State v. Ariz. Bd. of Regents

• Decision Date: 05 April 2022
• Docket Number: CV-21-0134-PR
• Citation: 253 Ariz. 6,507 P.3d 500
• Parties: STATE of Arizona, et al., Plaintiffs/Appellants, v. ARIZONA BOARD OF REGENTS, et al., Defendants/Appellees.
• Court: Arizona Supreme Court

253 Ariz. 6

507 P.3d 500

STATE of Arizona, et al., Plaintiffs/Appellants,

v.ARIZONA BOARD OF REGENTS, et al., Defendants/Appellees.

No. CV-21-0134-PR

Supreme Court of Arizona.

Filed April 5, 2022

Mark Brnovich, Arizona Attorney General, Joseph A. Kanefield, Chief Deputy and Chief of Staff, Brunn ("Beau") W. Roysden, III, Solicitor General, Michael S. Catlett, Deputy Solicitor General, Phoenix; and Brian M. Bergin (argued), Brent Demmitt, Bergin Frakes Smalley & Oberholtzer PLLC, Phoenix, Attorneys for State of Arizona and Mark Brnovich

Paul F. Eckstein, Joel W. Nomkin (argued), Shane R. Swindle, Thomas D. Ryerson, Austin C. Yost, Perkins Coie LLP, Phoenix, Attorneys for Arizona Board of Regents and John P. Creer

Brett W. Johnson, Colin P. Ahler, Tracy A. Olson, Snell & Wilmer LLP, Phoenix, Attorneys for Arizona Board of Regents

David J. Cantelme, D. Aaron Brown, Cantelme & Brown P.L.C., Tempe, Attorneys for Amicus Curiae Vince Leach

JUSTICE LOPEZ authored the opinion of the Court, in which CHIEF JUSTICE BRUTINEL, VICE CHIEF JUSTICE TIMMER, and JUSTICES BOLICK, BEENE, MONTGOMERY, and JUDGE STARING joined.^*

JUSTICE LOPEZ, opinion of the Court:

¶1 We consider the scope of three statutes the Attorney General invoked to challenge an agreement the Arizona Board of Regents ("ABOR") entered into with a private company for the latter to construct and operate a hotel and conference center on ABOR-owned property. We conclude that (1) to initiate an action under A.R.S. § 42-1004(E), there must be an applicable tax law to enforce; (2) the Attorney General may bring a quo warranto action under A.R.S. § 12-2041 to challenge the unlawful usurpation or exercise of a public franchise; and (3) a public-monies claim brought by the Attorney General is subject to the five-year statute of limitations described in A.R.S. § 35-212(E). Accordingly, we affirm the dismissal of Counts I and II , and remand Counts III and IV to the tax court for further proceedings.

BACKGROUND

¶2 The challenged agreement between ABOR and Omni Tempe, LLC ("Omni") became effective on February 28, 2018. The agreement outlined various terms of what has collectively been referred to as the "Omni Deal." The Omni Deal includes construction of a new hotel, conference center, and parking lot on land owned by ABOR at Arizona State University's ("ASU") Tempe campus. The agreement gave Omni an option¹ to lease the hotel and conference center property from ABOR for sixty years and to purchase the property from ABOR at the end of the lease term for a nominal fee. Because property owned by ABOR, as a state entity, is tax-exempt, Omni would not pay the property taxes a private hotel and conference center would otherwise pay during the lease term; instead, Omni would pay ABOR prepaid rent of $5.9 million and annual rent during the lease term totaling more than $118 million. ABOR also agreed to pay Omni up to $19.5 million towards constructing the conference center, which Omni would otherwise fund, in exchange for seven days' use of the center annually.

¶3 The Attorney General's Office ultimately discovered the Omni Deal. Although the parties dispute when the Attorney General's knowledge of the Omni Deal became legally relevant, it is undisputed that an email thread linking to online articles referring to the Omni Deal as a bad "tax break" was generated by and between Attorney General's Office attorneys on January 11, 2018. The articles suggested that Omni would be shielded from up to $21 million in taxes that it would otherwise have to pay the City of Tempe because Omni would be making "payments in lieu of taxes" to ASU. In the email thread, one assistant attorney general characterized the "in lieu of" payments as "pretty suspicious."

¶4 The Attorney General filed a three-count complaint against ABOR on January 10, 2019, seeking to void the transaction or subject the property to taxes. Count I alleges that the lease between Omni and ABOR is subject to taxation because the constitutional exemption from taxation that ABOR enjoys cannot apply to a commercial enterprise like the Omni Deal. Counts II and III seek quo warranto relief alleging that ABOR was unlawfully exercising its official franchise by entering into this lease. On April 3, 2019, the Attorney General filed an amended complaint adding Count IV , which seeks to enjoin the illegal payment of public monies under the Attorney General's authority as authorized by § 35-212. Specifically, Count IV alleges that the up to $19.5 million ABOR agreed to contribute towards the construction of the conference center violates article 9, section 7 of the Arizona Constitution, commonly referred to as the "Gift Clause."

