Court Opinion

ID: 2736050
Source: CourtListenerOpinion
Date Created: 2014-09-23 16:04:05.640799+00
Date Added: 2024-06-11T09:47:49.794951
License: Public Domain

NOTICE: NOT FOR PUBLICATION.
   UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE
          LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.

                                    IN THE
             ARIZONA COURT OF APPEALS
                                DIVISION ONE

 BOND SAFEGUARD INSURANCE COMPANY, an Illinois corporation,
                    Plaintiff/Appellee,

                                        v.

    SAN TAN BORGATA DEVELOPMENT, L.L.C., an Arizona limited
  liability company; ADOBE DEVELOPMENT PARTNERS IV, L.L.C., an
    Arizona limited liability company; ADOBE PARTNERS III, INC., an
   Arizona corporation; LANGER ARIZONA, L.L.C., an Arizona limited
liability company; WILLIAM A. LANGER, JR., and LINDA M. LANGER,
 as Trustees of the William and Linda Langer Family Trust; WILLIAM A.
         LANGER, JR. and LINDA M. LANGER, husband and wife,
                            Defendants/Appellants.

                             No. 1 CA-CV 13-0558
                              FILED 09-23-2014

           Appeal from the Superior Court in Maricopa County
                No. CV2011-010823 and CV2012-006770
               The Honorable Arthur T. Anderson, Judge

                                  AFFIRMED

                                   COUNSEL

Jennings, Haug & Cunningham LLP, Phoenix
By Matthew H. Sloan and Emily K. Wilfinger
Counsel for Plaintiff/Appellee
Ducharme Law Firm, Scottsdale
By Wayne B. Ducharme
Counsel for Defendants/Appellants

                      MEMORANDUM DECISION

Judge Andrew W. Gould delivered the decision of the Court, in which
Presiding Judge Margaret H. Downie and Judge Samuel A. Thumma
joined.

G O U L D, Judge:

¶1            San Tan Borgata Development, L.L.C., (“San Tan”) Adobe
Development Partners IV, L.L.C., Adobe Partners III, Inc., Langer Arizona,
L.L.C., The William and Linda Langer Family Trust, William A. Langer,
Jr., and Linda M. Langer (collectively “Indemnitors”) appeal from the trial
court’s grant of summary judgment to Bond Safeguard Insurance
Company (“Bond Safeguard”) on its breach of contract claim. For the
reasons discussed below, we affirm.

             FACTS AND PROCEDURAL BACKGROUND

¶2             This case involves a contract dispute in the context of a
statutorily required subdivision performance bond.

¶3            San Tan applied to Pinal County for approval of a
subdivision plat it intended to develop into residential property. As a
condition of final plat approval, Pinal County required San Tan to obtain a
performance bond for construction and completion of improvements in
the subdivision.

¶4             San Tan contacted Bond Safeguard to obtain a performance
bond for the subdivision improvements. As a condition of furnishing the
bond, Bond Safeguard required Indemnitors to sign a General Agreement
of Indemnity (“GAI”). Under the GAI, the Indemnitors agreed to
indemnify and reimburse Bond Safeguard for the payment of any claims
on the performance bond. The GAI also required Indemnitors to pay
annual premiums until Bond Safeguard was discharged and released from
any liability on the performance bond. Indemnitors signed the GAI, and
Bond Safeguard furnished the performance bond to Pinal County on
February 20, 2008.

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                        BOND v. SAN TAN, et al.
                          Decision of the Court

¶5            From February 20, 2008 to February 20, 2010, San Tan paid
the annual bond premiums. However, the record before the superior
court established that San Tan never developed the subdivision property
and no lots were ever sold to consumers. Additionally, San Tan lost
ownership of the subdivision property in November 2010, when the
property was foreclosed and sold at a trustee’s sale to a third party.

¶6            Following the loss of the subdivision property, San Tan
stopped paying the premiums to Bond Safeguard. Bond Safeguard sent
San Tan two invoices demanding payment of the premiums due for the
period between February 20, 2010 and February 20, 2012. When San Tan
refused to pay the premiums, Bond Safeguard sent demands for payment
to each of the other Indemnitors. The Indemnitors also refused to pay the
premiums, and Bond Safeguard filed a complaint alleging Indemnitors
breached the GAI by failing to pay the required annual premiums.

¶7            Indemnitors answered the complaint asserting that they
were no longer required to pay premiums under the GAI because San
Tan, the developer, no longer owned the subdivision property. In
addition, San Tan filed a counterclaim alleging Bond Safeguard’s lawsuit
violated its duty of good faith and fair dealing. San Tan also sought a
declaratory judgment settling the rights and other legal relations of San
Tan and Bond Safeguard arising out of the GAI and the performance
bond.

