarly guarantees
the right to “receive a fair administrative hearing and have a decision
rendered by an impartial decisionmaker.” Id.¶23 The plain language of the parties’ contracts does not support
Appellees’ argument. Here, the contracts provide that the parties’ sole
remedy for resolving disputes is the ABOR administrative process, and that
the parties “waiv[e] any objections” to this procedure. However, absent
from this contractual language is any express waiver of the parties’ due
process rights, including their right to a fair and impartial hearing officer.
See Fuentes v. Shevin, 407 U.S. 67, 95–96 (1972).
¶24 Appellees also argue Appellants have failed to show their due
process rights were violated by any purportedly impermissible pecuniary
interest on the part of the hearing officer.
¶25 Although “[t]he combination of investigatory and
adjudicatory functions does not, without more, constitute a due process
violation,” Rouse v. Scottsdale Unified Sch. Dist. No. 48, 156 Ariz. 369, 373
(App. 1987), due process is violated if the decisionmaker’s situation “would
offer a possible temptation to the average man as a judge to forget the
burden of proof required . . . or which might lead him not to hold the
balance nice, clear, and true between the [parties].” Ward v. Vill. of
Monroeville, Ohio, 409 U.S. 57, 60 (1972); see also Pavlik, 195 Ariz. at 152, ¶ 13.
“A statutory scheme may violate due process if the adjudicator has a direct
and personal pecuniary interest in the outcome of its decisions.” Pavlik, 195
Ariz. at 152, ¶ 14; see also Ward, 409 U.S. at 60 (stating that subjecting one’s
case to a judge who has a direct, personal, substantial pecuniary interest in
reaching a conclusion against him violates due process).
¶26 Here, the complaint alleged that Appellants were deprived of
due process by being compelled to participate in dispute resolution
whereby the claimant (ABOR/NAU) was also the decisionmaker (NAU’s
president). The plaintiffs alleged policy 3-809 violates due process because
it allows the University President to preside over a contract dispute to
which the University itself is a party. The Appellants also alleged that,
because the hearing officer to whom the dispute is first submitted is a
designee or representative of the president, “the president of NAU is the
final judge of claims and controversies arising out of the procurement
services.”
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¶27 Beginning with Appellees’ motion to dismiss, the briefings of
the parties directed the trial court to evidence outside the pleadings.
Appellees submitted an email showing that NAU’s president was not going
to decide the dispute because he had delegated final decision-making
authority to a hearing officer. Based on this evidence, the trial court
determined that the NAU president was not the actual adjudicator of the
parties’ dispute. In light of this determination, Appellants introduced
evidence showing that the hearing officer, a contractor selected by and paid
by the university, had an impermissible pecuniary interest in the outcome
of the dispute resolution. Both parties submitted additional evidence in the
briefings related to Appellants’ motion for summary judgment.
¶28 In reaching its decision, the trial court expressly stated that it
was relying solely on the pleadings, and yet it relied on facts outside the
pleadings in making its determination. In determining whether the
university’s appointment of the hearing officer violated due process, the
trial court stated:
Plaintiffs, as the parties seeking to establish institutional bias
on the basis of pecuniary interest, have the burden of
establishing that the interest is direct and personal, not
generalized and speculative. Under these circumstances,
these Plaintiffs have failed to meet this burden. The record is
devoid of any substantive evidence that rebuts the presumption
that the process will be fair and impartial.
(Emphasis added).
¶29 The court’s reliance on evidence outside the pleadings was an
abuse of discretion. “The only way to test the merit of a claim if matters
outside the bounds of the complaint must be considered is by way of
motion for summary judgment.” Gatecliff, 154 Ariz. at 509 (citing Murphy
v. Inexco Oil Co., 611 F.2d 570, 573 (5th Cir. 1980)). Therefore, when a court
relies on matters outside the pleadings, it is required to convert a motion to
dismiss “into a summary judgment proceeding and afford the plaintiff a
reasonable opportunity to present all material made pertinent to a
summary judgment motion.” Id.; see also Ariz. R. Civ. P. 12(b) (stating that
where matters outside the pleadings are presented to and not excluded by
the court in a 12(b)(6) motion, “the motion shall be treated as one for
summary judgment . . . and all parties shall be given reasonable
opportunity to present all material made pertinent” by Rule 56).
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¶30 Here, the trial court expressly limited itself to the pleadings,
and stated that it would “take no action” on Appellees’ motion for
summary judgment. Indeed, the trial court did not even apply a summary
judgment standard in making its ruling. In its written findings, the trial
court makes no reference to the absence of a “genuine dispute as to any
material fact”; rather, it simply concludes, in an apparent weighing of the
evidence, that there is no “substantive evidence” proving pecuniary bias by
the hearing officer. See Ariz. R. Civ. P. 56(a).
CONCLUSION
¶31 For the reasons discussed above, we vacate the trial court’s
order granting Appellees’ motion to dismiss and remand for further
proceedings on the due process issue. However, we affirm the trial court’s
finding that Appellants are contractually bound to submit the subject
dispute to the ABOR policy’s administrative procedure.
¶32 We also vacate, without prejudice, the trial court’s award of
attorneys’ fees to Appellees. Based on our decision, no party has prevailed
at this time and the award is premature. Further, in our discretion we deny
both parties’ requests for fees on appeal.
:ama
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