Court Opinion

ID: 4220874
Source: CourtListenerOpinion
Date Created: 2017-11-16 15:01:50.748624+00
Date Added: 2024-06-11T14:42:20.446745
License: Public Domain

IN THE
             ARIZONA COURT OF APPEALS
                              DIVISION ONE

              ZUMAR INDUSTRIES, INC., Plaintiff/Appellee,

                                    v.

             CAYMUS CORPORATION, Defendant/Appellant.

                           No. 1 CA-CV 16-0423
                             FILED 11-16-2017

           Appeal from the Superior Court in Maricopa County
                          No. CV2014-012421
                 The Honorable James T. Blomo, Judge

                     REVERSED AND REMANDED

                                  COUNSEL

Snell & Wilmer, LLP, Tucson
By Jason Ebe, Andrew M. Jacobs, W. Danny Green
Counsel for Plaintiff/Appellee

Miranda Law Firm, Gilbert
By Daniel L. Miranda
Counsel for Defendant/Appellant

                                  OPINION

Judge Maria Elena Cruz delivered the opinion of the Court, in which Acting
Presiding Judge Peter B. Swann and Judge Michael J. Brown joined.
                          ZUMAR v. CAYMUS
                          Opinion of the Court

C R U Z, Judge:

¶1            Caymus Corporation (“Caymus”) appeals the superior
court’s (1) grant of summary judgment in favor of Zumar Industries, Inc.
(“Zumar”) and (2) denial of its motion to add counterclaims. Because we
hold the court incorrectly applied the Arizona Prompt Pay Act (“Act”) to a
contractor-subcontractor dispute on a federal work project, we reverse and
remand for proceedings consistent with this decision.

              FACTUAL AND PROCEDURAL HISTORY1

¶2            The National Park Service (“NPS”) is a bureau of the U.S.
Department of the Interior, a federal agency. In 2013, NPS hired Caymus
to provide and install road signs at Grand Canyon National Park. The
contract price was $292,300. Caymus was prepared to bond the project, but
NPS’s representative told Caymus a bond was not required because the
contract was a service contract, not a construction contract. Caymus hired
Zumar, a supplier of traffic signs and related highway safety products with
offices in Arizona, California, and Washington, to supply the sign panels.
Zumar quoted $92,793.60 for the job; Caymus accepted the quote and
agreed to Zumar’s credit application, which provided that Caymus would
pay according to the terms of sale stated on Zumar’s invoices.

¶3            In March 2014, Zumar delivered sign panels to the job site;
NPS raised immediate concerns about defective and missing panels.
Thereafter, the parties and NPS had ongoing discussions regarding
completion of the sign panels work. On June 30, though, Caymus
submitted a pay application to NPS, certifying the sign panels line item was
100% completed. In total, Caymus requested and received $98,800 from
NPS for the sign panels scope of work.

¶4        Zumar invoiced Caymus in full for the sign panels. Caymus
paid Zumar $59,278.10, but withheld $35,632.33 pending Zumar’s

1     We view the facts and inferences drawn therefrom in the light most
favorable to Caymus, the party against which summary judgment was
entered. Weitz Co. L.L.C. v. Heth, 235 Ariz. 405, 408, ¶ 2 (2014).

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                          ZUMAR v. CAYMUS
                          Opinion of the Court

satisfactory performance.2 To resolve the parties’ dispute, in October 2014,
Zumar’s counsel proposed the following:

              Although Caymus has not facilitated a discussion with
      NPS to attempt to resolve this matter, NPS has contacted
      Zumar, and proposed to release payment through Caymus to
      Zumar of the principal amount of $30,632.33 now, with the
      final principal amount of $5,000.00 to be paid by NPS through
      Caymus to Zumar upon Zumar’s completion of the items on
      the enclosed punch list.       This proposed resolution is
      acceptable to Zumar, and we understand NPS has or will
      contact you to seek your consent. Of course, both payments
      need to be by joint check, executed first by Caymus, to ensure
      that Zumar actually receives payment as intended by NPS.

