Court Opinion

ID: 4709420
Source: CourtListenerOpinion
Date Created: 2021-08-05 17:04:24.693759+00
Date Added: 2024-06-11T08:06:56.486180
License: Public Domain

IN THE

    SUPREME COURT OF THE STATE OF ARIZONA

               SPECIALTY COMPANIES GROUP, LLC, ET AL.,
                          Plaintiffs/Appellants,
                                    v.
                  MERITAGE HOMES OF ARIZONA, INC.,
                         Defendant/Appellee.

                          No. CV-20-0086-PR
                          Filed August 5, 2021

          Appeal from the Superior Court in Maricopa County
                         No. CV2015-090161
          The Honorable David M. Talamante, Judge (Retired)
                            AFFIRMED

             Opinion of the Court of Appeals, Division One
                       248 Ariz. 434 (App. 2020)
                             REVERSED

COUNSEL:

David D. Williams (argued), Davis Miles McGuire Gardner, PLLC, Tempe,
Attorney for Specialty Companies Group, LLC, et al.

James E. Holland Jr. (argued), Jennifer L. Allen, Michael Vincent, Stinson
LLP, Phoenix, Attorneys for Meritage Homes of Arizona, Inc.
                         ____________________
     SPECIALTY COMPANIES GROUP, LLC V. MERITAGE HOMES
                    Opinion of the Court

JUSTICE BOLICK authored the Opinion of the Court, in which CHIEF
JUSTICE BRUTINEL, VICE CHIEF JUSTICE TIMMER, and JUSTICES
LOPEZ, BEENE, and MONTGOMERY joined. *

                           ____________________

JUSTICE BOLICK, Opinion of the Court:

¶1             In this case, we agree with the court of appeals that, because
alter ego claims are derivative in nature, “a party seeking to pierce the
corporate veil under an alter-ego theory is bound by the limitation period
applicable to the cause of action to which the alter-ego claim is tied.”
Specialty Cos. Grp. LLC v. Meritage Homes of Ariz. Inc., 248 Ariz. 434, 439–40
¶ 12 (App. 2020) (collecting cases holding same). As applied to the
controversy before us, we hold that Specialty Companies Group’s alter ego
claim is bound by the statute of limitations for breach of contract and is
time-barred. The court of appeals’ ruling to the contrary is reversed.

                             BACKGROUND

¶2           In 2004, Meritage Homes of Arizona and Hacienda Builders,
Inc., formed Maricopa Lakes, LLC, to develop a residential real estate
project in Arizona. Maricopa Lakes, in turn, hired G&K South Forty
Development to serve as project manager. And in August 2007, G&K hired
Specialty Companies Group, LLC, to provide grouted riprap1 for the
development.

¶3           The year 2007 rings an ominous bell for observers of the
American real estate market, so it will come as no surprise that late that
year, Hacienda Builders announced it would no longer meet its financial

* Although Justice Andrew W. Gould (Ret.) participated in the oral
argument in this case, he retired before issuance of this Opinion and did not
take part in its drafting.
1 “Grouted riprap” refers to rocks cemented into place along inclines,

typically shorelines or spillways, to prevent erosion.
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     SPECIALTY COMPANIES GROUP, LLC V. MERITAGE HOMES
                    Opinion of the Court

obligations 2 to Maricopa Lakes. This notice kicked off a flurry of litigation
that has lasted for nearly a decade and a half.

¶4            On April 13, 2009, Specialty sued G&K to collect more than
$150,000 in unpaid invoices. G&K then filed a third-party complaint
against Maricopa Lakes seeking indemnification, but because Maricopa
Lakes had already been dissolved by the Arizona Corporation Commission,
G&K was awarded a default judgment (“the Lakes Judgment”) in the
amount of $234,943.44 in November 2011. G&K then assigned to Specialty
all of G&K’s claims against Maricopa Lakes, including the right to enforce
and collect on the Lakes Judgment.

¶5           On January 22, 2015, Specialty sued Meritage and Hacienda—
but not Maricopa Lakes—under an alter ego theory. The trial court granted
summary judgment to Meritage, ruling that Specialty’s claims were time-
barred under the six-year limitation period for claims evidenced by or
founded on a written contract. A.R.S. § 12-548(A)(1).

¶6           Specialty voluntarily dismissed its claims against Hacienda
and appealed the trial court’s judgment. The court of appeals reversed,
holding that the alter ego claim was in fact an action on a judgment,
governed by a five-year 3 statute of limitations that only began to run when
the judgment was final. A.R.S. § 12-1551(A) (2013).

