Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-03491/USCOURTS-azd-2_05-cv-03491-4/pdf.json

Nature of Suit Code: 360
Nature of Suit: Other Personal Injury
Cause of Action: 28:1332 Diversity - Legal Malpractice

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 1An IFB is one method of procuring services or supplies for public agencies.

Arizona Revised Statutes Annotated (“A.R.S.”) § 41-2533 (2007); Arizona

Administrative Code (“A.A.C.”) R2-7-B301 to R2-7-B316. A contract awarded under

an IFB must be issued to the “lowest responsible and responsive bidder” whose bid meets

the requirements and evaluation criteria set forth in the IFB. A.R.S. § 41-2533(G); A.A.C.

R2-7-B314.

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

McClure Enterprises, Inc.,

Plaintiff, 

v.

General Insurance Company of America,

Defendant. 

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No. CV 05-3491-PHX-SMM

ORDER

Pending before the Court is Plaintiff McClure Enterprises, Inc.’s (“McClure”) First

Motion for Partial Summary Judgment Re: Liability for Fraud and Racketeering. (Dkt.

18) Also pending is Defendant General Insurance Company of America’s (“GICA”)

Cross-Motion for Summary Judgment on Plaintiff’s Complaint. (Dkt. 23)

BACKGROUND

A. Statement of Facts

In May of 1990, the City of Phoenix issued Invitation for Bid (“IFB”) No. 90-337,

which invited private towing companies to submit sealed bids for contracts to provide towing

services for the six precincts into which the city is divided.1

 McClure contends that Wayne

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Francisco(“Francisco”), owner and controller of DMC Industries, dba Statewide Towing

(“Statewide”), Louis Jandro (“Jandro”), Francisco’s insurance agent, and Farmer's Insurance

(“Farmers”) should be found liable for fraud and racketeering in connection with the winning

bid Statewide submitted for Precincts 6 and 9 of the City of Phoenix. McClure, which

provided the second lowest bid for Precincts 6 and 9, claims that it would have received the

contracts but for the fraudulent scheme of Francisco, Jandro and Farmers. According to

McClure, Francisco avoided paying worker’s compensation and liability insurance premiums

for his drivers, which were required under IFB No. 90-337, by employing them as

independent contractors. McClure alleges that Francisco, with the assistance of Jandro and

Farmers, concealed Statewide’s use of independent contractors by filing fraudulent insurance

certificates with the City. McClure argues that the economic advantage created by this

fraudulent scheme enabled Statewide to submit the lowest bid and deprived him of the

contracts.

GICA disputes McClure’s contention that the bids for Precincts 6 and 9 were obtained

via a fraudulent scheme. According to GICA, Statewide complied with IFB 90-337 and

McClure’s interpretation, particularly with regard to the requirements set forth in §1.7 and

2.10 of IFB 90-337, is incorrect.

B. Procedural History

The matter now before the Court is the result of a settlement agreement reached

between the parties in a legal malpractice action, McClure Enterprises, Inc. V. General

Insurance Company of America, CV-02-1107-PHX-FJM. In that action, McClure accused

his former attorney, William Downey, of malpractice for his representation in a lawsuit

against Francisco, DMC Industries, Inc. and related entities. McClure’s earlier lawsuit

against Francisco arose from the same set of facts as the instant action: McClure alleged that

it was deprived of the towing contracts for Precincts 6 and 9 due to fraudulent bids submitted

by Francisco. McClure claims that Downey advised them to settle for an amount far below

the true value of the lawsuit because he was having financial problems and needed the

contingent fee. After GICA, Downey’s insurer, denied coverage for the legal malpractice

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claim, McClure and Downey entered into a Damron agreement providing for the entry of a

$5,000,000 judgment against Downey in exchange for McClure’s release and covenant not

to execute the judgment against him. McClure subsequently filed a lawsuit against GICA

to contest the coverage issue, which was resolved in part by GICA agreeing: (1) to accept

coverage of Downey at the time the alleged malpractice occurred, (2) to be named as a party

in this action, and (3) to defend the legal malpractice claim McClure has against Downey.

McClure’s legal malpractice claim against Downey is the subject of this lawsuit. 