To this end, Bryan Gregory, a contracting officer with NPS, asked Randy
Ringleb, Caymus’ president:

             Can you provide the status of payments to Zumar?
      Zumar has expressed a desire to perform needed repairs, but
      had concerns about payment. Understandably, there may be
      some amount that is withheld until completion. However, I
      would encourage you to continue to work with Zumar to get
      things wrapped up, particularly since we are so near. If you
      have not already made plans for an interim payment, you
      may consider doing so to keep things moving in a positive
      direction. The Government has withheld less than 10% of the
      contract value. Perhaps you could take a similar approach?

Caymus would not agree to the proposal absent agreement by Zumar to
warranty the sign panels or assurance from NPS that it would accept them
in as-is condition.

2      Zumar’s quote was $92,793.60 and it later sought $35,632.33 in
unpaid invoices. Caymus claims it paid Zumar $50,000 and Zumar and
Caymus both acknowledge that Zumar also applied a separate 10% deposit
of $9,278.10 towards the balance. Incorporating that 10% deposit, Zumar
would have been paid $59,278.10 to date. Given Zumar’s claim of
$35,632.33 owing, Zumar’s resulting receipts would total $94,910.43;
$2,116.83 more than its original quote for the job. We note this potential
discrepancy for the superior court’s consideration on remand.

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                           ZUMAR v. CAYMUS
                           Opinion of the Court

¶5            In December 2014, NPS submitted to Zumar and Caymus a
punch list of items required to complete the sign panels work. Several
months later, NPS sent a Cure Notice, alleging that twenty-two sign panels
needed repair and three were missing. Caymus completed the work at a
cost of $15,000. NPS withheld final payment to Caymus of $35,367.96
pending resolution of a dispute based in part on the sign panels.

¶6            In the meantime, in September 2014, Zumar brought this
breach of contract action against Caymus, seeking damages of $35,632.33.
The matter proceeded to compulsory arbitration. Zumar prevailed, and
Caymus appealed. Zumar moved for summary judgment, arguing
Caymus violated state and federal prompt pay laws, which constituted a
material breach of the subcontract. The superior court agreed and granted
the motion. While the motion was pending, Caymus moved to add
counterclaims for breach of contract, breach of warranty, and (in the
alternative) unjust enrichment. The court denied that motion and Caymus’
subsequent motion for reconsideration. The court entered a final judgment
and Caymus timely appealed. We have jurisdiction pursuant to Arizona
Revised Statutes (“A.R.S.”) section 12-2101(A)(1).

                               DISCUSSION

I.     Motion for Summary Judgment

¶7             Summary judgment is appropriate where no genuine issue of
material fact exists and the moving party is entitled to judgment as a matter
of law. Johnson v. Earnhardt’s Gilbert Dodge, Inc., 212 Ariz. 381, 385, ¶ 15
(2006). A motion for summary judgment should be granted “if the facts
produced in support of the claim or defense have so little probative value,
given the quantum of evidence required, that reasonable people could not
agree with the conclusion advanced by the proponent of the claim or
defense.” Orme Sch. v. Reeves, 166 Ariz. 301, 309 (1990); see Ariz. R. Civ. P.
56(a). We review whether summary judgment was proper based on the
record made in the superior court, “but we determine de novo whether the
entry of judgment was proper.” Schwab v. Ames Constr., 207 Ariz. 56, 60,
¶ 17 (App. 2004).

       A.     Arizona Prompt Pay Act

¶8            Caymus argues Zumar failed to establish it was entitled to
judgment as a matter of law based on Caymus’ alleged violation of the Act.
See A.R.S. § 32-1129 through -1129.07. We agree.

