Arizona Tax Research Ass'n v. Department of Revenue
| Decision Date | 29 December 1989 |
| Docket Number | No. CV-88-0468-T,CV-88-0468-T |
| Citation | 163 Ariz. 255,787 P.2d 1051 |
| Parties | ARIZONA TAX RESEARCH ASSOCIATION, Plaintiff/Appellant, v. DEPARTMENT OF REVENUE, Defendant/Appellee. /PR. |
| Court | Arizona Supreme Court |
Arizona Tax Research Association (Association) seeks review of a court of appeals decision ordering it to pay attorneys' fees to the Arizona Department of Revenue (Department) as a sanction for bringing a frivolous appeal from the underlying taxpayer litigation. The Association brought a separate appeal seeking attorneys' fees pursuant to A.R.S. § 12-348 against the Department, after the Association had successfully challenged a property tax valuation in superior court. We granted review only on the issue whether that appeal was "frivolous and overreaching." Because the court of appeals also reversed the trial court's judgment in favor of the Association and the other plaintiffs, we need not decide whether the Association was entitled to attorneys' fees under A.R.S. § 12-348, nor do we decide the merits of the taxation issue. 1
We granted review because the issue whether a successful taxpayer litigant's appeal from an order denying a request for attorneys' fees is frivolous is a question of statewide importance. See rule 23, Arizona Rules of Civil Appellate Procedure. We have jurisdiction pursuant to Ariz.Const. art. 6, § 5(3), and A.R.S. § 12-120.24. Because we hold that the appeal was not frivolous, we vacate that part of the court of appeals decision imposing a sanction against the Association.
The background of this case is fully recited in the court of appeals opinion, so we summarize it only briefly. See Arizona Tax Research Ass'n v. Maricopa County, 162 Ariz. 94, 781 P.2d 71 (consolidated) (App.1989). This dispute arose over the method used by Maricopa County to value the 1987 property tax assessment of Units I and II of the Palo Verde Nuclear Generating Station. Maricopa County calculated the tax by applying a levy limitation imposed by Ariz. Const. art. 9, § 19, and A.R.S. § 42-301(A)(3). The county's calculations resulted in a higher levy limitation than the Department had calculated and led to a reduced property tax assessment. In 1987 the Association and other plaintiffs challenged Maricopa County's calculation of the tax rate and levy limitation, seeking declaratory relief, refunds, and attorneys' fees. Because the Department apparently agreed with plaintiffs' position about how the calculations should have been made, the Association invited the Department to join in the action as a party-plaintiff. When the Department declined, plaintiffs joined the Department as a defendant, pursuant to A.R.S. § 42-204(D), which requires the Department to be named a party in any action to recover illegally collected taxes. Plaintiffs did not, however, allege any involvement by the Department in the incorrect calculation.
The trial court granted summary judgment in favor of the plaintiffs, based on its conclusion that Maricopa County violated A.R.S. § 42-301(A)(3) in calculating the 1987 tax rate. Instead of ordering refunds, however, the court ordered that the excess taxes paid by plaintiffs be credited to reduce the levy limitation in a subsequent year. The trial court also denied plaintiffs' request for attorneys' fees.
Maricopa County appealed on the merits, seeking reversal of summary judgment in favor of plaintiffs. The plaintiffs also appealed, arguing they were entitled to a refund, declaratory relief, and attorneys' fees. The Association filed a separate appeal, seeking recovery of attorneys' fees from the Department pursuant to A.R.S. § 12-348.
The court of appeals reversed the trial court's judgment on the merits, finding that Maricopa County properly calculated the levy limitation and tax assessment. The court also found the Association's separate appeal seeking attorneys' fees from the Department to be "frivolous and overreaching" and granted the Department's request for attorneys' fees on appeal as a sanction against the Association. The court eventually awarded the Department attorneys' fees of $4,675. We granted review only on the issue whether the separate appeal was frivolous.
In its separate appeal, the Association sought an award of attorneys' fees against the Department pursuant to A.R.S. § 12-348, which provides in part:
A. In addition to any costs which are awarded as prescribed by statute, a court shall 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 any of the following:
....
2. A civil action brought by the party against the state, a city or town to challenge the assessment or collection of taxes.
....
G. This section does not:
....
4. Apply to proceedings ... in which the state or a city, town or county is a nominal party.
(Emphasis added.)