The instant motion for partial summary judgment is, according to McClure, the first

in a series of motions for partial summary judgment. McClure asserts that no genuine dispute

of fact or law exists about whether Francisco, Jandro and Farmers Insurance defrauded the

City of Phoenix in obtaining the tow contracts for Precincts 6 and 9, which were awarded

pursuant to IFB 90-337. GICA filed a Response and Cross-Motion for Summary Judgment

on February 7, 2007. Both parties have since filed their respective replies and the matter is

now fully briefed.

STANDARD OF REVIEW

A court must grant summary judgment if the pleadings and supporting documents,

viewed in the light most favorable to the nonmoving party, “show that there is no genuine

issue as to any material fact and that the moving party is entitled to judgment as a matter of

law.” FED. R. CIV. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);

Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive

law determines which facts are material. See Anderson v. Liberty Lobby, 477 U.S. 242, 248

(1986); see also Jesinger, 24 F.3d at 1130. “Only disputes over facts that might affect the

outcome of the suit under the governing law will properly preclude the entry of summary

judgment.” Anderson, 477 U.S. at 248. The dispute must also be genuine, that is, the

evidence must be “such that a reasonable jury could return a verdict for the nonmoving

party.” Id.; see Jesinger, 24 F.3d at 1130.

A principal purpose of summary judgment is “to isolate and dispose of factually

unsupported claims.” Celotex, 477 U.S. at 323-24. Summary judgment is appropriate

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against a party who “fails to make a showing sufficient to establish the existence of an

element essential to that party's case, and on which that party will bear the burden of proof

at trial.” Id. at 322; see also Citadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th Cir.

1994). The moving party need not disprove matters on which the opponent has the burden

of proof at trial. See Celotex, 477 U.S. at 323-24. The party opposing summary judgment

need not produce evidence "in a form that would be admissible at trial in order to avoid

summary judgment." Id. at 324. However, the nonmovant “may not rest upon the mere

allegations or denials of [the party's] pleadings, but . . . must set forth specific facts showing

that there is a genuine issue for trial.” FED.R.CIV.P. 56(e); see Matsushita Elec. Indus. Co.,

Ltd. v.Zenith Radio Corp., 475 U.S. 574, 585-88 (1986); Brinson v. Linda Rose Joint

Venture, 53 F.3d 1044, 1049 (9th Cir. 1995).

DISCUSSION

I. McClure Enterprises' First Motion for Partial Summary Judgment Re: Liability for

Fraud and Racketeering 

McClure asserts that no genuine dispute of fact or law exists about whether Francisco,

Jandro and Farmers defrauded the City of Phoenix by intentionally omitting necessary

information in the bid they submitted to win the tow contracts for Precincts 6 and 9, which

were awarded pursuant to IFB 90-337. McClure claims that Francisco, Jandro and Farmers

intentionally and fraudulently evaded the requirements of IFB 90-337 in three respects. First,

Francisco, with the assistance of Jandro and Farmers, concealed Statewide’s use of

independent contractors by filing fraudulent insurance certificates with the City. Second,

Francisco, again acting with the assistance of Jandro and Farmers, did not comply with

Arizona’s Worker’s Compensation insurance regulations; and third, Francisco, once again

acting in concert with Jandro and Farmers, did not comply with the liability insurance

requirements. In light of these fraudulent acts, McClure argues that the Court should find

Francisco, Jandro and Farmers liable for fraud and racketeering. The Court will address each

of McClure’s allegations of fraud in turn.

A. Law Governing the Court’s Interpretation of IFB No. 90-337

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Arizona Revised States § 13-2314.04A creates a private cause of action in favor of

“[a] person who sustains reasonably foreseeable injury to his person, business, or property

by a pattern of racketeering activity or by a violation of section 12-2312 involving a pattern

of racketeering activity, may file an action in superior court for the recovery of up to treble

damages.” Arizona defines a “pattern of racketeering activity” as either:

(a) At least two acts of racketeering as defined in section 12-2301, subsection D,

paragraph 4, subdivision (b), item (iv), (v), (vi), (vii), (viii), (ix), (x), (xiii), (xv), (xvi),

(xviii), (xix), (xx), (xxvi) that meet the following requirements:

(i) The last act of racketeering that are alleged as the basis of the claim occurred

within five years of a prior act of racketeering. 