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                            ZUMAR v. CAYMUS
                            Opinion of the Court

¶9             “[T]he primary purpose of the Act is to establish a framework
for ensuring timely payments from the owner to the contractor and down
the line to the subcontractors and suppliers whose work has been
approved.” Stonecreek Bldg. Co., Inc. v. Shure, 216 Ariz. 36, 39, ¶ 16 (App.
2007). Caymus argues the Act does not apply to agencies of the federal
government, as they cannot be “owners” under the Act. Zumar argues the
prompt pay provisions of the Act do not hinge upon the identity of the
owner of the project, that the provisions apply to agreements between a
contractor and subcontractor in any context, and the Act does not offend
federal supremacy because it does not regulate, compel, or otherwise apply
to the federal government.

¶10           We review de novo issues of statutory interpretation and
application. Obregon v. Indus. Comm’n, 217 Ariz. 612, 614, ¶ 9 (App. 2008).
We give words in statutes their commonly accepted meaning unless the
legislature has clearly expressed an intent to give a term a different
meaning. Id. at ¶ 11. We construe a statute in context with other related
provisions and its place in the statutory scheme. State v. Flynt, 199 Ariz. 92,
94, ¶ 5 (App. 2000).

¶11           The Act’s payment scheme does not apply to this federal
project, and its provisions cannot be read into the contract dispute.
Although Zumar does not suggest NPS is an “owner” under the Act, see
A.R.S. § 32-1129(A)(4),3 Zumar contends § 32-1129.02 regulates payment
from a contractor to a subcontractor or material supplier in any context, even
on a federal project.4 It does not. The Act links progress payments from

3      Section 32-1129(A)(4) provides:

       “Owner” means any person, firm, partnership, corporation,
       association or other organization, or a combination of any of
       them, that causes a building, structure or improvement to be
       constructed, altered, repaired, maintained, moved or
       demolished or that causes land to be excavated or otherwise
       developed or improved, whether the interest or estate of the
       person is in fee, as vendee under a contract to purchase, as
       lessee or another interest or estate less than fee.

A.R.S. § 32-1129(A)(4)
4      Section 32-1129.02 provides, in relevant part:

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                            ZUMAR v. CAYMUS
                            Opinion of the Court

owner to contractor, see A.R.S. § 32-1129.01, and from contractor to
subcontractor or supplier, see A.R.S. § 32-1129.02. Stonecreek, 216 Ariz. at 39,
¶ 16. Caymus is a “contractor” under § 32-1129.02 only in relation to “a
direct contract with an owner to perform work under a construction
contract.” A.R.S. § 32-1129(A)(2) (emphasis added). Zumar is a
“subcontractor” under § 32-1129.02 only in relation to a “direct contract
with a contractor . . . to perform a portion of the work under a construction
contract.” A.R.S. § 32-1129(A)(6). The Act is framed around the central
concept of “owner,” as defined by the Act, and the flow of payments from
owner to contractor and down the line; contractor-subcontractor disputes
cannot be solely separated from that framework.

¶12           Section 32-1129(A)(4) lists the entities included in the
definition of owner: person; firm; partnership; corporation; association or
other organization; or any combination of those previously listed. A.R.S.
§ 32-1129(A)(4). Absent from the definition is any form of government,
government agency, or political subdivision. Zumar asks this Court to find
the Act applies in any context; regardless of the owner. Not only is “owner”
integral to the statutory definition of “contractor,” and therefore to
“construction contract,” it is integral to the central purpose of the Act. The
Act requires progress payments from the owner to contractor, A.R.S. § 32-
1129.01, subjects the contractual rights of the owner regarding withholding

             A. Notwithstanding the other provisions of this article,
       performance by a contractor, subcontractor or material
       supplier in accordance with the provisions of a construction
       contract entitles the contractor, subcontractor or material
       supplier to payment from the party with whom the
       contractor, subcontractor or material supplier contracts.

