4501 Northpoint Lp v. Maricopa County

• Decision Date: 08 February 2006
• Docket Number: No. CV-05-0124-PR.,CV-05-0124-PR.
• Citation: 128 P.3d 215,212 Ariz. 98
• Parties: 4501 NORTHPOINT LP, a limited partnership, Plaintiff-Appellant, v. MARICOPA COUNTY, Defendant-Appellee.
• Court: Arizona Supreme Court

Page 215

128 P.3d 215

212 Ariz. 98

4501 NORTHPOINT LP, a limited partnership, Plaintiff-Appellant, v. MARICOPA COUNTY, Defendant-Appellee.

No. CV-05-0124-PR.

Supreme Court of Arizona, En Banc.

February 8, 2006.

Fennemore Craig, P.C. by Paul J. Mooney, Jim L. Wright, Paul Moore, Phoenix, Attorneys for 4501 Northpoint LP.

Andrew Thomas, Maricopa County Attorney by Richard W. Garnett, Phoenix, Attorneys for Maricopa County.

OPINION

BALES, Justice.

¶ 1 Section 12-348(B) of the Arizona Revised Statutes ("A.R.S.") (2003) authorizes an award of attorneys' fees to a taxpayer who "prevails by an adjudication on the merits" in an action challenging the assessment or collection of taxes. In this case, we hold that a taxpayer who accepts an offer of judgment in the taxpayer's favor under Rule 68 of the Arizona Rules of Civil Procedure has prevailed by an adjudication on the merits and is therefore eligible for a fee award under § 12-348(B).

I.

¶ 2 For purposes of property tax valuation, Maricopa County set the full cash value of a theater complex owned by 4501 Northpoint LP ("Northpoint") at $13,597,923 for the 2000 tax year. Northpoint challenged this assessment by filing an action in the tax court. Less than two months before the scheduled trial, the County made a settlement offer to reduce the valuation to $12,000,000, but Northpoint rejected this offer. The parties continued pre-trial discovery.

¶ 3 When the trial was slightly more than a month away, the County made Northpoint an offer of judgment pursuant to Rule 68. The County offered to reduce the full cash value to $12,000,000 and to pay Northpoint's costs but not attorneys' fees.

¶ 4 Rule 68 allows either party to serve upon the adverse party an offer to allow judgment to be entered in accordance with the terms of the offer. Ariz. R. Civ. P. 68(a). If the offeree accepts the offer, the court will subsequently enter a corresponding judgment. Id. 68(b). If the offeree rejects the offer and does not later obtain a more favorable judgment in the case, the offeree must pay sanctions to the offeror. Id. 68(d). These sanctions include reasonable expert witness fees and double the taxable costs incurred by the offeror after making the offer, as well as post-offer prejudgment interest on unliquidated claims. Id.

¶ 5 Special procedures apply if, as in this case, the action involves a claim for attorneys' fees. In that event, Rule 68(c)(1) directs that the offer shall set forth separately the amount of any monetary award to be made on the asserted causes of action and the amount of attorneys' fees to be awarded if the offer is accepted. The offeree then has three options: 1) reject the offer, 2) fully accept the offer, or 3) partially accept the offer as it concerns the monetary award on the causes of action while reserving the right to apply to the court for a determination of the amount of attorneys' fees, if any, to be awarded. Id. 68(c)(2), (3). After the court determines the fee issue, judgment is entered reflecting that determination along with the parties' agreed upon monetary award. Id. 68(c)(3).

¶ 6 Pursuant to Rule 68(c)(3), Northpoint partially accepted the County's offer of judgment. Northpoint accepted the offer insofar as the County agreed to reduce the full cash value of the property to $12,000,000, and Northpoint applied to the court for attorneys' fees under A.R.S. §§ 12-348(B) and 12-349 (providing for fee awards for unjustified actions). The County opposed any award to Northpoint and also sought an award of fees it incurred after its initial settlement offer or, alternatively, an award under § 12-349 for fees incurred in responding to Northpoint's fee request.

¶ 7 The tax court ruled that Northpoint's acceptance of the County's Rule 68 offer of judgment was not an adjudication on the merits. Accordingly, Northpoint could not recover fees under § 12-348(B). The tax court also denied each party's request for a fee award under § 12-349.

¶ 8 Northpoint appealed the denial of fees under § 12-348(B). A divided panel of the court of appeals affirmed, stating that entry of a judgment pursuant to Rule 68 does not reflect any substantive determination of issues by the trial court and therefore is not an adjudication on the merits that allows a fee award under § 12-348(B). 4501 Northpoint LP v. Maricopa County, 209 Ariz. 569, 574, ¶ 17, 105 P.3d 1188, 1193 (App.2005). In dissent, Judge Winthrop noted that Northpoint had achieved substantive relief in its favor through the Rule 68 judgment, which sufficed to make Northpoint eligible for a discretionary fee award under § 12-348(B). Id. at 574-76, ¶¶ 20-27, 105 P.3d at 1193-95.

