Lattin v. Shamrock

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
KRISTI LATTIN, Plaintiff/Appellant,
v.
SHAMROCK MATERIALS, LLC, et al., Defendants/Appellees.
No. 1 CA-CV 22-0639
FILED 7-20-2023
Appeal from the Superior Court in Maricopa County
No. CV2017-011398
The Honorable Mary C. Cronin, Judge Pro Tempore
The Honorable Lindsay Abramson, Judge Pro Tempore (retired)
AFFIRMED
COUNSEL
Brier, Irish & Hubbard P.L.C., Phoenix
By Teresa H. Foster
Counsel for Plaintiff/Appellant
Sacks Tierney P.A., Scottsdale
By Patrick J. Van Zanen & Michael L. Kitchen
Counsel for Defendants/Appellees
LATTIN v. SHAMROCK, et al.
Decision of the Court
MEMORANDUM DECISION
Judge Paul J. McMurdie delivered the Court’s decision, in which Presiding
Judge D. Steven Williams and Judge Samuel A. Thumma joined.
M c M U R D I E, Judge:
¶1 Kristi Lattin appeals from a judgment awarding Shamrock
Materials, LLC (“Shamrock”) attorney’s fees and costs against the marital
community property. We affirm because the community funded the
lawsuit at issue, Lattin pursued the suit for the community’s benefit, and
the fees were reasonable.
FACTS AND PROCEDURAL BACKGROUND
¶2 In 2005, Lattin, her husband, Robert DeRuiter, and two other
married couples “met on approximately 3 occasions” to discuss the need
for shipping in the concrete industry and plan the formation of a business
together. The three wives formed Shamrock, a concrete shipping business.
The couples named the three wives as the members “to take advantage of
State and Federal disadvantaged business opportunities, like Woman
Owned Business.” Lattin then decided she preferred to have the option to
later become a member rather than retain membership, and she and the
other members signed a profit participation agreement (“Agreement”)
granting her that option. Lattin and the other women signed the Agreement
as “married women dealing with their sole and separate property.”
¶3 The business partners ultimately had a falling out, and in
2017, Lattin sued Shamrock. But Lattin lost in the superior court and on
appeal. See generally Lattin v. Shamrock Materials LLC, No. 1 CA-CV 19-0761,
2020 WL 6140626 (Ariz. App. Oct. 20, 2020) (mem. decision). The judgment
in that proceeding awarded Shamrock its costs and attorney’s fees under
the Agreement. Shamrock then executed on the judgment by serving a writ
of garnishment on the bank managing DeRuiter and Lattin’s joint bank
account. Lattin challenged the garnishment, arguing that Shamrock needed
to join DeRuiter in the suit to collect against the marital community. See
A.R.S. § 25-215(D) (“In an action on [a community] debt or obligation, the
spouses shall be sued jointly.”). On that basis, the superior court quashed
the garnishment, and this court affirmed. Lattin v. Shamrock Materials LLC
(Lattin II), No. 1 CA-CV 20-0245, 2021 WL 58137, at *1, ¶ 1 (Ariz. App. Jan.
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Decision of the Court
7, 2021) (mem. decision). But the Arizona Supreme Court reversed. Lattin v.
Shamrock Materials, LLC (Lattin III), 252 Ariz. 352, 353, ¶ 1 (2022).
¶4 The supreme court acknowledged that under A.R.S.
§ 25-215(D), “a party seeking damages from community assets for an
unpaid debt or breach of an obligation must join both spouses when
asserting a cause of action.” Lattin III, 252 Ariz. at 355, ¶ 10. But it concluded
that “a request for attorney fees and costs after successfully defending a
lawsuit is not itself a cause of action.” Id. at 355, ¶ 12. Thus, the court held,
“neither § 25-215(D) nor due process requires a defendant seeking an award
of attorney fees and costs from a married plaintiff to join the plaintiff’s
spouse in the lawsuit to entitle it to later execute a judgment against
community assets.” Id. at 356, ¶ 15. The court remanded the case for the
superior court to “rule on Lattin’s argument that the judgment is her sole
and separate obligation,” ordering that her husband may intervene “to
contest the judgment’s character as a community obligation.” Id. at 356,
¶ 16.