              B. If a subcontractor or material supplier has
       performed in accordance with the provisions of a
       construction contract, the contractor shall pay to its
       subcontractors or material suppliers and each subcontractor
       shall pay to its subcontractors or material suppliers, within
       seven days of receipt by the contractor or subcontractor of
       each progress payment, retention release or final payment,
       the full amount received for such subcontractor’s work and
       materials supplied based on work completed or materials
       supplied under the subcontract.

A.R.S. § 32-1129.02 (Emphasis added.)

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                           ZUMAR v. CAYMUS
                           Opinion of the Court

payment to the provisions of the Act, A.R.S. § 32-1129.02(G), and grants to
contractors and subcontractors termination rights against an owner, A.R.S.
§ 32-1129.04. Contractor and subcontractor rights and responsibilities
under the Act depend upon the contractual relationship between the owner
and contractor. Section 32-1129(A) not only fails to include any government
or governmental unit in the definition of “owner,” the Act’s subsections
placing contractual obligations upon owners and granting rights to
contractors and subcontractors against owners cannot be understood to
apply to the federal government or any of its agencies. Cf. Elec. Constr. Co.
v. Flickinger, 107 Ariz. 222, 224 (1971) (holding “Arizona’s contractor’s
licensing act has no application to subcontractors engaged in the
performance of duties for the benefit of the United States.”).

¶13           Zumar argues § 32-1129.02(A)(1) applies “notwithstanding
other provisions” of the Act. This language is commonly understood to
mean a particular provision will trump any conflicting statutes. See City of
Phx. v. Glenayre Elecs., Inc., 242 Ariz. 139, 144, ¶¶ 16-18 (2017) (discussing
phrase “notwithstanding any other statute” in context of statute of repose).
However, the phrase “notwithstanding other provisions” does not permit
interpretations that conflict with a statute’s own defined terms.

¶14           The Act prescribes that the above-listed defined terms apply
throughout §§ 32-1129.01 to -1129.05, and -1129.07. A.R.S. § 32-1129(A).
“When a statutory scheme expressly defines certain terms, we are bound
by those definitions in construing a statute within that scheme.” State v.
Wilson, 200 Ariz. 390, 397, ¶ 20 (App. 2001). Section 32-1129.02(A)(1)
contains the terms “contractor,” “subcontractor,” and “construction
contract”—defined terms with significance to the Act’s central framework
linking prompt payments from owner to contractor and down the line.
Reading the provision as Zumar wishes would gut the Act of its central
framework and purpose.           If we applied Zumar’s reading of
“notwithstanding”—finding the provision allowed subcontractor-
contractor suits regardless of the existence of an owner as defined—we
would not only divest those defined terms in § 32-1129.02(A)(1) of their
intended meaning prescribed by the legislature, but would necessarily
interpret § 32-1129.02(A)(1) to apply to contracts involving the state
government and its political subdivisions, which is expressly prohibited in
§ 32-1129.06.

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                           ZUMAR v. CAYMUS
                           Opinion of the Court

¶15          We find Zumar’s proposed reading of “notwithstanding
other provisions” in contradiction with the Act’s own language and its
central framework.5

¶16           This decision does not leave subcontractors without a
remedy, see Stonecreek, 216 Ariz. at 40, ¶ 18; we simply hold that “owner”
does not include the federal government or its agencies, and thus hold the
Act inapplicable when the contract at issue is a federal work project.

      B.     Federal Prompt Pay Act

¶17          Caymus argues that Zumar failed to establish it was entitled
to judgment as a matter of law based on Caymus’ alleged violation of the
Federal Prompt Pay Act (“FPPA”). See 31 U.S.C. §§ 3901-05. For the
following reasons, we agree.

             1.      Construction Contract

¶18           “The FPPA mandates that government construction contracts
must include a clause that requires the general contractor to pay
subcontractors for satisfactory performance within seven days of receipt of
payment from the federal agency.”6 W & W Steel, LLC v. BSC Steel, Inc., 944
F. Supp. 2d 1066, 1080 (D. Kan. 2013); see 31 U.S.C. § 3905(b)(1).