¶ 9 Because the meaning of the phrase "prevails by an adjudication on the merits" as used in § 12-348(B) is an issue of statewide importance and "no Arizona decision controls the point of law in question," we granted Northpoint's petition for review. ARCAP 23(c)(3). We have jurisdiction pursuant to Article 6, Section 5(3), of the Arizona Constitution and A.R.S. § 12-102. The issue is one of statutory construction and is reviewed de novo. City of Tucson v. Clear Channel Outdoor, Inc., 209 Ariz. 544, 547, ¶ 8, 105 P.3d 1163, 1166 (2005).

II.

¶ 10 In A.R.S. § 12-348, the legislature has authorized courts to award attorneys' fees and other expenses to certain parties who prevail by an adjudication on the merits in specified proceedings against the State or a city, town, or county. At issue here is § 12-348(B)(1), which provides as follows:

In addition to any costs which are awarded as prescribed by statute, a court may award fees and other expenses to any party, other than this state or a city, town or county, which prevails by an adjudication on the merits in an action brought by the party against this state or a city, town or county challenging:

1. The assessment or collection of taxes or in an action brought by this state or a city, town or county against the party to enforce the assessment or collection of taxes.

¶ 11 Another subsection of § 12-348 provides that courts shall award fees and expenses to non-governmental parties who prevail "by an adjudication on the merits" in particular actions involving public entities. See A.R.S. § 12-348(A)(1)-(6).¹

¶ 12 The phrase "prevails by an adjudication on the merits" is not defined in § 12-348. Nor is it defined in other statutes in which it is used. See, e.g., A.R.S. §§ 6-131 (authorizing fee awards to state banking department), 12-2030 (authorizing fee awards to prevailing non-governmental parties in mandamus actions), 49-471.01 (authorizing fee awards to persons who prevail in court actions against counties regarding air pollution regulations).

¶ 13 Our prior decisions, however, offer some guidance on the proper interpretation of § 12-348. We have recognized that the statute reflects an express legislative intent "to reduce the economic deterrents individuals faced in contesting government actions, magnified by the disparity between the resources and expertise of the government and individuals." Wilderness World, Inc. v. Dep't of Revenue, 182 Ariz. 196, 202, 895 P.2d 108, 114 (1995) (quoting Ariz. Tax Research Ass'n v. Dep't of Revenue, 163 Ariz. 255, 258, 787 P.2d 1051, 1054 (1989)). Accordingly, "[c]ompelling policy reasons" indicate that fees generally should be awarded under § 12-348(B) when taxpayers successfully challenge the government's wrongful imposition of taxes. Id.

¶ 14 We also have held that a party, in order to "prevail" by an adjudication on the merits, must secure a final resolution of the case in the party's favor. Scottsdale Healthcare, Inc. v. Ariz. Health Care Cost Containment Sys. Admin., 206 Ariz. 1, 8-9, ¶ 29, 75 P.3d 91, 98-99 (2003) (denying fee request as premature under § 12-348(A)(2) for parties who obtained remand for further trial court proceedings). A party does not prevail in this sense merely by obtaining interim or interlocutory relief in a case in which further proceedings are necessary. See id.

¶ 15 The County does not dispute that Northpoint has obtained a favorable final judgment, but nevertheless argues that it has not prevailed "by an adjudication on the merits." The term "adjudication" is generally used to refer both to the legal process of resolving a case and to a judgment. Black's Law Dictionary 45 (8th ed.2004). The term "adjudication" thus encompasses the entry of a judgment that determines claims in a case, but "adjudication" does not necessarily mean that this determination must follow a trial or even a hearing. Cf. Ariz. R. Civ. P. 54(b) (noting that an order or decree that "adjudicates fewer than all of the claims or the rights and liabilities of fewer than all the parties" is subject to revision absent Rule 54(b) certification).

¶ 16 Outside of the context of § 12-348, courts often describe a judgment as being "on the merits" if it finally resolves an action in a manner that precludes later relitigation of the claims involved. See, e.g., Gould v. Soto, 14 Ariz. 558, 561-62, 133 P. 410, 411-12 (1913); Restatement (Second) of Judgments ("Restatement") § 19 cmt. a (1982). Such a judgment may result from an actual trial on the substantive issues but it need not do so. Restatement § 19 cmt. a.²

¶ 17 A judgment may also be "on the merits" and thus have claim preclusive effect when it results from the stipulation of the parties, see Suttle v. Seely, 94 Ariz. 161, 163-64, 382 P.2d 570, 572 (1963), or various pretrial rulings. E.g., Union Interchange, Inc. v. Van Aalsburg, 102 Ariz. 461, 464, 432 P.2d 589, 592 (1967) (noting that summary judgment is a judgment on the merits and a bar to a later suit on the same cause of action); Roden v. Roden, 29 Ariz. 549, 553, 243 P. 413, 415 (1926) (observing that "[a] judgment of dismissal `with prejudice' is the same as a judgment for defendant upon the merits, and, of course, is res judicata as to every matter litigated") (citation omitted); In re Forfeiture of $3,000.00 U.S. Currency, ...