State v. Abor ( 2021 )

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
STATE OF ARIZONA, et al., Plaintiffs/Appellants,
v.
ARIZONA BOARD OF REGENTS, et al., Defendants/Appellees.
No. 1 CA-TX 20-0003
FILED 4-20-2021
Appeal from the Superior Court in Maricopa County
No. TX2019-000011
The Honorable Christopher T. Whitten, Judge
AFFIRMED
COUNSEL
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
Perkins Coie LLP, Phoenix
By Paul F. Eckstein, Joel W. Nomkin, Shane R. Swindle,
Thomas D. Ryerson, Austin C. Yost
Co-Counsel for Defendants/Appellees ABOR, et al.
STATE, et al. v. ABOR, et al.
Opinion of the Court
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.
P E R K I N S, 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 Ariz.
Const. art. 9, § 2(1); see also A.R.S. § 42-11102(A). This case concerns an
agreement ABOR struck with Omni Hotels Corporation (“Omni”) to grant
Omni an option to build and operate a hotel and conference center. ABOR
2
STATE, et al. v. ABOR, et al.
Opinion of the Court
first publicly discussed its intent to develop and/or lease this land during
a June 2016 meeting.
¶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 lease was illegal because it lacked a public purpose under A.R.S. § 15-
1625.
¶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 A.R.S. § 35-212. After substantial discovery, the
AGO and ABOR filed cross motions for summary judgment on ABOR’s
contention that a statute of limitations barred Count IV.
3
STATE, et al. v. ABOR, et al.
Opinion of the Court
¶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 A.R.S. § 35-212.
The court awarded ABOR and Creer $979,758 in attorneys’ fees and
$2,356.62 in taxable costs. The AGO timely appealed, and we have
jurisdiction under A.R.S. § 12-2101(A)(1).
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 A.R.S. § 12-821. The
AGO contends the tax court incorrectly barred Count IV under the one-year
limitations period because A.R.S. § 35-212(E) gives the AGO five years to
sue after an illegal payment is ordered. We review issues of statutory
interpretation de novo. Id.
¶13 Under § 35-212(E),
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 after
4
STATE, et al. v. ABOR, et al.
Opinion of the Court
the 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 § 35-212(E). But the first sentence of §
35-212(E) expressly subjects any action to enjoin illegal payments to chapter
7, article 2 of Title 12, which includes the one-year limitations period for
suits against public entities and employees. See A.R.S. § 12-821. The second
sentence is a statute of repose (not a statute of limitations) which bars any
suit by the AGO filed more than five years after an illegal payment is
ordered. See A.R.S. § 35-212(E). “[S]tatutes of repose differ in purpose and
operation from statutes of limitations.” Albano v. Shea Homes Ltd. P’ship, 227
Ariz. 121, 127, ¶ 23 (2011). Statutes of limitations begin running “after an
injury occurs and is (or reasonably should have been) discovered . . . But
a statute of repose is intended to establish a limit beyond which no suit may
be pursued and sets a period of time within which claims must be brought
regardless of when the cause of action may accrue.” Id. (internal quotations
and citations omitted).
¶14 The AGO argues § 12-821 does not apply to any claim brought
by the attorney general and contends such claims are only subject to the
five-year period specified in the second sentence of § 35-212(E). When
construing two statutes, we will try to harmonize and give effect to all their
provisions. State v. Bowsher, 225 Ariz. 586, 589, ¶ 14 (2010). Section 35-212(E)
first explicitly invokes the article in Title 12, which contains the generally
applicable limitations period for claims against public entities and
employees. It then provides a single exception from Title 12 for claims
brought by the attorney general: the notice of claim statute. See A.R.S. § 12-
821.01. Thus, by its plain language, a suit initiated by the AGO to invalidate
an illegal payment of public funds remains subject to each of the other
provisions within §§ 12-820 to -826. Applying that principle here, Count IV
is subject to the one-year limitations period in § 12-821.
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 A.R.S. § 12-
821.01(B) (“For the purposes of this section, a cause of action accrues when
the damaged party realizes he or she has been damaged and knows or
reasonably should know the cause, source, act, event, instrumentality or
5
STATE, et al. v. ABOR, et al.
Opinion of the Court
condition that caused or contributed to the damage.”). The AGO first
questioned whether ABOR’s commercial development implicated the Gift
Clause on January 11, 2018, when senior AGO attorneys circulated an
internal legal memorandum and an opinion editorial on the topic. And one
of the AGO’s attorneys specifically called the transaction “pretty
suspicious.” By that time, term sheets outlining the transaction were
publicly accessible and the finalized option agreement, executed in
February 2018, contained all the provisions the AGO would later challenge.