5       We do not base our decision on any preemptive conflict between the
Federal Prompt Pay Act and the Arizona Act, see U.S. ex rel. Cal’s A/C &
Elec. v. Famous Constr. Corp., 34 F. Supp. 2d 1042 (W.D. La. 1999), and note
the Federal Act does not otherwise limit or impair any administrative,
judicial, or contractual remedies available to a contractor or subcontractor
in the event of a dispute, 31 U.S.C. § 3905(j).

6     One commentator has observed:

              [An] important difference between Government
      construction contracts and other types of contracts for supplies and
      services, is that 31 U.S.C. § 3905(b) requires construction
      contractors to insert in each first-tier subcontract for property
      or services, a provision requiring the contractor to pay their
      subcontractors for satisfactory performance no later than
      seven days after receipt of payment from the Government.
      Additionally, this subcontract clause must provide for the
      payment of an interest penalty for each payment not made in

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                            ZUMAR v. CAYMUS
                            Opinion of the Court

¶19            Zumar has not met its burden to show the prime contract
between NPS and Caymus was a “construction contract” subject to the
FPPA. See Nat’l Bank of Ariz. v. Thruston, 218 Ariz. 112, 115-19, ¶¶ 16-29
(App. 2008) (stating conclusory statements will not suffice, but that the
movant must point to relevant evidentiary materials). Zumar contended
the supply and installation of road signs constituted “construction,” but
this contention was not supported by analysis or citation to authority.
Caymus did not provide a performance or payment bond, which is required
by the Miller Act on a construction contract of $100,000 or more.7 See
generally 40 U.S.C. §§ 3131-3134. NPS did not require a bond because it
considered the contract to be a service contract, and the Federal Acquisition
Regulation requirement governing a construction project was not included
in the Caymus contract. To this end, Zumar suggests a federal agency
cannot determine the proper classification of its own contracts, but it has not
offered analysis or authority to support this broad (and seemingly
incorrect) conclusion. Zumar’s principal and owner, Mark Giese, described
the work only as “a project Caymus was constructing . . . .” Because Zumar
failed to show the scope of the prime contract was “construction,” it was
not entitled to summary judgment on this basis.

              2.     Private Right of Action

¶20           The FPPA does not impair contractual remedies “otherwise
available” to a subcontractor (including a material supplier) in a payment
dispute. 31 U.S.C. § 3905(b), (j). It cannot be used, however, as a substantive

       accordance with this clause. 31 U.S.C. § 3905(c) further
       requires that each subcontract include a similar clause in their
       subcontracts with lower-tier subcontractors and material
       suppliers. [Federal Acquisition Regulation] 52.232-27(b)
       implements the subcontract prompt payment procedures in
       31 U.S.C. § 3905(b) and in most respects mirrors the statutory
       language.

Brian A. Darst and Lee P. Curtis, Government Construction Contracting, at *4-
49 (Fed. Publ’ns LLC 2007) (emphasis added).
7      “The [Miller] Act was designed as an alternative remedy to the
mechanic’s lien available in ordinary private construction disputes because
a lien cannot attach to government property.” U.S. for Use & Benefit of
Conveyor Rental & Sales Co. v. Aetna Cas. & Sur. Co., 981 F.2d 448, 450 (9th
Cir. 1992).

