STATE OF ARIZONA, et al., Plaintiffs/Appellants, v. ARIZONA BOARD OF REGENTS, et al., Defendants/Appellees.
No. 1 CA-TX 20-0003
IN THE ARIZONA COURT OF APPEALS DIVISION ONE
FILED 4-20-2021
Appeal from the Superior Court in Maricopa County No. TX2019-000011 The Honorable Christopher T. Whitten, Judge AFFIRMED
Arizona Attorney General‘s Office, Phoenix
By Brunn W. Roysden III, Robert J. Makar, Michael S. Catlett, Katlyn J. Divis
Counsel for Plaintiff/Appellant State of Arizona
Snell & Wilmer LLP, Phoenix
By Brett W. Johnson, Colin P. Ahler, Tracy Olson
Co-Counsel for Defendant/Appellee ABOR
By Paul F. Eckstein, Joel W. Nomkin, Shane R. Swindle, Thomas D. Ryerson, Austin C. Yost
Co-Counsel for Defendants/Appellees ABOR, et al.
Kolodin Law Group PLLC, Phoenix
By Alexander Kolodin, Chris Ford, Christopher Viskovic
Amicus Curiae for Senator Vince Leach
OPINION
Presiding Judge Jennifer M. Perkins delivered the opinion of the Court, in which Judge David B. Gass and Judge Michael J. Brown joined.
PERKINS, Judge:
¶1 The Arizona Attorney General‘s Office (“AGO“) sued to enjoin an agreement by the Arizona Board of Regents (“ABOR“) and a private company to build and operate a hotel and conference center on state property. The tax court ruled the AGO‘s amended claim under our constitution‘s Gift Clause was untimely and thus granted summary judgment on that claim. The court dismissed the remaining claims, finding the AGO lacked statutory authority to bring them. The AGO appeals from the tax court‘s resulting entry of judgment for ABOR and Arizona State University Vice President John Creer.
¶2 We agree with the tax court that a one-year statute of limitations period applies to bar the AGO‘s Gift Clause claim. In doing so, we conclude the AGO had sufficient information to prompt an investigation more than a year before it attempted to bring this claim and that the claim does not relate back to the original complaint. We also agree with the tax court that the AGO lacked statutory authority or independent quo warranto authority to bring the remaining claims. Finally, we conclude the AGO failed to establish the attorneys’ fees awarded to ABOR and Creer were unreasonable. We affirm the tax court‘s judgment.
FACTUAL AND PROCEDURAL BACKGROUND
¶3 ABOR owns about ten acres of land on the southeast corner of Mill Avenue and University Drive, in Tempe. ABOR‘s land, like all state-owned property, is exempt from property taxes. See
¶4 Four months later, ABOR, Omni, and the City of Tempe signed a term sheet containing some of the deal‘s terms. ABOR agreed to lease 1.6 acres to Omni and contribute up to $19.5 million towards constructing a conference center next to the hotel. ABOR would retain ownership of both the hotel and conference center until the 60-year lease term expired, when Omni could exercise an option to purchase the hotel and conference center for a nominal amount. Omni agreed to prepay some rent at roughly $85 per square foot and make additional yearly payments as rent instead of property taxes. Finally, ABOR agreed to build a parking structure directly abutting the complex and granted Omni exclusive use of about one-fifth of the parking spaces.
¶5 On January 11, 2018, the City of Tempe reached a final agreement with Omni to develop a hotel and conference center on ABOR‘s property. The agreement included $21 million in sales tax relief. On that same day, AGO attorneys internally circulated a letter to the editor of the Arizona Republic discussing the Omni transaction. One AGO attorney wrote that the Omni transaction sounded “pretty suspicious.” On February 28, 2018, ABOR and Omni signed an “option to lease” allowing Omni to exercise the lease if ASU agreed to build the parking structure.
¶6 The AGO filed a three-count complaint on January 10, 2019. Count I sought declaratory and injunctive relief, alleging the lease improperly exempted the hotel and conference center from property taxes. Count II sought quo warranto relief to void the transaction because it constituted an improper exercise of ABOR‘s power to enter into leases for public purposes. Count III sought quo warranto and declaratory relief that the
¶7 Extensive motion practice ensued, including several motions to dismiss. The tax court ultimately granted ABOR‘s motion to dismiss the three counts in the complaint, ruling the AGO lacked authority to bring them. By that time, the AGO had filed an amended complaint adding a fourth count against ABOR and Creer. Count IV alleged several components of the transaction violated the Arizona Constitution‘s Gift Clause and constituted an illegal payment of public money, which the AGO is empowered to police. See
¶8 After hearing argument, the tax court granted summary judgment in ABOR‘s favor. The court ruled Count IV was untimely because the AGO had actual knowledge more than one year before filing the amended complaint that ABOR would spend public funds to construct the conference center. As the court stated, “[n]ot only did [the AGO] have enough information to trigger a duty to investigate, [it] was investigating a Gift Clause claim involving the ABOR/Omni Deal more than a year before it filed the instant claim.” The tax court also held Count IV did not relate back to the filing of the original complaint.
