Specialty Cos. Grp. LLC v. Meritage Homes of Ariz. Inc.

248 Ariz. 434

461 P.3d 454

SPECIALTY COMPANIES GROUP LLC, et al., Plaintiffs/Appellants,

v.MERITAGE HOMES OF ARIZONA INC, Defendant/Appellee.

No. 1 CA-CV 18-0708

Court of Appeals of Arizona, Division 1.

FILED February 25, 2020

Davis Miles McGuire Gardner, PLLC, Tempe, By David W. Williams, Counsel for Plaintiffs/Appellants

Stinson Leonard Street LLP, Phoenix, By James E. Holland, Jr. (argued), Jennifer L. Allen, Counsel for Defendant/Appellee

Judge Paul J. McMurdie delivered the opinion of the Court, in which Presiding Judge Maria Elena Cruz and Vice Chief Judge Kent E. Cattani joined.

McMURDIE, Judge:

¶1 Specialty Companies Group, LLC ("Specialty") challenges the superior court’s summary judgment ruling that its attempt to impose alter-ego liability on Meritage Homes of Arizona, Inc. ("Meritage") for a default judgment entered against Maricopa Lakes, LLC ("Lakes") was time-barred. We conclude Specialty’s claim is timely under the limitation period for actions on a judgment and reverse and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

¶2 Meritage and Hacienda Builders, LLC ("Hacienda"), formed Lakes in 2004 to develop a residential project in Maricopa. Lakes hired G&K South Forty Development, Inc. ("G&K") to serve as the project manager. G&K subcontracted with Specialty in August 2007 to provide grouted riprap for the project.

¶3 In late 2007, Hacienda announced it would no longer meet its financial obligations to Lakes. Specialty’s invoices to G&K, totaling more than $150,000, went unpaid. Specialty sued G&K on April 13, 2009, alleging breach of contract, claims for amounts owed on an open account, breach of the covenant of good faith and fair dealing, and unjust enrichment. G&K filed a third-party complaint alleging the same claims against Lakes and obtained a default judgment on November 28, 2011 (the "Lakes Judgment"). Shortly after entry of the Lakes Judgment, Specialty and G&K reached a settlement under which G&K assigned its claims against Lakes to Specialty.

¶4 On January 22, 2015, Specialty sued Meritage and Hacienda. Specialty alleged that Meritage and Hacienda were both liable for the Lakes Judgment because, among other things, Lakes was their alter ego. After significant motion practice, including Specialty filing amended complaints, the court granted summary judgment to Meritage, finding Specialty’s action and alter-ego claims were time-barred under the six-year limitation period for claims evidenced by or founded on a written contract. Ariz. Rev. Stat. ("A.R.S.") § 12-548(A)(1). The court also awarded Meritage its attorney’s fees and costs.

¶5 Specialty voluntarily dismissed its claims against Hacienda and appealed the judgment in favor of Meritage. We have jurisdiction under A.R.S. § 12-2101(A)(1).

DISCUSSION

¶6 Specialty argues the six-year statute of limitations for contract actions, A.R.S. § 12-548(A)(1), does not bar its suit against Meritage because its claim to pierce the corporate veil under an alter-ego theory was an "action on a judgment" and not a breach-of-contract action. Specialty contends that the five-year statute of limitations contained within A.R.S. § 12-1551¹ controls an action on a judgment, and argues this limitation period began to accrue on the date the Lakes Judgment was entered. In response, Meritage argues Specialty’s alter-ego claim accrued when Specialty, either as the assignee of G&K’s claims or individually, suspected that it could bring that claim against Meritage. Meritage also claims that Specialty’s action cannot be an action on a judgment because, in its view, such an action can be brought only against the judgment debtor named in the judgment. Therefore, Meritage argues that because Specialty’s suit is not an action on the Lakes Judgment, it must be controlled either by A.R.S. § 12-548(A)(1) ’s limitation period or the four-year catch-all statute of limitations, A.R.S. § 12-550, and that under either period, Specialty’s action is untimely.

¶7 We review de novo whether summary judgment is warranted, including whether genuine issues of material fact exist and whether the superior court correctly applied the law. Dreamland Villa Cmty. Club , Inc. v. Raimey , 224 Ariz. 42, 46, ¶ 16, 226 P.3d 411, 415 (App. 2010). We view the evidence in the light most favorable to Specialty, the nonmoving party. Normandin v. Encanto Adventures, LLC , 246 Ariz. 458, 460, ¶ 9, 441 P.3d 439, 441 (2019). Summary judgment should be granted only "if the facts produced in support of [a] claim ... have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim." Orme Sch. v. Reeves , 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990).