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                            ZUMAR v. CAYMUS
                            Opinion of the Court

basis of recovery. It is well settled that the FPPA does not contain an explicit
or implied private cause of action in favor of an unpaid subcontractor. W
& W Steel, 944 F. Supp. 2d at 1080; U.S. ex rel. IES Commercial, Inc. v. Cont’l
Ins. Co., Inc., 814 F. Supp. 2d 1, 3 (D.D.C. 2011) (“[T]he apparently
unanimous conclusion that the [FPPA] does not create a private right of
action is nonetheless persuasive.”). Although a subcontractor may sue for
breach of contract under state law, see 31 U.S.C. § 3905(j), it may not base
the claim on alleged violations of provisions read into the subcontract by
operation of the FPPA. See W & W Steel, 944 F. Supp. 2d at 1080-81 (rejecting
suit against contractor based on argument that provisions of FPPA are read
into subcontract by operation of law); see also U.S. ex rel. Va. Beach Mech.
Servs., Inc. v. SAMCO Constr. Co., 39 F. Supp. 2d 661, 675-78 (E.D. Va. 1999);
Transamerica Premier Ins. Co. v. Ober, 894 F. Supp. 471, 480 (D. Me. 1995) (“All
contracts, by definition, between the prime contractor and subcontractors
already include a promise to pay the subcontractor; the statute merely
imposes certain characteristics on the promise.”).

¶21            As we have recognized in connection with Arizona’s Act, a
prompt pay violation does not relieve a subcontractor from responsibility
for poor or inadequate performance. In that context, the remedies for an
untimely payment are interest penalties and the threat of action by the
registrar of contractors. A.R.S. § 32-1129.02(B), (I). “Certification of
payment given during the course of construction is not regarded as
conclusive that the work was properly performed.” Stonecreek, 216 Ariz. at
40, ¶ 18 (discussing availability of civil remedies in an action under the Act).

¶22            Accordingly, because Zumar did not demonstrate it was
entitled to judgment as a matter of law, the superior court erred in granting
summary judgment on this basis.

       C.     Breach of Contract

¶23             In its answering brief, Zumar argues the entry of summary
judgment was proper in any event because there are no material disputes
of fact regarding Caymus’ failure to pay per Zumar’s “Net 30” invoices.
Zumar did not raise this argument in the superior court, and we will not
address it for the first time on appeal. See Airfreight Express Ltd. v. Evergreen
Air Ctr., Inc., 215 Ariz. 103, 109-10, ¶ 17 (App. 2007).

II.    Motion to Add Counterclaims

¶24           Caymus argues the superior court erred in denying its motion
to add counterclaims. We review the denial of a motion to amend a
pleading for an abuse of discretion. Alosi v. Hewitt, 229 Ariz. 449, 452, ¶ 13

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                           ZUMAR v. CAYMUS
                           Opinion of the Court

(App. 2012). In so doing, we presume the truth of the facts alleged in the
amended pleading. MacCollum v. Perkinson, 185 Ariz. 179, 185 (App. 1996).
“Leave to amend is discretionary, but is liberally granted.” Id.

¶25            On appeal, Zumar argues the counterclaims are barred under
Arizona Rule of Civil Procedure 13(e). However, Zumar did not raise this
issue in the superior court, and we decline to consider it now. See Airfreight
Express Ltd., 215 Ariz. at 109, ¶ 17. In the superior court, Zumar argued only
that the amendment would be futile, explaining Caymus’ violation of
prompt pay laws constituted a material breach of contract that excused
Zumar from further performance. See Zancanaro v. Cross, 85 Ariz. 394, 400
(1959). “A court does not abuse its discretion in denying a motion for leave
to amend if the amendment would be futile.” ELM Ret. Ctr., LP v. Callaway,
226 Ariz. 287, 292, ¶ 26 (App. 2010). However, because we reverse the
superior court on the statutory bases underlying its summary judgment
ruling, we similarly reverse its finding of futility.

                               CONCLUSION

¶26           For the foregoing reasons, we reverse and remand for
proceedings consistent with this opinion. Caymus requests its attorneys’
fees and costs on appeal pursuant to A.R.S. §§ 12-341.01, -341. In the
exercise of our discretion, we award Caymus its costs and reasonable
attorneys’ fees pursuant to Arizona Rule of Civil Appellate Procedure 21.

                           AMY M. WOOD • Clerk of the Court
                           FILED: AA

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