¶5 ABOR moved to dismiss Counts I–III , and the tax court granted those motions after finding that the Attorney General lacked the authority to bring each claim. ABOR also moved for summary judgment on Count IV arguing that it was barred by a one-year statute of limitations. The tax court agreed and ruled that because the claim accrued on January 11, 2018—the date of the email exchange at the Attorney General's Office—and Count IV did not "relate back" to the original complaint, it was barred for untimeliness. The tax court's final judgment included an award to ABOR of $979,758 in attorney fees and $2,356.62 in taxable costs. The court of appeals affirmed the tax court's judgment, State v. Ariz. Bd. of Regents , 251 Ariz. 182, 190 ¶ 36, 486 P.3d 1140, 1148 (App. 2021), and the Attorney General timely petitioned this Court.

¶6 We granted review to determine whether the Attorney General is authorized to bring Counts I–III , and whether Count IV was timely filed. These are issues of statewide importance over which we have jurisdiction pursuant to article 6, section 5 of the Arizona Constitution.

DISCUSSION

¶7 Our constitution limits the Attorney General's authority to bring claims as delineated by statute. State ex rel. Brnovich v. Ariz. Bd. of Regents , 250 Ariz. 127, 130 ¶ 8, 476 P.3d 307, 310 (2020) ; see also Ariz. Const. art. 5, § 9 ("The powers and duties of ... [the] attorney-general ... shall be as prescribed by law.").

I.

¶8 We first consider whether the Attorney General had the authority to bring Counts I–III in his initial complaint against ABOR. We review an order granting a motion to dismiss for failure to state a claim under Arizona Rule of Civil Procedure 12(b)(6) de novo. Cox v. Ponce ex rel. Cty. of Maricopa , 251 Ariz. 302, 304 ¶ 7, 491 P.3d 1109, 1111 (2021).

A.

¶9 Count I seeks declaratory and injunctive relief against ABOR. The Attorney General asserts that the ABOR-owned property on which the Omni hotel and conference center is to be built is subject to taxation; thus, the property must either be taxed or the agreement voided. The Attorney General argues that he has the authority to bring this claim under § 42-1004(E), which mandates that the Attorney General "shall prosecute in the name of this state all actions necessary to enforce this title [42] and title 43." The referenced titles include Arizona's tax laws. The tax court dismissed Count I for lack of authority because there was no title—i.e., tax—for the Attorney General to "enforce." The court of appeals affirmed, and we agree.

¶10 The Attorney General does not dispute that state property is exempt from taxation. See Ariz. Const. art. 9, § 2 (1) ("There shall be exempt from taxation all federal, state , county and municipal property." (emphasis added)). But contrary to the Attorney General's assertion that ABOR is not exempt from taxation because it is acting as a "political subdivision" and not the "state," this Court has already resolved that ABOR is considered the "state," Bd. of Regents of Univs. & State Coll. v. City of Tempe , 88 Ariz. 299, 305, 356 P.2d 399 (1960) ("We think it perfectly clear ... that the Board of Regents may, for all purposes, be classified as a public agency of the State rather than a private corporation."), and its actions do not transmute its state status. Because ABOR is the "state," our constitution provides that its property is not subject to taxation. See Ariz. Const. art. 9, § 2 (1); see also City of Tempe v. Del E. Webb Corp. , 13 Ariz. App. 597, 598, 480 P.2d 18 (1971) ("[T]he Board of Regents is a state agency and therefore exempt from taxation."). Thus, there is no enforcement action the Attorney General can take under his § 42-1004(E) authority because there is no tax to enforce.

¶11 Notwithstanding the Attorney General's inability to identify an applicable tax law under title 42 or 43 that he is authorized to enforce here, he argues that because the purpose of the Omni Deal is to evade taxes, the property leased is subject to taxation. He relies on the Arizona Constitution, which provides that "[n]o property shall be exempt which has been conveyed to evade taxation." Ariz. Const. art. 9, § 2 (12). But again, for a conveyance to be made to evade taxation, there must be a tax to evade in the first place, and here there is none. Thus, we affirm the dismissal of Count I .

B.

¶12 The Attorney General filed Counts II–III pursuant to his quo warranto authority. Both counts allege that ABOR unlawfully usurped or exercised state franchises by exceeding its statutory authority to "[p]urchase, receive, hold, make and take leases and long-term leases of and sell real and personal property for the benefit of this state and for the use of the institutions under its jurisdiction." A.R.S. § 15-1625(B)(4). The Attorney General alleges separate bases for Counts II and III , which we address in turn, concerning how ABOR exceeded its lawful authority in entering the Omni Deal.

¶13 Under the quo warranto statute, § 12-2041(A), the Attorney General may bring an action "against any person who usurps, intrudes into or unlawfully holds or exercises any public office or any franchise within this state." The court of appeals held, and ABOR once again argues, that our quo warranto statute only allows "the [Attorney General] to challenge a...