¶9 The tax court issued its final judgment in February 2020. In that judgment, the court dismissed the AGO‘s claim against Creer on the basis he could not be personally liable for any violation of
DISCUSSION
¶10 The AGO argues the tax court erred in granting summary judgment to ABOR on the Gift Clause claim, erred in dismissing the three claims in the original complaint, and awarded excessive attorneys’ fees.
I. Summary Judgment on the Gift Clause Claim
¶11 We review the tax court‘s grant of summary judgment de novo. Calpine Const. Fin. Co. v. Ariz. Dep‘t of Revenue, 221 Ariz. 244, 247, ¶ 12 (App. 2009).
A. Statute of Limitations
¶12 The tax court ruled Count IV was untimely under the one-year limitations period for claims against public entities. See
¶13 Under
An action brought pursuant to this article is subject to title 12, chapter 7, article 2. If the action is brought by the attorney general, the action must be brought within five years afterthe date an illegal payment was ordered and [A.R.S.] § 12-821.01 does not apply to the action.
(Sections 12-820 to -826 fall within title 12, chapter 7, article 2). The AGO relies only on the second sentence of
¶14 The AGO argues
B. Accrual
¶15 The AGO next argues Count IV was timely because it accrued within one year of filing the amended complaint. As pertinent here, a claim accrues when a reasonable person would have been on notice to investigate. See Cruz v. City of Tucson, 243 Ariz. 69, 72, ¶ 8 (App. 2017). See
¶16 The AGO argues, however, that when the claim accrued is a question of fact and the tax court erred in denying discovery to address whether ABOR‘s conduct tolled the limitations. Though juries normally decide when a claim accrues as a factual matter, summary judgment is appropriate when no genuine issue of material fact exists, and the questions can be resolved on the law. See Doe v. Roe, 191 Ariz. 313, 323, ¶ 32 (1998); see also Thompson v. Pima Cnty., 226 Ariz. 42, 47, ¶ 14 (App. 2010). And a court may properly enter summary judgment when the plaintiff cannot reasonably justify its failure to investigate. See Walk v. Ring, 202 Ariz. 310, 316, ¶ 23 (2002).
¶17 To be sure, the AGO did not obtain all documents related to the transaction contemplated between Omni and ABOR until after April 3, 2018. But the AGO undisputedly knew about the transaction and could have asked for copies of the agreements before that date. Indeed, the AGO affirmatively opted against requesting copies of the documents out of a desire - as one AGO attorney put it - not to “poke the bear.” The tax court thus appropriately determined Count IV‘s accrual date as a matter of law.
¶18 The tax court allowed limited discovery into whether the AGO knew or should have known enough to investigate a claim under the Gift Clause. In doing so, the court denied the AGO‘s request for ABOR‘s “entire file on the Omni deal, including deal drafts and communications.” The AGO argued ABOR officials made public statements concealing the true nature of the Omni agreements, the file might contain evidence ABOR fraudulently concealed details of those agreements, and ABOR‘s concealment would have tolled the statute of limitations. But the court noted the AGO already possessed enough evidence to raise the argument in summary judgment briefing.
C. Relation Back
¶20 The AGO also argues Count IV was timely because it relates back to the filing of the original complaint. Count IV relates back if it arises out of the same conduct, transaction, or occurrence set forth in the original complaint. See
¶21 An amended claim that introduces new facts may relate back if those facts relate to the transaction at issue in the original pleading. See Servs. Holding Co. v. Transamerica Occidental Life Ins. Co., 180 Ariz. 198, 208 (App. 1994). Likewise, an amendment that changes a claimant‘s legal theory may relate back if “the factual situation . . . remains the same and has been brought to the defendant‘s attention by the original pleading.” Marshall v. Superior Ct., 131 Ariz. 379, 383 (1982). But an amendment does not relate back if it “seeks relief with respect to a transaction or event which was not the basis of the original complaint.” Id. (citations omitted).
¶22 The AGO contends Count IV should relate back because it arises out of the overall ABOR-Omni transaction the AGO challenged in the original complaint. We disagree.
