Chula Vista Homeowners Ass'n v. Irwin, 2 CA-SA 2018-0031

• Decision Date: 27 July 2018
• Docket Number: No. 2 CA-SA 2018-0031,2 CA-SA 2018-0031
• Citation: 426 P.3d 1228
• Parties: CHULA VISTA HOMEOWNERS ASSOCIATION, an Arizona non-profit corporation, Petitioner, v. Hon. Charles IRWIN, Judge of the Superior Court of the State of Arizona, in and for the County of Cochise, Respondent, and Rodney Olson and Gloria Olson, husband and wife, Real Parties in Interest.
• Court: Arizona Court of Appeals

426 P.3d 1228

CHULA VISTA HOMEOWNERS ASSOCIATION, an Arizona non-profit corporation, Petitioner,

v.Hon. Charles IRWIN, Judge of the Superior Court of the State of Arizona, in and for the County of Cochise, Respondent,andRodney Olson and Gloria Olson, husband and wife, Real Parties in Interest.

No. 2 CA-SA 2018-0031

Court of Appeals of Arizona, Division 2.

Filed July 27, 2018

Carpenter, Hazlewood, Delgado and Bolen LLP, Tucson, By Jason E. Smith and Kaycee S. Wamsley, Counsel for Petitioner

Stachel & Associates P.C., Sierra Vista, By Robert D. Stachel Jr. and Alberta Chu, Counsel for Real Party in Interest

Judge Eppich authored the opinion of the Court, in which Presiding Judge Vásquez and Judge Espinosa concurred.

EPPICH, Judge:

¶ 1 The question presented in this special action is whether attorney fees awarded on claims for declaratory relief, violation of the open meeting laws, and slander of title under A.R.S. § 33-420(A), are damages for purposes of determining the amount of the supersedeas bond under A.R.S. § 12-2108 and Rule 7, Ariz. R. Civ. App. P. We accept jurisdiction because a party who wishes to challenge a trial court’s order setting a supersedeas bond has "no equally plain, speedy and adequate remedy by appeal." City Ctr. Exec. Plaza, LLC v. Jantzen , 237 Ariz. 37, ¶ 2, 344 P.3d 339 (App. 2015), quoting Salt River Sand & Rock Co. v. Dunevant , 222 Ariz. 102, ¶ 7, 213 P.3d 251 (App. 2009) ; see also Ariz. R. P. Spec. Act. 1(a). Because the respondent judge erred when calculating the bond by including attorney fees he had awarded real parties in interest Rodney and Gloria Olson in their underlying action against petitioner Chula Vista Homeowners Association, he thereby abused his discretion and we grant relief. See Ariz. R. P. Spec. Act. 3(c).

Facts and Procedural Background

¶ 2 The Olsons own property in Cochise County that is situated within the geographic boundary known as Chula Vista and is subject to certain covenants, conditions and restrictions (CC&Rs). Petitioner Chula Vista Homeowners Association (the HOA) is a non-profit corporation, organized pursuant to the CC&Rs. In 2009, the Olsons obtained a permit to build a 6,000-square-foot steel structure on the property, which they intended to be ancillary to the residence they planned to build. At some point, the Olsons determined they were financially unable to build a primary residence on the property, and obtained a permit from Cochise County that allowed them to convert the structure into a family residence. In 2011, the HOA rejected the Olsons’ request for approval of their plan to convert the structure into a residence, claiming it did not comport with the CC&Rs, but granted them a three-year variance, permitting them to live in the structure while they built a residence.

¶ 3 The Olsons did not build another home, and, in 2015, the HOA took the position they were in violation of the CC&Rs because the structure was "nontraditional" and was not a "First Class Private Dwelling" within the meaning of the CC&Rs as amended in 2007. The HOA recorded a Notice of Violation of Chula Vista Protective Covenants, which it removed shortly thereafter. It filed a second Notice about a month later, stating, as it had in the initial Notice, that the purpose of the recording was to adversely affect the Olsons' "ability to convey marketable title" to their property. The HOA also imposed fines for the violation and denied the Olsons’ appeal of its decision.

¶ 4 In February 2016, the Olsons sued the HOA. In the first two counts, they sought declaratory relief, asking the court to determine that the 2007 amendment to the CC&Rs was invalid because it was not signed by a sufficient number of property owners, and that the relevant section was vague, ambiguous, and unenforceable. Alleging the CC&Rs are a contract, the Olsons requested attorney fees and costs pursuant to A.R.S. §§ 12-341.01 and 12-341. In count three of their complaint, the Olsons claimed the HOA had violated the open meeting laws under A.R.S. § 33-1804(A)(5), and requested an award of costs under § 12-341. In the final count they alleged a claim of slander of title under § 33-420(A), seeking damages pursuant to § 33-420(A), the greater of $5,000 for each plaintiff or actual damages caused by the slander of title, and attorney fees and costs pursuant to § 33-420(A), §§ 12-341.01 and 12-341.