The court of appeals concluded that the Department was a "nominal party" under subsection (G)(4) throughout the proceedings, against whom attorneys' fees could not be collected. The court also held that the Association did not "prevail" over the Department within the meaning of subsection (A). The court reasoned:
The sole role of the ... Department ... in the matters leading up to this dispute was to furnish Maricopa County with valuation figures in adherence to Atty.Gen.Op. No. I87-029 (Feb. 12, 1987). Throughout, the Department aligned itself with the plaintiffs. It was named as a defendant pursuant to A.R.S. § 42-204, which requires that the Department be made a party to any action for the recovery of illegally collected taxes, and only after it declined more than one invitation from Arizona Tax Research to participate as a party-plaintiff. The complaint alleged no wrongdoing and the Department made it clear in its answer that it had no legal dispute with the plaintiffs and would remain a nominal party in the litigation. With the exception of the attorneys' fees issue, it at no time advocated a position adverse to that of Arizona Tax Research.
Arizona Tax Research Ass'n, 162 Ariz. at 97, 781 P.2d at 74.
The court of appeals also relied on Cortaro Water Users' Ass'n v. Steiner, 148 Ariz. 314, 714 P.2d 807 (1986), for the proposition that "the nominal party exclusion attaches as long as the agency simply certifies the record and answers the complaint, but does not take an active part in the proceedings." Arizona Tax Research Ass'n, 162 Ariz. at 97, 781 P.2d at 74. The court found "absurd" the Association's position "that to the extent that the Department actively participated in the proceedings as an advocate for the plaintiffs, it was not a nominal party and should pay the plaintiff[s'] attorneys' fees." 162 Ariz. at 97, 781 P.2d at 74. As a sanction for a "frivolous and overreaching" appeal, the court ordered the Association to pay the Department's attorneys' fees on appeal.
An appellate court has discretion to sanction a frivolous appeal pursuant to rule 25, Arizona Rules of Civil Appellate Procedure, which provides:
Where the appeal is frivolous or taken solely for the purpose of delay, ... or where any party has been guilty of an unreasonable infraction of these rules, the appellate court may impose upon the offending attorneys or parties such reasonable penalties or damages (including contempt, withholding or imposition of costs, or imposing of attorneys' fees) as the circumstances of the case and the discouragement of like conduct in the future may require.
Appellate courts traditionally use their authority to impose sanctions under rule 25 with "great reservation." See, e.g., Molever v. Roush, 152 Ariz. 367, 375, 732 P.2d 1105, 1113 (App.1986); Price v. Price, 134 Ariz. 112, 114, 654 P.2d 46, 48 (App.1982). The policy behind using caution in finding an appeal frivolous is that we do not want to deter the filing of appeals in unique or novel cases out of fear of reprisal; the countervailing policy for imposing sanctions is to discourage an unwarranted burden on the parties and on the courts' resources by the filing of meritless appeals. We agree with the California Supreme Court's definition of a "frivolous" appeal, articulated in interpretation of the analogous California rule from which our rule 25 was partially formulated:
[A]n appeal should be held to be frivolous only when it is prosecuted for an improper motive--to harass the respondent or delay the effect of an adverse judgment--or when it indisputably has no merit--when any reasonable attorney would agree that the appeal is totally and completely without merit.
Marriage of Flaherty, 31 Cal.3d 637, 651, 183 Cal.Rptr. 508, 516, 646 P.2d 179, 187 (1982); see Evans v. Arthur, 139 Ariz. 362, 363 n. 1, 678 P.2d 943, 944 n. 1 (1984) (applying the California definition); see also City of Phoenix v. Bellamy, 153 Ariz. 363, 367-68, 736 P.2d 1175, 1179-80 (App.1987) ().
Thus, whether an appeal is frivolous does not depend on either the outcome of the appeal or on the novelty of the issue presented. See Department of Revenue v. Arthur, 153 Ariz. 1, 4, 734 P.2d 98, 101 (App.1987); Price, 134 Ariz. at 114, 654 P.2d at 48. Absent an allegation of improper motive, the conclusion that an appeal is frivolous can be upheld only on the basis that the issues raised were not supported by any reasonable legal theory. We thus examine the Association's appeal seeking attorneys' fees against the Department to determine if it was supported by any legal theory about which reasonable attorneys...
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