Flood Control Dist. of Maricopa Cnty. v. Paloma Inv. Ltd. P'ship

• Decision Date: 26 May 2015
• Docket Number: No. 1 CA–CV 13–0750.,1 CA–CV 13–0750.
• Citation: 237 Ariz. 322,350 P.3d 826,713 Ariz. Adv. Rep. 31
• Parties: FLOOD CONTROL DISTRICT OF MARICOPA COUNTY, Plaintiff/Counterdefendant/Appellant, v. PALOMA INVESTMENT LIMITED PARTNERSHIP, a limited partnership; Prudential Insurance Company of America, a New Jersey corporation; Paloma Ranch Joint Venture, a joint venture; Hartford Fire Insurance Company; Gillespie Dam Investments, L.L.C., a limited liability company; Charter, L.L.C., a limited liability company, Defendants/Counterclaimants/Appellees.
• Court: Arizona Court of Appeals

237 Ariz. 322

350 P.3d 826

713 Ariz. Adv. Rep. 31

FLOOD CONTROL DISTRICT OF MARICOPA COUNTY, Plaintiff/Counterdefendant/Appellant

v.PALOMA INVESTMENT LIMITED PARTNERSHIP, a limited partnership; Prudential Insurance Company of America, a New Jersey corporation; Paloma Ranch Joint Venture, a joint venture; Hartford Fire Insurance Company; Gillespie Dam Investments, L.L.C., a limited liability company; Charter, L.L.C., a limited liability company, Defendants/Counterclaimants/Appellees.

No. 1 CA–CV 13–0750.

Court of Appeals of Arizona, Division 1.

May 26, 2015.

As Amended on Denial of Reconsideration June 24, 2015.

Helm, Livesay & Worthington, Ltd. By John D. Helm, Roberta S. Livesay, Jeffrey L. Hrycko, Tempe, Counsel for Appellant.

Mesch, Clark & Rothschild, P.C. By J. Emery Barker, Scott H. Gan, Tucson, Co-counsel for Appellees.

Haralson, Miller, Pitt, Feldman & McAnally, P.L.C. By Stanley G. Feldman, Thomas G. Cotter, Tucson, Co-counsel for Appellees.

Judge JON W. THOMPSON delivered the opinion of the Court, in which Presiding Judge ANDREW W. GOULD and Judge MAURICE PORTLEY joined.

OPINION

THOMPSON, Judge:

¶ 1 Flood Control District of Maricopa County (District) appeals from the revised second amended judgment entered on remand after this Court's decisions in Flood Control District of Maricopa County v. Paloma Investment Ltd. Partnership, 230 Ariz. 29, 279 P.3d 1191 (App.2012). The District contends that the interest rate on the amended judgment is contrary to law, and that the superior court erred in ordering partial payments on the amended judgment to be credited first to interest accrued and then to the remaining principal balance. For the following reasons, we affirm.

FACTS AND PROCEDURAL HISTORY

¶ 2 This appeal arises from a 1993 flood of the Gila River and breach of the Gillespie Dam, which caused extensive downstream flood damage to land owned by farmers (the Farmers). Before the flood, the District was involved in a flood control project and had entered into an agreement with the owners of Gillespie Dam, Paloma Investment Limited, Prudential Insurance Company of America, and Paloma Ranch Joint Venture (Dam Owners), whereby the Dam Owners granted the District a flood control easement over 26.8 acres of the flood plain and river bed in exchange for the District's indemnification of the Dam Owners.

¶ 3 The Farmers filed a complaint for damages against the Dam Owners and the District. In 1997, the District filed a complaint for declaratory relief against the Dam Owners seeking a judgment declaring that the District had no obligation under the easement agreement to defend or indemnify the Dam Owners in any claim brought by the Farmers. The Dam Owners then filed a counterclaim against the District, alleging that the District's flood control project caused the Dam to fail, and seeking compensation from the District pursuant to the indemnity agreement.¹ The cases were later consolidated for trial, and then the consolidated cases were bifurcated into liability and damages phases.²

¶ 4 In 2007, after the jury's liability finding but before the award of damages, the Dam Owners and the Farmers settled their dispute in a Damron/Morris agreement. United Servs. Auto. Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987) ; Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (1969). The Dam Owners agreed to pay the Farmers $3.3 million, consented to a $14.75 million judgment, and agreed to either assign their indemnity claim against the District to the Farmers or allow the Farmers to join their indemnity action against the District. In exchange, the Farmers agreed not to execute on the judgment against the Dam Owners beyond the $3.3 million. The superior court determined that the settlement between the Farmers and the Dam Owners was reasonable, and on August 21, 2007, entered judgment consistent with the settlement, “with interest running at the legal rate of 10% per annum.”³