¶ 5 After a trial, the respondent judge entered Findings of Facts and Conclusions of Law and Amended Judgment, ruling in favor of the Olsons on all counts.¹ He found the HOA had violated the open meeting laws, slandered the Olsons’ title and was "liable to Plaintiffs for damages caused by the recording, and attorney’s fees an[d] costs incurred," adding that the action arose out of contract because CC&Rs are a contract, and as the successful parties, the Olsons were entitled to attorney fees under § 12-341.01. The respondent directed the HOA to record a Notice of Removal of Violation of Protective Covenants to clear title to the Olsons’ property and awarded them statutory damages in the amount of $5,000 pursuant to § 33-420(A). He also vacated the penalty the HOA previously had imposed and awarded the Olsons $318 in taxable costs and reasonable attorney fees in the amount of $35,000. The total amount of the judgment was $40,318.

¶ 6 The HOA filed a notice of appeal and a motion for supersedeas bond. It asserted in the motion that under Rule 7, Ariz. R. Civ. App. P., and § 12-2108, the amount of the bond had to be based on $5,318, "which is comprised of the damages awarded to the Plaintiffs in the form of a $5,000.00 statutory penalty pursuant to A.R.S. § 33-420(A) and court costs." Relying on City Center , 237 Ariz. 37, 344 P.3d 339, and AOR Direct L.L.C. v. Bustamante , 240 Ariz. 433, 380 P.3d 672 (App. 2016), the HOA argued the supersedeas bond should not include the amount of attorney fees awarded. However, the Olsons argued that the attorney fees were part of the damages in this case, relying on United States Fidelity & Guaranty Co. v. Frohmiller , 71 Ariz. 377, 227 P.2d 1007 (1951), Kresock v. Gordon , 239 Ariz. 251, 370 P.3d 120 (App. 2016), and Desert Mountain Properties Ltd. Partnership v. Liberty Mutual Fire Insurance Co. , 225 Ariz. 194, 236 P.3d 421 (App. 2010).

¶ 7 The respondent judge concluded that "the attorney’s fees were incurred to protect the Plaintiff’s interest based upon the breach of contract of the homeowner’s association, and therefore are a legal consequence of the original wrongful act and are recoverable as damages." The respondent then set the bond in the amount of $40,318. This special action followed.

Discussion

¶ 8 Section 12-2108, and Rule 7, Ariz. R. Civ. App. P., provide that a party may file a supersedeas bond to stay enforcement of or execution on a judgment while an appeal is pending. The statute, like the portion of the rule that essentially mirrors it, provides that "the amount of the bond ... shall be set as the lesser of the following: (1) The total amount of damages awarded excluding punitive damages; (2) Fifty per cent of the appellant’s net worth; [or] (3) Twenty-five million dollars." § 12-2108(A) ; see also Ariz. R. Civ. App. P. 7(a)(4).²

¶ 9 The HOA argues that although the attorney fees awarded to the Olsons are part of the judgment rendered against it, the fees are not damages for purposes of the statute and rule. They argue, "This case does not qualify as one of the small subset of exceptions in which attorneys’ fees are considered damages." Whether damages include attorney fees in this case for purposes of the statute and rule is a question of law that we review de novo. See City Ctr. , 237 Ariz. 37, ¶ 8, 344 P.3d 339.

¶ 10 For purposes of the statute and the rule, "damages" and "judgment" are not synonymous. Id . ¶ 14. "Damages ... may be a part of a judgment, along with attorneys’ fees and costs, but judgments are not damages themselves." Id . And subject to specific, limited exceptions, "damages" generally do not include attorney fees. Id . ¶ 13, citing Frohmiller , 71 Ariz. at 380, 227 P.2d 1007 (attorney fees are not damages for purposes of A.R.S. § 12-503 ), Assyia v. State Farm Mut. Auto. Ins. Co. , 229 Ariz. 216, ¶¶ 10, 13, 21-22, 273 P.3d 668 (App. 2012) (action by insured against insurer for failure to pay uninsured motorist benefits under policy arose out of contract and did not sound in tort; attorney fees awarded under § 12-341.01(A) for failure to pay policy benefits not damages caused by uninsured driver), and Proctor v. Parada , 145 Ariz. 203, 204, 700 P.2d 901, 902 (App. 1985) (attorney fees not damages in quo warranto action pursuant to A.R.S. § 12-2044 and may not be awarded in absence of statutory authority). The exceptions to this general rule include those situations in which the "attorneys’ fees are a legal consequence of an original wrongful act," City Ctr. , 237 Ariz. 37, ¶ 13, 344 P.3d 339, often referred to as the "tort of another" principle, see State Bar of Arizona, Arizona Attorneys’ Fees Manual § 7.3.1, at 7-2 (Bruce E. Myerson & Patricia K. Norris eds., 6th ed. Supp. 2017); see also Desert Mountain, 225 Ariz. 194, ¶ 61, 236 P.3d 421. The court in City Center stated the general rule also does not apply to "any of the other situations where attorneys’ fees can be considered damages," referring to certain kinds of tort claims, such as wrongful repudiation of insurance coverage, or wrongful injunction, attachment, garnishment or execution. 237 Ariz. 37, ¶ 13, 344 P.3d 339 ; see also Frohmiller , 71 Ariz. at 379-80, 227 P.2d 1007 ; State Bar of Arizona, supra , § 7.3.4, at 7-8.

¶ 11 Thus, in City Center , this court granted special-action relief to petitioners, where the trial judge had included attorney fees in determining the amount of the supersedeas bond on judgments obtained against them by individuals who opposed City Center’s redevelopment of a golf course near their homes and sought injunctive relief and damages. 237 Ariz. 37, ¶¶ 1–7,...