¶5 On remand, Lattin’s husband intervened and filed an
affidavit. The superior court heard oral argument on whether the judgment
is Lattin’s “sole and separate obligation.” Lattin did not request an
evidentiary hearing or suggest she had more evidence beyond her
husband’s affidavit. The court ruled that “the judgment awarding
attorney’s fees and costs is a community obligation and not a separate
obligation.”
¶6 Lattin moved for reconsideration, and the court ordered
briefing and held a second oral argument. On the record presented, the
court determined that Lattin had no “sole and separate” assets other than
her membership interest in Shamrock. Though Lattin had sued as an
individual, “the lawsuit was funded by the community.” Finally, the court
noted that “just because you say something [is] sole and separate property
does not make it sole and separate property.”
¶7 Because the suit was funded by the community and “pursued
to the benefit of the community,” the court ruled that “the attorney’s fees
award . . . is an obligation of the marital community.” The court entered a
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Decision of the Court
signed judgment reaffirming the attorney’s fees judgment subject to the
supreme court remand.1
¶8 Lattin appealed the attorney’s fees judgment. We have
jurisdiction under A.R.S. § 12-2101(A)(1).
DISCUSSION
A. We Review the Characterization of a Debt De Novo.
¶9 The parties disagree on how to frame the central issue, urging
us to adopt different review standards.
¶10 Lattin contends that this case is about distinguishing “sole
and separate” property from community property. She cites a dissolution
case, identifying that we review de novo the superior court’s community
property characterization. See In re Marriage of Foster, 240 Ariz. 99, 101, ¶ 5
(App. 2016). Thus, Lattin argues the superior court’s ruling that the
judgment obligation applies to the community is an issue subject to de novo
review.
¶11 Shamrock counters that “the key inquiry is whether, as a
matter of fact, Appellant pursued the litigation for and on behalf of her
marital community.” Claiming this determination is a factual finding,
Shamrock argues that our review is whether the superior court’s findings
are clearly erroneous. Shamrock also distinguishes this case from Foster
because this case is not a matter of equity arising from the family court.
¶12 We determine that de novo review is appropriate. The superior
court was commanded to “rule on Lattin’s argument that the judgment is
her sole and separate obligation.” Lattin III, 252 Ariz. at 356, ¶ 16. While we
must defer to findings of fact made by the superior court, a ruling on the
character of a debt obligation is a mixed question of fact and law. See Calisi
v. Unified Fin. Servs., LLC, 232 Ariz. 103, 106, ¶ 13 (App. 2013) (citing Enter.
Leasing Co. of Phoenix v. Ehmke, 197 Ariz. 144, 148, ¶ 11 (App. 1999)) (For
mixed questions, we accept the superior court’s findings of fact unless they
are clearly erroneous, but we review conclusions of law de novo.). And the
1 While other proceedings remained pending, the judgment stated
there was “no just reason for delay” but cited Arizona Rule of Civil
Procedure 54(c) rather than 54(b). Because Rule 54(b) is the appropriate
vehicle to appeal, and the correct language was present, we overlook the
typographical error between (b) and (c) and exercise appellate jurisdiction.
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Decision of the Court
superior court received no testimony on which it based its decision and
made no credibility determinations. The superior court’s conclusion that it
was a community obligation is subject to de novo review.
B. Lattin’s Attorney’s Fees Obligation Is a Community Obligation
Because the Community Funded the Litigation to Benefit the
Community.
¶13 In Arizona, a creditor may not garnish community property
for separate debts incurred during the marriage. A.R.S. § 25-215(A)–(B); see
also Schilling v. Embree, 118 Ariz. 236, 238–39 (App. 1977). “However, when
. . . only one spouse enters into a debt-creating agreement, it does not
necessarily follow that the debt is the separate obligation of that spouse.”
Lorenz-Auxier Fin. Grp. v. Bidewell, 160 Ariz. 218, 220 (App. 1989).