(ii) The acts of racketeering that are alleged as the basis of the claim were related to

each other or to a common organizing principle, including the affairs of an enterprise.

Acts of racketeering are related if they have the same or similar purposes, results,

participants, victims or methods of commission or are otherwise interrelated by

distinguishing characteristics. 

(iii) The acts of racketeering that are alleged as the basis of the claim were continuos

or exhibited the theat of being continuous. 

(b) A single act of racketeering as defined in section 12-2301, subsection D,

paragraph 4, subdivision (b), item (i), (ii), (iii), (xi), (xii), (xiv), (xxi), (xxii), (xxiii),

(xxv) or (xxviii). 

A.R.S. § 13-2314.04(T)(3). McClure alleges that Francisco, Jandro, and Farmers engaged

in a pattern of racketeering involving the predicate offense of fraudulent schemes. Under

A.R.S. § 13-2310(A), a person is guilty of engaging in a fraudulent scheme or artifice , if

“pursuant to a scheme or artifice to defraud, [the person] knowingly obtains any benefit by

means of false presents, representations, promises or material omissions[.]” McClure’s

theory of fraud and racketeering is premised upon a two-part scheme involving material

omissions and fraudulent representations that were allegedly designed to manipulate the

bidding process for IFB No. 90-337. First, Francisco allegedly evaded the requirements of

IFB No. 90-337 in three different respects to submit the lowest bid and win the towing

contracts. Second, after winning the towing contracts, Francisco, Jandro and Farmers

allegedly concealed their evasion of the IFB’s requirements by filing fraudulent insurance

certificates which omitted material information. GICA does not dispute the fact that they did

not disclose certain information on the insurance certificates, such as their use of

subcontractor tow truck drivers. Rather, GICA asserts that this information was not required

under the express terms of the IFB and argues that Statewide complied with all of IFB No.

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90-337's requirements. Because the predicate offense of fraudulent schemes requires proof

of a material omission or fraudulent representation, the Court must first analyze the

requirements set forth in IFB No. 90-337 using contract principles to determine whether any

material omissions or fraudulent representation occurred in this case. 

While the bidding process alone does not create a contract, a bid ripens into a contract

once it is voluntarily accepted by the offeree. AROK Const. Co. v. Indian Const. Services,

174 Ariz. 291, 294, 848 P.2d 870, 873 (App. 1993). The Court has a duty to “attempt to

enforce [the] contract according to the parties’ intent.” Taylor v. State Farm Mut. Auto. Ins.

Co., 175 Ariz. 148, 854 P.2d 1134, 1138 (1993). Intent is determined by interpreting the

contract. See id. "The construction of a contract is a question of law where the terms of the

agreement are plain and unambiguous." Shattuck v. Precisions Toyota, Inc., 115 Ariz. 586,

566 P.2d 1332 (1977). Although the court may not look to evidence that contradicts or varies

the meaning of an agreement, Arizona has adopted the “Corbin approach,” which allows the

court to look at extrinsic evidence to determine the intent of the parties without a preliminary

finding of ambiguity. Taylor, 854 P.2d at 1138, 1139-40.

B. Disclosure of Independent Contractors

McClure argues that IFB No. 90-337 required Statewide to notify the City of Phoenix

that all of its drivers were independent contractors. GICA disagrees with this interpretation,

arguing that McClure fails to distinguish between subcontractors for equipment and

subcontractor tow truck drivers. According to GICA, IFB 90-337 required only subcontracts

for equipment to be listed on the certificates of insurance.

Section 1.7 of IFB No. 90-337 sets forth the insurance requirements applicable to

bidders. Bidding towing companies were required to provide various types of insurance,

including workman’s compensation, employer’s liability, general liability and automobile

liability. The successful bidder was required to provide a certificate of insurance, which

listed the City of Phoenix as an additional insured, the name and address of the insurance

company, the policy number, and the liability and coverage amounts, within 15 calendar days

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after notification of the award. Section 1.7 also contained the following language, the

interpretation of which is disputed by the parties: 

If the successful bidder is a joint venture or intends to use subcontractors for

equipment under the agreement, the joint venture business entity and subcontractors

must either be listed as the named insured on the policy or listed as an additional

insured on the Certificate of Insurance. 

