Hatch Development, LLC v. Solomon

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).
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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.
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