¶14 “[S]pouses have equal management, control and disposition
rights over their community property and have equal power to bind the
community.” A.R.S. § 25-214(B) (emphasis added). As A.R.S. § 25-215(D)
elaborates, “either spouse may contract debts and otherwise act for the
benefit of the community,” creating a community debt. Thus, though a
married person can incur a separate obligation, “debts incurred during
marriage are presumed to be community debts.” Lorenz-Auxier Fin. Grp.,
160 Ariz. at 220 (citing Morgan v. Bruce, 76 Ariz. 121 (1953)). Here, the
burden was on Lattin and her husband to prove by clear and convincing
evidence that the debt was not a community obligation. Id.¶15 Lattin failed to carry her burden. She repeatedly states that
she signed the Agreement as “a married woman dealing with her sole and
separate property.” But this fact is not dispositive. If it were, the supreme
court would have ruled on that basis in its decision. See Lattin III, 252 Ariz.
352. Instead, it remanded for the superior court to allow Lattin and her
husband to present evidence and argue whether the debt was Lattin’s sole
and separate obligation. Id. at 356, ¶ 16.
¶16 Lattin did not request an evidentiary hearing nor suggest that
she had other evidence to support her position. Her husband’s affidavit was
the only new evidence provided to the superior court on remand. Though
his affidavit affirmed Lattin’s claim that her interest in the LLC was her sole
and separate property, it did not establish or allege that the litigation was
separate. Instead, his affidavit stated, “[t]he only sole and separate property
owned by my spouse is her ownership interest in [Shamrock].” His
statement does not support the argument that the litigation was pursued as
a sole and separate matter. It does, however, support the superior court’s
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conclusion that had Lattin prevailed, a monetary award would have
benefitted the community. It likewise supports Shamrock’s argument that
the community funded the litigation.
¶17 Lattin highlights Shamrock’s statement that it planned to add
her husband as a necessary party, urging that this was a tacit admission that
Shamrock could not otherwise recover from the community property. But
the supreme court’s ruling disposed of this argument. Lattin’s husband did
not need to be added to recover attorney’s fees from the community
because a request for attorney’s fees “is not itself a cause of action.” Lattin
III, 252 Ariz. at 355, ¶ 12.
¶18 Lattin provides little legal support that her debt is not a
community debt. She cites Bourne v. Lord as an example in which
community funds were spent on separate property, but the property did
not become a community asset. 19 Ariz. App. 228 (1973). But Bourne does
not apply. Bourne addressed the characterization of an asset as community
or separate, see id. at 229, while the analysis here is not centered on the
asset’s character. No one disputes that Lattin’s interest under the
Agreement is her sole and separate property. Instead, at issue is the nature
of a debt arising from litigation pursued by one spouse. And, as explained,
spouses individually have the power to bind the community. See A.R.S.
§§ 25-214, 25-215(D).
¶19 On the other hand, Shamrock identifies that “[d]ebt incurred
by one spouse while acting for the benefit of the marital community is a
community obligation whether or not the other spouse approves it.”
Lorenz-Auxier Fin. Grp., 160 Ariz. at 220. Lattin presented no evidence that
she pursued the litigation with separate funds or that her success would
have only benefited her separately rather than the community. As the
superior court noted, the evidence suggests “the community was clearly
benefiting or would have benefited had they prevailed in this lawsuit.”
Thus, Lattin’s accrued attorney’s fees are a community debt because the
debt arose from “one spouse . . . acting for the benefit of the marital
community.” Id. at 220.
ATTORNEY’S FEES AND COSTS
¶20 Both parties request costs and an award of attorney’s fees
under the Agreement and A.R.S. § 12-341.01. The Agreement requires a fee
award for the party prevailing in “any legal proceedings for the
enforcement of [the] Agreement.” As the prevailing party, we award
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Decision of the Court
reasonable attorney’s fees and taxable costs to Shamrock upon compliance
with ARCAP 21.
CONCLUSION
¶21 We affirm.
AMY M. WOOD • Clerk of the Court
FILED: AA
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