§1.7, IFB No. 90-337. 

McClure interprets §1.7 as requiring Statewide to list its tow truck drivers on the insurance

certificates they submitted to the City after winning the bids for Precincts 6 and 9 since the

drivers were independent contractors. 

The plain language of §1.7 provides that joint ventures or subcontracts for equipment

must be listed as the named insured or as an additional insured on the certificate of insurance.

This provision complements section 2.6 of IFB No. 90-337, especially section 2.6.5, since

some bidders would be subcontracting with other towing companies for the necessary

equipment to meet minimum bid specifications. See §2.6.5, IFB 90-337. The Court finds that

IFB No. 90-337 did not require Statewide, which was not a joint venture and did not

subcontract for equipment, to list its subcontractor tow truck drivers on the insurance

certificates. This interpretation is supported by the extrinsic evidence, namely the letter from

William C. Bengert, Deputy Finance Director, to Steve W. Boswell, dated December 8,

1992. (Dkt.# 24, Ex. B) Bengert states, in relevant part:

Section 2.10.3 in IFB 90-337, covers the issue of subcontracting for driver services

quite clearly and, thus, all bidders for IFB 90-337 should have been aware of this

provision. Although your December 2, 1992, letter refers to Provisions 2.6.7, 2.6.8,

2.6.9, and 1.7 as though these provisions apply to subcontracting for tow truck driver

services; that is in error. These provisions would apply to the subcontracting for two

truck equipment which, to our knowledge, DMC Industries, dba Statewide Towing

does not do.

Based on the plain language of §1.7 of IFB No. 90-337 and the parties’ intent as evidenced

by Bengert’s letter to Boswell dated December 8, 1992, the Court finds that Statewide was

not required to disclose that its drivers were independent contractors on the insurance

certificates filed with the City. Therefore, since such information was not required,

McClure’s theory of fraud and racketeering as to this particular claim fails as a matter of law.

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 2Boswell worked at Statewide between January and June 1992. After leaving

Statewide, Boswell wrote numerous letters to the City complaining about Francisco’s

independent contractor arrangements.

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Once a bid is accepted, it receives a new number. Here, IFB No. 90-337 became

P-4176-94 once it was accepted. (Dkt.# 24, Ex. C) 

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C. Workers’ Compensation Requirements 

McClure alleges that Statewide did not comply with the workers’ compensation

insurance requirements set forth in IFB No. 90-337. According to McClure, Statewide

either: (1) had to provide legally sufficient worker’s compensation coverage for all of their

drivers, or (2) ensure that their independent contractor drivers obtained legally sufficient

coverage. McClure contends that Statewide did not comply with the workers’ compensation

requirements and intentionally concealed this failure after winning the tow contracts for

Precincts 6 and 9.

Statewide’s subcontracts with tow truck drivers were governed by the requirements

set forth in §2.10 of the IFB, which deals with “Personnel.” Section 2.10 requires

subcontracts for tow truck driver services to comply with: (1) Circular E, Employers Tax

Guide of the Internal Revenue Service Department, and (2) all Arizona Workers’

Compensation insurance regulations. See § 2.10.3. The Court finds that McClure’s

interpretation of IFB No. 90-337's requirements governing subcontracts for two truck driver

services is contrary to the plain language of the IFB and unsupported by the evidence. There

is no language in the IFB stating that bidders were obligated to provide workers’

compensation insurance for their subcontractor drivers or that they had to ensure that the

drivers obtained such coverage. Morever, in a letter to Steve Boswell dated September 13,

1993,2

 Bengert, stated that “neither IFB 90-337, nor the tow service agreements themselves,

requires subcontractors to provide workers compensation insurance for its subcontractors,

nor is it required by state law.” (Dkt. # 24, Ex. B) Bengert added, “DMC Industries, Inc. is

in compliance with the applicable Worker’s Compensation Insurance Laws of the State, as

required by P-4176-94.”3

 (Id.) Therefore, McClure’s theory of fraud and racketeering

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regarding Statewide’s alleged noncompliance with IFB No. 90-337's workers’ compensation

requirements fails as a matter of law. Neither the plain language, nor the extrinsic evidence

of the parties’ intent, support McClure’s interpretation of IFB No. 90-337's requirements

regarding workers’ compensation for subcontracted tow truck drivers.

