Johnson Utilities, LLC v. Swing First Golf, LLC, 1 CA-CV 13-0625

• Decision Date: 27 August 2015
• Docket Number: No. 1 CA-CV 13-0625,1 CA-CV 13-0625
• Parties: JOHNSON UTILITIES, LLC dba JOHNSON UTILITIES COMPANY, an Arizona limited liability company; THE CLUB AT OASIS, LLC, an Arizona limited liability company, Plaintiffs/Appellants/Cross-Appellees, v. SWING FIRST GOLF, LLC, an Arizona limited liability company, Defendant/Appellee/Cross-Appellant, DAVID ASHTON, Defendant/Appellee.
• Court: Arizona Court of Appeals

JOHNSON UTILITIES, LLC dba JOHNSON UTILITIES COMPANY,an Arizona limited liability company; THE CLUB AT OASIS, LLC,an Arizona limited liability company, Plaintiffs/Appellants/Cross-Appellees, v. SWING FIRST GOLF, LLC,an Arizona limited liability company, Defendant/Appellee/Cross-Appellant,DAVID ASHTON, Defendant/Appellee.

No. 1 CA-CV 13-0625

ARIZONA COURT OF APPEALS DIVISION ONE

August 27, 2015

NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

Appeal from the Superior Court in Maricopa County

No. CV2008-000141

The Honorable John Christian Rea, Judge

AFFIRMED

COUNSEL

Sanders & Parks, PC, Phoenix

By Garrick L. Gallagher, Anoop Bhatheja

Margrave Celmins, PC, Scottsdale

By Lat J. Celmins, Michael L. Kitchen

Co-Counsel for Plaintiffs/Appellants/Cross-Appellees

Craig A. Marks, PLC, Phoenix

By Craig A. Marks

Counsel for Defendant/Appellee/Cross-Appellant Swing First Golf, LLC

MEMORANDUM DECISION

Judge Maurice Portley delivered the decision of the Court, in which Presiding Judge Andrew W. Gould and Judge Jon W. Thompson joined.

PORTLEY, Judge:

¶1 Johnson Utilities, LLC ("Utility") and The Club at Oasis, LLC ("Oasis") (collectively "Utility/Oasis") challenge the jury verdicts and resulting judgment in favor of Swing First Golf, LLC ("SFG"). The appellants argue: (1) the court, and jury, lacked jurisdiction to decide SFG's breach of tariff contract claim; (2) the court erred in denying its motion for directed verdict at the close of both trials, and in denying Utility's Arizona Rule of Civil Procedure ("Rule") 50 motion at the conclusion of the second trial; (3) the court erred by submitting SFG's quantum meruit claim to the jury; (4) the court erred in admitting impermissible and prejudicial evidence; and (5) the court abused its discretion in awarding attorneys' fees and costs to SFG. And on its cross-appeal, SFG argues the court erred in granting summary judgment to Utility and dismissing SFG's breach of the covenant of good faith and fair dealing claim. For the following reasons, we affirm the judgment.

FACTS¹ AND PROCEDURAL HISTORY

¶2 Utility is a water utility company in the San Tan Valley. Oasis owns a golf course, and is owned by George Johnson, the president and majority owner of Utility. SFG purchased a golf course in 2004 fromJohnson Ranch Holdings² and watered the course with water provided by Utility.³

¶3 Two years after SFG purchased the golf course, George Johnson and David Ashton, SFG's manager, discussed a plan for SFG to manage the Oasis golf course and, in return for SFG's management services, Johnson proposed to pay SFG with water credits provided by Utility. Ashton drafted a letter of understanding ("Oasis Agreement") outlining the scope of SFG's management services and confirming that Utility would provide water credits to pay for those services.⁴ Ashton and Johnson shook hands in Johnson's office to confirm the agreement. SFG then began to manage Oasis, and Utility provided the agreed-upon water credits. Specifically, Utility supplied SFG with irrigation water for its golf course each month and sent a monthly invoice. SFG did not pay the invoice, and the following month's invoice did not show any balance due.

¶4 SFG managed Oasis for six months. SFG had not anticipated that Johnson would fire the Oasis staff as SFG began managing the golf course and that it would also be responsible for being the golf course's caretaker. As a result, and after training a new on-site manager, SFG resigned in November 2006. The following month, after changing SFG's accounts for the CAP water and effluent, Utility sent new invoices to SFG for the irrigation water that had been delivered and credited to SFG under the Oasis Agreement. The invoices reflected that Utility had raised SFG's rates for effluent from $0.62 per thousand gallons, the rate approved by theArizona Corporation Commission ("ACC"), to $0.83 per thousand gallons, and raised the CAP water rate from $0.82 per thousand gallons, the ACC tariff rate, to $3.75 per thousand gallons. SFG paid for the water received at the tariff rate.

¶5 Additionally, SFG was not paid for its management services. Moreover, Utility began withholding effluent and, through the end of 2007, delivered almost exclusively the more expensive CAP water to SFG, and billed SFG at the rates above the ACC-approved rates. Utility also turned off SFG's irrigation water in November 2007 claiming that SFG owed about $215,000. SFG filed an informal complaint with the ACC and Utility restored SFG's irrigation service. Then seeking to prevent further service disruption, SFG filed a formal complaint with the ACC. Utility then resumed sending SFG effluent; in fact, Utility once delivered so much effluent that the golf course lake flooded much of the 18th-hole fairway.