¶8 We review the application of a statute of limitations de novo . Broadband Dynamics, LLC v. SatCom Marketing, Inc ., 244 Ariz. 282, 285, ¶ 5, 418 P.3d 1055, 1058(App. 2018). "Given our preference to resolve claims on their merits," we do not favor statute of limitations defenses, Coulter v. Grant Thornton, LLP , 241 Ariz. 440, 444, ¶ 7, 388 P.3d 834, 838 (App. 2017), and look to the nature of the cause of action and not its form, Broadband , 244 Ariz. at 285, ¶ 5, 418 P.3d at 1058. If two constructions are possible, we generally prefer to apply the longer limitation period. Id.

A. An Alter-Ego Assertion is not a Separate Cause of Action and is Governed by the Limitation Period Applicable to the Cause of Action to Which the Claim to Pierce the Corporate Veil is Tied.

¶9 We turn first to the parties’ arguments concerning the nature of the alter-ego claim at issue in this case. Under Arizona law, the corporate veil can be pierced, and a parent company held liable for the acts of its subsidiary, where the subsidiary "is merely the parent corporation’s alter ego and when observing the corporate form would work an injustice." Keg Rests. Ariz., Inc. v. Jones , 240 Ariz. 64, 73, ¶ 31, 375 P.3d 1173, 1182 (App. 2016). This doctrine, also known as an "alter-ego theory," is governed by a two-part test. First, the party seeking to pierce the corporate veil in this context must show a unity of control, which can be established by showing the parent corporation exercised "substantially total control over the management and activities of" the subsidiary. Taeger v. Catholic Family and Cmty. Servs. , 196 Ariz. 285, 297–98, ¶ 45, 995 P.2d 721, 733–34 (App. 1999) (quoting Gatecliff v. Great Republic Life Ins. Co. , 170 Ariz. 34, 37, 821 P.2d 725, 728 (1991) ). Second, it must be shown under the circumstances of each case that "observance of the corporate form would sanction a fraud or promote injustice." Gatecliff , 170 Ariz. at 37, 821 P.2d at 728. If the corporate veil is pierced and liability is imposed, the parent corporation is "held liable for the results" of its subsidiary’s actions. Jabczenski v. S. Pac. Mem’l Hosps. , 119 Ariz. 15, 21, 579 P.2d 53, 59 (App. 1978).

¶10 Although we have not found any Arizona authority explicitly holding so, the principles discussed above illustrate that an alter-ego claim is not a separate cause of action, but "a means of imposing liability on an underlying cause of action such as a tort or breach of contract." 1 Fletcher Cyc. Corp. § 41.10, Westlaw (database updated Sept. 2019) (footnote omitted); see also 18 C.J.S. Corporations § 38, Westlaw (database updated Dec. 2019) ("Piercing the corporate veil generally is not itself an action, but is merely a procedural means of allowing liability on a substantive claim ...."). Both elements of an alter-ego claim serve no purpose unless accompanied by an allegation that some actionable wrong has occurred. See 18 C.J.S. Corporations § 38, Westlaw (database updated Dec. 2019) ("[W]ithout an underlying cause of action creating corporate liability, evidence of an abuse of the corporate form is immaterial.").

¶11 Piercing the corporate veil is necessarily a fact-intensive endeavor. To justify piercing the corporate veil under an alter-ego theory, it is not enough to merely show, in the abstract, that a parent corporation is the alter ego of a subsidiary; there must be some actionable wrong to hold the parent corporation liable. Nor is it enough to prove that a subsidiary is the alter ego of a parent corporation and that the subsidiary is responsible for some conduct; the party bringing the alter-ego claim must show that failing to pierce the corporate veil and hold the parent liable will perpetuate a fraud or an injustice. In other words, the ultimate question of whether the corporate veil should be pierced under an alter-ego theory is inextricably intertwined with the circumstances surrounding the action in which the alter-ego claim is raised. Our conclusion is bolstered by the fact that this appears to have long been the basis of claims to pierce the corporate veil in Arizona, see, e.g. , Gatecliff , 170 Ariz. at 36, 821 P.2d at 727 (alter-ego claim raised in insurance-bad-faith and breach-of-contract action); Emp’r’s Liab. Assur. Corp. v. Lunt , 82 Ariz. 320, 323, 313 P.2d 393, 396 (1957) (claim raised in breach-of-contract action); Keg Rests. , 240 Ariz. at 67, ¶ 2, 375 P.3d at 1176 (same), and is the accepted view in the majority of states that have expressly addressed the nature of such claims, 1 Ribstein & Keatinge on Ltd. Liab. Cos. § 10:8, n.6, Westlaw (database updated Dec. 2019) (collecting cases from several states).

¶12 Thus, a claim seeking to impose alter-ego liability on a party by piercing the corporate veil is not a stand-alone cause of action. And because an alter-ego claim is not a cause of action, it naturally follows that an alter-ego claim is not governed by a particular statute of limitations or an independent rule of accrual. Instead, a party seeking to pierce the corporate veil under an alter-ego theory is bound by the limitation period applicable to the cause of action to which the alter-ego claim is tied. See, e.g. , Wm. Passalacqua Builders, Inc. v. Resnick...