¶ 5 After a hearing on the District's declaratory judgment action and the scope of the indemnity agreement, the superior court ruled that the indemnification clause in the easement imposed a duty on the District to indemnify the Dam Owners for the full amount of the stipulated judgment in favor of the Farmers, $14.75 million, and obligated the District to compensate the Dam Owners for all costs and fees they incurred during various actions pertaining to the flood. Thus, on November 18, 2009, the court entered an amended judgment awarding the Dam Owners $11.45 million for the unpaid portion of the stipulated judgment with the Farmers, and awarding the Dam Owners approximately $8.4 million in costs and fees incurred in defending the claims brought by Farmers. The Judgment further stated that: “All sums awarded in this judgment shall bear interest from the date hereof at the rate provided by law, except that interest shall accrue on the amount of [$11.45 million] ... at the rate provided by law from August 21, 2007, the date on which an order was entered on the issue of the reasonableness of that judgment in the companion case.” Finally, the superior court awarded the District Rule 68 sanctions against certain Dam Owners (not parties to the indemnity agreement) who failed to recover against the District.

¶ 6 Both parties appealed, and on May 31, 2012, this court affirmed the superior court's ruling that the indemnity agreement between the District and the Dam Owners covered all of the Dam Owners' liability related to the breach in the Dam, including the entire amount stipulated to by the Dam Owners in the settlement agreement with the Farmers. See Flood Control Dist. of Maricopa Cnty., 230 Ariz. at 36, ¶ 11, 279 P.3d at 1198. However, we reversed and remanded to the superior court for it to consider whether to allocate the Rule 68 sanctions in proportion to the offer of judgment that the District made to certain Dam Owners, and to determine the amount of prejudgment interest on the Farmers' settlement amount, accruing as of the date of the judgment approving the Farmers' settlement with the Dam Owners. Id. at 50–51, ¶ 91, 279 P.3d at 1212–13. The District's petition for review was denied by our Supreme Court on December 4, 2012.

¶ 7 On December 28, 2012, the District tendered payment via wire transfers in the following amounts: $14,059,111.54 to a trust account for the Farmers, as partial assignees of the Dam Owners; and $9,612,678.20 to a trust account for the Dam Owners. Approximately an hour after the wire transfer, counsel for the District sent an e-mail to the Dam Owners' and the Farmers' attorneys notifying them of the payments on the amended judgment. The District's e-mail explained that the wire transfer to the Farmers “represents payment of the principal amounts due to the Farmers as partial assignees of the Dam Owners per the 11/18/09 judgment, plus interest at 4.25% from 8/21/07 through 12/28/12.” In addition, the e-mail said that the wire transfer to the Dam Owners' account “represents payment of the principal amounts due to [the Dam Owners] per the 11/18/09 judgment plus interest at 4.25% from 11/18/09 through 12/28/12.” The e-mail concluded by stating:

[p]ayment of interest has been made calculated on the statutory rate currently in effect of ... 4.25. It is the intention of the District to “cut-off” as much accruing interest as possible by the making of these payments today and for the issues surrounding [Arizona Revised Statutes] A.R.S. [§ ] 44–1201 to be resolved by the parties or with the assistance of the courts in the future.

¶ 8 Counsel for the Farmers immediately responded to the District's e-mail, requesting confirmation that “the Farmers' [sic] may use the wired funds without risking any claim by [the District] that they have waived their right to pursue interest on the judgment at the 10% rate in effect at the time the judgment was entered.” Counsel for the Dam Owners likewise sought confirmation that the Dam Owners “reserve their rights to dispute the sufficiency of the sums wired and that the use of these funds will not result in an accord and satisfaction claim by [the District].” In two follow-up e-mails and a letter dated January 17, 2013, the District's counsel clarified that although it is the District's position that “it has made payment in full of amounts owed by the District per the 2009 Amended Judgment,” the payment “did not prevent further litigation of the interest rate issue” and was “intended to ‘cut off’ the further accrual of interest on the principal amounts due to the judgment creditors” while leaving the issue of the correct statutory rate of interest to be resolved in the future.

¶ 9 The Farmers and Dam Owners accepted the District's payments on the amended judgment and applied the payment first to the accrued interest, at a rate of ten percent per annum, with the remaining amount applied to the principal judgment. After crediting the payments in this fashion, a principal balance of $1,506,768.17 remained on the judgment in favor of the Farmers, and a principal balance of $426,629.54 remained on the judgment in favor of the Dam Owners.

¶ 10 On January 8, 2013, this court issued its Mandate requiring the superior court to determine whether to apportion sanctions among the Dam Owners in proportion to the offers of judgment made by the District, and to determine the amount of prejudgment interest on the Farmers' settlement amount. At the hearing, the Dam Owners also moved to enforce their claim for the alleged unpaid portion of the amended judgment. After apportioning sanctions, the superior court found that “A.R.S. § 44–1201 [ (B) ] controls and that the proper rate of interest to be accumulated on the Amended Judgment entered on November 18, 2009, continues to be interest at the rate of ten (10%) per cent per annum until paid in full.” The superior court also found that the District's partial payment on the amended judgment should be “credited first to the accumulated interest and then to the principal balance of the amended...