¶8             Bond Safeguard filed a motion for summary judgment
arguing Indemnitors had breached the GAI. San Tan filed a cross-motion
for summary judgment arguing it was not liable for premiums under the
GAI because it had cancelled the performance bond. More specifically,
San Tan asserted that it had cancelled the performance bond based on the
fact that it no longer owned the subdivision property, and that at the time
of the trustee’s sale no lots had been sold in the subdivision and no
construction had begun on the subdivision improvements.

¶9           Before ruling on the cross-motions for summary judgment,
the court granted San Tan’s request to consolidate the matter with a
related lawsuit San Tan had filed against Pinal County.1 In its response,

1      San Tan’s lawsuit against Pinal County sought declaratory relief
that “its obligations in connection with the Subdivision [performance]
bond were released when San Tan no longer owned [the] property, and

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                          BOND v. SAN TAN, et al.
                            Decision of the Court

the County adopted Bond Safeguard’s position that the performance bond
could not be unilaterally cancelled by San Tan regardless of the
foreclosure of the subdivision property. The County argued that it was
statutorily bound to maintain the performance bond as a financial
assurance until construction of the improvements was completed.

¶10            On February 28, 2013, the court issued a minute entry order
finding that Indemnitors breached the GAI by refusing to pay the annual
premiums from February 2010 through February 2012. The court
concluded that under the terms of the performance bond San Tan could
not unilaterally cancel the bond; rather, the bond remained in full force
and effect until either San Tan completed the improvements or the County
released the bond. As a result, Indemnitors’ contractual obligation to pay
premiums under the GAI continued despite the fact San Tan no longer
owned the subdivision property. However, finding it “inequitable to
continue the status quo, both Bond Safeguard and [Indemnitors] dangling
on the hook pending Pinal County’s politically-charged decision” to call
or release the bond, the court cancelled the bond as of February 28, 2013
(the date of its minute entry order). Indemnitors timely appealed.

                                DISCUSSION

I.     Standard of Review

¶11           “In reviewing the granting of a motion for summary
judgment when no disputed issues of material fact exist, we will
determine only whether the trial court correctly applied the law to the
facts.” Norquip Rental Corp. v. Sky Steel Erectors, Inc., 175 Ariz. 199, 202, 854
P.2d 1185, 1188 (App. 1993).

¶12            Neither Pinal County nor Bond Safeguard challenges on
appeal the judgment equitably cancelling the performance bond and San
Tan’s liability under the GAI as of February 28, 2013. The only issue on
appeal is whether the court erred in finding that Indemnitors breached the
GAI by failing to make premium payments for the period from February
2010 to February 2012.

¶13        Indemnitors concede that they failed to pay the subject
premiums. Indemnitors argue, however, that their obligation to pay the
premiums was cancelled by operation of law because (1) the subdivision

San Tan did not sell any lots in the Subdivision or start construction of any
improvements.”

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                           BOND v. SAN TAN, et al.
                             Decision of the Court

property was sold to a third party at the trustee’s sale, and (2) at the time
of the trustee’s sale no lots had been sold and San Tan had not started any
construction in the subdivision. Indemnitors reason that the bond was
cancelled on the date of the trustee’s sale and, as a result, Indemnitors
were no longer required to pay premiums under the GAI.

II.    The Bond Was Not Discharged By Operation of Law

¶14            “The liability of a surety on a statutory bond . . . is measured
by the terms of the statute requiring the bond.” Norquip, 175 Ariz. at 202,
854 P.2d at 1188. When a bond is “given in compliance with a statute, the
statute constitutes a part of the bond.” Norton v. First Fed. Sav., 128 Ariz.
176, 178, 624 P.2d 854, 856 (1981). Where the terms of a bond conflict with
the terms of the statute, “the statute rather than the wording of the
instrument measure[s] the liability on statutory bonds.” Norquip, 175 Ariz.
at 204, 854 P.2d at 1190.

¶15           The performance bond in this case was issued pursuant to
Arizona Revised Statutes (“A.R.S.”) section 11-806.01 (2010) which
authorizes the county board of supervisors to regulate land subdivision
and to require performance bonds as may be appropriate and necessary to
assure installation of required subdivision improvements. A.R.S. § 11-
806.01 (A), (K). In compliance with A.R.S. § 11-806.01, the Pinal County
Development Services Code states:

       In order to ensure the proper installation of all required
       improvements by the subdivider, assurances are required
       for street, sewer, electric and water utilities, drainage, flood
       control and other improvements meeting established
       minimum standards of design and construction.

Pinal County Development Services Code (“PCDSC”) § 3.40.040 (A) (Code
Publishing Co. 2009). To further the statutory purpose that the County be
shielded from financial responsibility for defective or incomplete
installation of improvements, the Code states:

       Assurances deposited to ensure installation of required
       improvements may be released, by the board, upon the
       completion of all improvements, submittal and acceptance of
       certified as-built Mylars, acceptance of the pavement
       finishing fee, posting of the 10 percent guarantee bond and
       acceptance of the improvement by board action.

PCDSC § 3.40.040 (F)(1).

