Hatch Dev., LLC v. Solomon

240 Ariz. 171

377 P.3d 368

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

Court of Appeals of Arizona, Division 1.

FILED June 21, 2016

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.

Judge John C. Gemmill delivered the opinion of the Court, in which Presiding Judge Diane M. Johnsen and Judge Kent E. Cattani joined.

OPINION

GEMMILL, 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 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, 334 P.3d 210, 218 (App. 2014) (quoting Andrews v. Blake , 205 Ariz. 236, 240, ¶ 12, 69 P.3d 7, 11 (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:

• 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, 197 P.3d 758, 764 n. 2 (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).

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, 197 P.3d at 764 n. 2 (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 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, 677 P.2d 1331, 1333 (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...