On this record, the AGO had notice to investigate any Gift Clause claim
long before April 3, 2018 (one year before the AGO filed its amended
complaint).
¶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.
6
STATE, et al. v. ABOR, et al.
Opinion of the Court
¶19 The AGO does not specify a basis on which this court could
conclude the tax court abused its discretion by denying the AGO’s request
for ABOR’s “entire file” on the transaction. See State v. Connor, 215 Ariz. 553,
557, ¶ 6 (App. 2007) (abuse of discretion standard applies to review of
discovery rulings). We find no abuse of discretion here.
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 Ariz. R. Civ. P. 15(c). We review the interpretation of a court
rule de novo. Flynn v. Campbell, 243 Ariz. 76, 80, ¶ 7 (2017). Rule 15(c) seeks
“to ameliorate the effect of the statute of limitations.” Id. at ¶ 10.
¶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, and
7
STATE, et al. v. ABOR, et al.
Opinion of the Court
the 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 Rule
15(c)(1) simply because Count IV asserted a claim tangentially related to
those alleged in the AGO’s original complaint. Like the second new claim
in Barnes, Count IV alleged facts not pled in the original complaint and,
based on those facts, introduced a new claim based on legal authorities also
absent in the original complaint.
¶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 § 15-1625, which allows ABOR to enter into leases
and long-term leases “for the benefit of this state and for the use of the
institutions under its jurisdiction.” A.R.S. § 15-1625(B)(4). The AGO thus
crafted each original claim to address the property’s tax-exempt status and
the State’s potentially lost/uncollectable tax revenue.
¶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 different
8
STATE, et al. v. ABOR, et al.
Opinion of the Court
inquiries 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 Rule 12(b)(6) de
novo. Shepherd v. Costco Wholesale Corp., ___ Ariz. ___, ___, ¶ 11, 482 P.3d
390, 392 (2021).
¶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 A.R.S. § 42-
1004(E) (authorizing AGO to enforce payment of taxes). But any property
owned by ABOR is exempt from taxation. Ariz. Const. art. 9, § 2(1); see also
City of Tempe v. Del E. Webb Corp., 13 Ariz. App. 597, 598 (App. 1971). Taxes
are levied upon land itself and not its separate legal interests; any property
held by ABOR remains tax-exempt. See Recreation Ctrs. of Sun City, Inc. v.
Maricopa Cnty., 162 Ariz. 281, 288 (1989). The hotel and conference center
are thus tax-exempt. We agree with the tax court that our constitution’s
exemption from taxation attaches unconditionally to all federal, state,
county, and municipal property. Because the property is and will remain
tax-exempt, the AGO is left without a tax provision to enforce. The court
thus did not err in dismissing Count I.
¶31 The AGO claims to have independent authority to bring
Counts II and III under the quo warranto statute. In A.R.S. § 12-2041, the AGO
is authorized to bring an action “against any person who usurps, intrudes
into or unlawfully holds or exercises any public office or any franchise
within this state.” In Count II, the AGO accused ABOR of “unlawfully
usurping at least two different franchises of the State” by making a
conveyance (the lease) to evade taxes. Counts II and III also alleged ABOR
exceeded its authority to enter into leases. But § 15-1625(B)(4) empowers
ABOR to “[p]urchase, receive, hold, make and take leases and long-term
9
STATE, et al. v. ABOR, et al.
Opinion of the Court
leases of . . . real and personal property for the benefit of this state and for
the use of the institutions under its jurisdiction.”
¶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 A.R.S. § 12-348.01, the successful
party in a lawsuit between governmental entities is entitled to reasonable
attorneys’ fees. We review fee awards for an abuse of discretion and will
affirm if any reasonable basis supports the court’s decision. City of Tempe v.
State, 237 Ariz. 360, 367, ¶ 28 (App. 2015). Once ABOR established an
entitlement to fees, the burden shifted to the AGO to show that ABOR’s fee
request was improper or unreasonable. See id. at 368, ¶ 32.
¶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.
10
STATE, et al. v. ABOR, et al.
Opinion of the Court
CONCLUSION
¶36 We affirm the tax court’s judgment. ABOR requests attorneys’
fees under § 12-348.01. Creer requests attorneys’ fees under the same section
and A.R.S. § 12-349(A)(1). We deny Creer’s request under § 12-349(A)(1) but
otherwise grant these requests for reasonable fees upon compliance with
ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
11