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                         BOND v. SAN TAN, et al.
                           Decision of the Court

¶16           Under the Code, Bond Safeguard’s liability on the
performance bond is contingent on San Tan’s completion of the required
subdivision improvements; liability is not based on whether San Tan
maintains ownership or abandons the subdivision before any of the lots
are sold or developed. Thus, the Code clearly provides that San Tan’s
failure to install the required improvements constitutes a default and
allows the County to call the bond. PCDSC § 3.40.050 (A). “Upon
subdivider’s default, the board may, after reasonable notice to the
subdivider of said default, declare the assurances forfeited and take
whatever steps are within its power to require that compliance is met,
and/or make claim to the forfeited securities.” PCDSC § 3.40.050 (B).

¶17            Additionally, San Tan’s ownership and/or abandonment of
the subdivision are not material elements of Bond Safeguard’s liability to
the County under the terms of the bond. The bond unambiguously states
that the Principal (San Tan) has agreed to construct the improvements,
and the condition of Bond Safeguard’s obligation to the County as a
surety “is such, that if the above Principal shall well and truly perform
said agreement . . . this obligation shall be void, otherwise it shall remain
in full force and effect.” Bond Safeguard is therefore exposed to liability
on the bond if San Tan fails to complete the necessary improvements.

¶18            In sum, both the Code and the bond clearly state that Bond
Safeguard’s potential liability on the bond is contingent on San Tan’s
completion of the specified improvements, and not on whether San Tan
owns or abandons the subdivision property. This comports with the
purpose of a performance bond; “to protect the public from bearing the
costs of necessary subdivision improvements by requiring the developer
to install and pay for such improvements.” Ponderosa Fire Dist. v. Coconino
Cnty., 1 CA-CV 13-0545, slip op. at *5, ¶ 26 (Ariz. App. Aug. 28, 2014);
Norton, 128 Ariz. at 179-80, 624 P.2d at 857-58 (same). If, however, San Tan
were permitted to unilaterally cancel the bond by selling, transferring or
abandoning the subdivision property, then the County may be exposed to
financial liability for necessary improvements, thereby nullifying the
purpose of the performance bond requirement.

III.   Premium Payments Required by the GAI

¶19            Interpretation of the terms of an indemnity contract presents
a question of law we review de novo. MT Builders, L.L.C. v. Fisher Roofing,
Inc., 219 Ariz. 297, 302, ¶ 10, 197 P.3d 758, 763 (App. 2008). We enforce an
indemnity agreement “according to the language used by the parties.”
Flood Control Dist. Of Maricopa Cnty. v. Paloma Inv. Ltd. P’ship, 230 Ariz. 29,

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                         BOND v. SAN TAN, et al.
                           Decision of the Court

37, ¶ 16, 279 P.3d 1191, 1199 (App. 2012). “[T]he meaning of a contract
must be determined by reading the instrument as a whole.” Tech. Constr.,
Inc. v. City of Kingman, 229 Ariz. 564, 568, ¶ 10, 278 P.3d 906, 910 (App.
2012). “[W]here parties bind themselves by a lawful contract and the
terms of the contract are clear and unambiguous, a court must give effect
to the contract as written.” Paloma, 230 Ariz. at 38, ¶ 19, 279 P.3d at 1200.
(internal citations omitted)

¶20           The language of the GAI is clear: Indemnitors bound
themselves to pay premiums “until [Bond Safeguard] shall be discharged
and released from any and all liability and responsibility” on the
subdivision bond. The GAI does not release Indemnitors from their
responsibility to pay the premiums until they have delivered “competent
written evidence” of Bond Safeguard’s discharge from all liability on the
performance bond to Bond Safeguard’s executive offices. As noted above,
because the performance bond was not discharged by operation of law,
letters indicating San Tan’s intent to cancel the bond do not satisfy the
GAI’s specific requirements to relieve Indemnitors of the requirement to
pay premiums. See supra ¶ 18. It was not until the court discharged the
performance bond on equitable grounds in February 2013 that
Indemnitors were released from their contractual duty to pay premiums
under the GAI.

                              CONCLUSION

¶21           Without action by the County discharging the performance
bond or an order from the court cancelling the bond, Indemnitors were
bound to continue to pay the annual premiums due and owing under the
GAI. San Tan’s attempt to unilaterally cancel the performance bond did
not relieve Indemnitors of their contractual duty under the GAI to pay
premiums from February 2010 to February 2012. Accordingly, we affirm
the court’s judgment in favor of Bond Safeguard.

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                         BOND v. SAN TAN, et al.
                           Decision of the Court

¶22           Bond Safeguard requests an award of attorney’s fees and
costs pursuant to A.R.S. §§ 12-341, -341.01. We grant Bond Safeguard its
costs; however we deny the request for attorney’s fees. Munger Chadwick,
P.L.C. v. Farwest Dev. And Constr. of the Southwest, LLC, 235 Ariz. 125, 128,
¶ 14, 329 P.3d 229, 232 (App. 2014).

                                 :gsh

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