¶6 Utility sued SFG and Ashton in January 2008 for failure to pay its water bills and for defamation.⁵ In response, SFG answered and filed a thirteen-count counterclaim, including multiple breach of contract claims, quantum meruit, specific performance, negligence and a number of tort claims.⁶ After discovery, voluntary dismissals and pretrial motions, including summary judgment for Utility on SFG's bad faith claim, the only claims remaining for trial were the breach of contract claims, SFG's claims for trespass and negligence related to the golf-course flooding, its quantum meruit claim, and defamation claim.

¶7 The dispute was tried in March 2012. The jury's verdicts were as follows: (1) SFG owed Utility $151,156 for breach of contract; (2) Utility owed SFG $1,000,000 for breach of contract; (3) Oasis owed SFG $54,600 on the quantum meruit claim related to the Oasis Agreement; (4) Ashton was awarded $10,000 for compensatory damages and $10,000 as punitive damages for defamation; and (5) Utility was negligent and committedtrespass by over-delivering effluent and flooding the golf course, but no damages were awarded.⁷ Utility/Oasis filed a motion for a new trial and the court granted the motion, vacated the verdicts on the contract claims and ordered a new trial on those claims.

¶8 The parties then tried the breach of contract issues. After considering the evidence, argument and instructions, the jury only found for SFG on its breach of contract claim and awarded it $41,883.11. The court considered SFG's request for attorneys' fees, and in the final judgment awarded SFG $300,737.25 in attorneys' fees.

¶9 Utility/Oasis then appealed the quantum meruit verdict from the first trial, the breach of contract verdict from the second trial, and SFG's award of attorneys' fees. SFG filed a cross-appeal. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(A)(1)⁸ and Arizona Rule of Civil Appellate Procedure 8(a).

DISCUSSION

I. UTILITY/OASIS'S APPEAL

¶10 In challenging the verdicts in favor of SFG on its quantum meruit and breach of tariff contract claims, Utility/Oasis asks that we enter judgment in its favor, or alternatively, for a new trial to correct alleged evidentiary errors. Utility/Oasis also seeks a reduction in SFG's attorneys' fees.

A. Subject Matter Jurisdiction

¶11 Utility/Oasis argues that the trial court and, as a result, the jury, lacked jurisdiction to decide SFG's breach of tariff contract claim because the ACC has exclusive jurisdiction over utility regulation.⁹ Subject matter jurisdiction is a question of law we review de novo. State v. Dixon, 231 Ariz. 319, 320, ¶ 3, 294 P.2d 157, 158 (App. 2013) (citation omitted).

¶12 "Subject matter jurisdiction is the power to hear and determine cases of the general class to which the particular proceedings belong," In re Marriage of Dorman, 198 Ariz. 298, 301, ¶ 7, 9 P.3d 329, 332 (App. 2000) (quoting Estes v. Superior Court, 137 Ariz. 515, 517, 672 P.2d 180, 182 (1983)) (internal quotation marks omitted), and is conferred by our constitution or statutes, State v. Maldonado, 223 Ariz. 309, 311, ¶ 14, 223 P.3d 653, 655 (2010). Subject matter jurisdiction cannot be vested in a court solely by waiver or estoppel. Guminski v. Ariz. State Veterinary Med. Examining Bd., 201 Ariz. 180, 184, ¶ 18, 33 P.3d 514, 518 (App. 2001).

¶13 Disputes involving whether a contract is enforceable or breached, even when one party is a utility, is left to the exclusive jurisdiction of Arizona courts. See Ariz. Const. art. 6, § 1; General Cable Corp. v. Citizens Utilities Co., 27 Ariz. App. 381, 386, 555 P.2d 350, 355 (1976) ("We agree with the trial court that the construction and interpretation to be given to legal rights under a contract reside solely with the courts . . . ."); see, e.g., Nelson v. Rice, 198 Ariz. 563, 567, ¶ 13, 12 P.3d 238, 242 (App. 2000) (noting that the trial court has to determine whether a contract is unconscionable as a matter of law). In fact, more than fifty years ago our supreme court stated that: "No judicial power is vested in or can be exercised by the corporation commission unless that power is expressly granted by the constitution." Trico Elec. Coop. v. Ralston, 67 Ariz. 358, 363, 196 P.2d 470, 473 (1948). And although the ACC has broad jurisdiction over "public service corporations" pursuant to Article 15 of the Arizona Constitution, the provision does not give the ACC jurisdiction to entertain and resolve contract claims. See Trico, 67 Ariz. at 362-65, 196 P.2d at 472-74 (comparing Arizona Constitution Article 15 to Article 6, and concluding that the Constitution vested no jurisdiction in the ACC to construe contracts and determine their validity); see, e.g., Ariz. Corp. Comm'n v. Tucson Gas, Elec. Light & Power Co., 67 Ariz. 12, 189 P.2d 907 (1948).

¶14 Utility/Oasis, however, contends that the ACC has exclusive jurisdiction in this case because SFG's contract claim is not based on an enforceable contract. We disagree. This is not a case about setting water rates. Instead, Utility elected to sue SFG in the Maricopa County Superior Court for breach of...