D. Liability Insurance Requirements

McClure’s final theory of fraud is premised upon Statewide’s fraudulent

noncompliance with the liability insurance requirements set forth in IFB No. 90-337. Under

IFB No. 90-337, the successful bidder was required to carry general liability and automobile

liability insurance coverage, each containing a $500,000 (minimum) limit of liability.

McClure asserts that Statewide did not carry the requisite liability insurance and filed false

insurance certificates to mislead the City of Phoenix into believing that they were carrying

the requisite coverage. McClure supports this claim with a letter dated November 23, 1992,

from Jerry J. Carnahan, Farmers Regional Agency Manager, to Charles Singleton,

Procurement Manager for the City of Phoenix, stating “the certificate of insurance provided

does not appear to reflect the coverages contained in our file.” (Dkt. #19, Ex. L) 

GICA admits that the coverages listed in the insurance certificate were not accurate,

but denies that the inaccuracy was the product of a fraudulent scheme. Rather, GICA

contends that Statewide had actually complied with the IFB insurance requirements and that

the inaccuracy resulted from an error by Farmers’ Underwriting Department. GICA’s

contentions are supported by a letter from Carnahan to Charles Singleton, City Procurement

Manager, dated December 15, 1992, and a letter from Bengert to Boswell dated September

13, 1993.

Therefore, in light of the conflicting evidence supplied by the parties, the Court finds

that a genuine dispute of fact exists as to whether the inaccuracies on Statewide’s insurance

certificates were the product of fraud or were the result of an error by Farmers’ Underwriting

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 4The Court notes that it has intentionally not discussed every argument raised in

GICA’s response. McClure’s motion for summary judgment is premised upon the Court

finding that they are entitled to summary judgment on at least one of the three allegations

of fraud. Because McClure did not establish any of the allegations of fraud merited the

entry of summary judgment in their favor, the Court finds it unnecessary to address

GICA’s other arguments. 

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Department. In light of this dispute of material fact, the Court cannot grant McClure’s

request for summary judgment as to this claim.4

II. GICA’s Cross-Motion for Summary Judgment on Plaintiff’s Complaint

GICA requests the Court to enter summary judgment in its favor and dismiss

McClure’s Complaint in its entirety. GICA argues that there is no genuine dispute about

whether Francisco and Statewide complied with the requirements of IFB No. 90-337;

therefore, McClure cannot prevail on the “case within the case” and its legal malpractice

claim fails as a matter of law. 

Arizona requires a plaintiff asserting a legal malpractice claim to prove “the existence

of a duty, breach of duty, that the defendant’s negligence was the actual and proximate cause

of injury, and the ‘nature and extent’ of damages. Glaze v. Larsen, 207 Ariz. 26, P12, 83 P.3d

26, 29 (2004), quoting Phillips v. Clancy, 152 Ariz. 415, 733 P.2d 300, 303 (App. 1986). “A

necessary part of the legal malpractice plaintiff’s burden of proof of proximate cause is to

establish that “but for the attorney’s negligence, he would have been successful in the

prosecution or defense of the original suit.” Id. 

The Court finds that summary judgment is inappropriate since there is a genuine

dispute about whether Francisco and Statewide complied with all of the insurance

requirements of IFB No. 90-337. As discussed supra, a genuine dispute exists as to whether

inaccuracies regarding the liability coverage listed on Statewide’s insurance certificates were

the product of fraud. Assuming arguendo that Statewide had intentionally not carried the

requisite liability insurance coverage and fraudulently concealed this fact to the City of

Phoenix, then McClure could possibly prevail on the ‘case within the case.’ Therefore, the

Court will deny GICA’s cross motion for summary judgment. 

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CONCLUSION

Therefore, in light of the reasons set forth above, 

IT IS HEREBY ORDERED DENYING McClure’s First Motion for Partial

Summary Judgment Re: Liability for Fraud and Racketeering. (Dkt. 18)

IT IS FURTHER ORDERED DENYING GICA’s Cross-Motion for Summary

Judgment on Plaintiff’s Complaint. (Dkt. 23)

DATED this 24th day of July, 2007.

Case 2:05-cv-03491-SMM Document 35 Filed 07/24/07 Page 11 of 11