¶23 Our supreme court‘s decision in Barnes v. Vozack, 113 Ariz. 269 (1976), illustrates the distinction between an amended claim based on the same transaction or event and an amended claim based on a different transaction or event. The plaintiff in Barnes originally alleged the defendants committed common-law fraud when they sold him stock. Id. at 271. The plaintiff later amended his complaint to add two claims. Id. The first new claim alleged the defendants’ misrepresentations also violated a statute barring fraud in the sale of stock. Id. The second claim alleged the defendants made misrepresentations in violation of another statute when they applied to the state for an exemption permitting the stock sale. Id. The court held the first new claim related back but the second did not. Id. at 272. The statutory stock-fraud claim relied on the same facts as the common-law fraud alleged in the original complaint. Id. But the exemption filing at issue in the second new claim was not mentioned in the original complaint, andthe statute on which that claim was based did not apply to misrepresentations made in the sale of stock. Id. “Although a fraudulent practice, [the misrepresentations made in the exemption filing were] not a part of the same conduct, transaction or occurrence which was the basis for the original complaint for fraud in the sale of stock.” Id.
¶24 The amendment did not necessarily relate back under
¶25 Counts I, II, and III alleged the deal effectively constituted ABOR-approved tax evasion. Count I claimed the for-profit enterprise did not qualify for tax-exempt status under any statutory or constitutional exemption. Count II claimed ABOR exceeded its statutory authority by conveying property to avoid taxes. Count III claimed the property should carry ad valorem taxes because ABOR is not “receiving and holding” the property as required by
¶26 Count IV did not turn on the alleged diversion of property tax revenues, the concern articulated throughout the original complaint. Rather, Count IV centered on elements of the overall ABOR-Omni transaction that were not at issue - let alone mentioned - in the original complaint. The AGO‘s amended complaint introduced 17 pages of additional facts in support of its new claim, including that ABOR agreed to contribute $19.5 million toward Omni‘s construction of the conference center and agreed to build a parking garage with more than 200 spaces dedicated for Omni‘s use. The AGO alleged that ABOR agreed to accept below-market rent payments from Omni for the leased property. And the AGO also argued that the “additional rent” Omni agreed to pay ABOR cannot be considered a public benefit because those payments would have been otherwise collected as ad valorem taxes.
¶27 To prove Count IV, the AGO would have to show that those elements of the transaction lacked a public purpose or the consideration received by ABOR was disproportionate to what it agreed to give Omni. See Cheatham v. DiCiccio, 240 Ariz. 314, 318, ¶ 10 (2016). Those are differentinquiries than the implications of tax evasion and misuse of ABOR‘s authority that underlay Counts I, II, and III.
¶28 In essence, although the amended complaint introduced new facts relating to the ABOR/Omni deal raised in the original complaint, the operative facts supporting Count IV (ABOR‘s direct and indirect payments to Omni) do not fall within that factual overlap. We agree with the tax court that Count IV does not relate back to the original complaint and affirm entry of summary judgment dismissing Count IV against ABOR and Creer.
II. Dismissal of Counts I, II, and III
¶29 The AGO also challenges the tax court‘s dismissal of Counts I, II, and III based on its conclusion that the AGO lacked statutory authority to bring the claims. We review dismissal of a claim under
¶30 In Count I, the AGO claimed ABOR abused its tax-exempt status and improperly diverted property tax revenues. The AGO believes it has independent authority to bring that claim pursuant to
¶31 The AGO claims to have independent authority to bring Counts II and III under the quo warranto statute. In
¶32 More importantly, the quo warranto statute enables the AGO to challenge a person‘s right to hold office but not how that person exercises that office‘s powers. See State ex rel. Woods v. Block, 189 Ariz. 269, 274 (1997). Because the AGO lacked authority under the quo warranto statute to bring Counts II and III, the tax court did not err in dismissing them.
III. Attorneys’ Fees
¶33 Finally, the AGO objects to the tax court‘s fee award, arguing broadly that the award is excessive. Under
¶34 The AGO presents to us the same broad arguments it made to the tax court. The tax court was unpersuaded by the AGO‘s contention that ABOR‘s attorneys charged an excessive hourly rate. We are similarly unpersuaded. The State Bar survey cited by AGO fails to prove ABOR‘s attorneys were unreasonably overpaid. The survey only shows that ABOR‘s attorneys charge (much) more than average, hardly unsurprising for attorneys the tax court described as “at or near the top of the bar.”
¶35 The AGO could have objected to particular line items or specific categories of time entries in ABOR‘s billing records. Instead, the AGO invited the tax court to determine what number of billed hours were reasonable because “it is impracticable [for the AGO] to tease out what a reasonable number of hours would be for this assignment.” But the AGO carries the burden to establish the unreasonableness of ABOR‘s fee request, and it cannot shift that burden onto the court. The AGO simply failed to meet its burden in the tax court. And it provided us with no analysis of how the tax court abused its discretion. We will not upset the tax court‘s ruling.
CONCLUSION
¶36 We affirm the tax court‘s judgment. ABOR requests attorneys’ fees under
AMY M. WOOD Clerk of the Court