¶7              We granted Meritage’s petition for review because it raises
recurring issues of statewide importance, and we have jurisdiction under
article 6, section 5, clause 3 of the Arizona Constitution.

                                 ANALYSIS

¶8            We review de novo the rulings on Meritage’s motion for
summary judgment, Normandin v. Encanto Adventures, LLC, 246 Ariz. 458,
460 ¶ 9 (2019), as well as the trial court’s choice and application of a statute

2 Meritage and Hacienda were obligated to purchase any properties that
were not successfully sold to homebuilders, in proportion to their equity
interests.
3 Section 12-1551 has since been amended to a ten-year statute of

limitations.
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     SPECIALTY COMPANIES GROUP, LLC V. MERITAGE HOMES
                    Opinion of the Court

of limitations. Broadband Dynamics, LLC v. SatCom Mktg., Inc., 244 Ariz. 282,
285 ¶ 5 (App. 2018).

¶9             Generally, a parent corporation is insulated from a subsidiary
corporation’s liability thanks to the “veil” of the corporate form. See Keg
Rests. Ariz., Inc. v. Jones, 240 Ariz. 64, 73 ¶ 31 (App. 2016). But under
Arizona law, the corporate veil can only be pierced, and a parent company
held liable for the acts of its subsidiary, if (1) there is unity of control
between parent and subsidiary such that one is the “alter ego” of the other,
and (2) observing the corporate form’s privileges and protections would be
unjust. See Gatecliff v. Great Republic Life Ins. Co., 170 Ariz. 34, 37 (1991).
Such an attempt to pierce the corporate veil is not itself a cause of action but
is raised in the context of another cause of action such as ones based on
contract or tort. See 1 Fletcher Cyc. Corp. § 41.10.

¶10           Specialty seeks to hold Meritage liable for a breach of contract
committed by Maricopa Lakes, its subsidiary and putative alter ego. But
we are not asked to decide if Maricopa Lakes is in fact Meritage’s alter ego—
we need only decide whether Specialty’s claim to pierce the corporate veil
was brought timely.

¶11             Whether Specialty’s alter ego claim was timely depends on
the relevant statute of limitations. Because alter ego claims are derivative
of another cause of action, we agree with the court of appeals that “a party
seeking to pierce the corporate veil under an alter-ego theory is bound by
the limitation period applicable to the cause of action to which the alter-ego
claim is tied.”       Specialty Cos. Grp. LLC, 248 Ariz. at 439–40 ¶ 12; accord
Peetoom v. Swanson, 778 N.E.2d 291, 295 (Ill. App. Ct. 2002); Turner Murphy
Co. v. Specialty Constructors, Inc., 659 So.2d 1242, 1245–46 (Fla. Dist. Ct. App.
1995). For example, if a plaintiff sues a subsidiary company for negligence
and then seeks to pierce the corporate veil and hold the parent company
liable, the suit is not subject to a distinct “alter ego statute of limitations,”
but is bound by the statute of limitations for negligence, the cause of action
from which the alter ego claim derives.

¶12            The court of appeals held that “Specialty’s action—including
the alter-ego interwoven within it—was an action on a judgment, [and] it is
subject to the then-five-year limitation period for an action on a judgment.”
We disagree and take this opportunity to clarify our jurisprudence about
“actions on a judgment.”

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      SPECIALTY COMPANIES GROUP, LLC V. MERITAGE HOMES
                     Opinion of the Court

¶13              We recounted the history of actions on a judgment in Fidelity
National Financial v. Friedman, 225 Ariz. 307 (2010). At common law,
judgments generally became dormant within a year and unenforceable
after twenty years. Id. at 309 ¶ 6 (citing Browne & Manzanares Co. v. Chavez,
54 P. 234, 234 (N.M. Terr. 1898)). Inattentive judgment creditors had two
options: first, to sue on the judgment in a new action to receive a new
judgment, which might account for the debtor’s recent payments. Id.
(quoting Cont’l Nat. Bank & Tr. Co. of Salt Lake City v. John H. Seely & Sons
Co., 77 P.2d 355, 358 (Utah 1938) (“[U]nder the early common law . . . it was
necessary to sue on the judgment in a new action, affording the defendant
an opportunity of proving that he had discharged it, if he had really done
so.”)). Second, creditors could employ the writ of scire facias, which revived
the original judgment. Id. (quoting Am. Ry. Exp. Co. v. F.S. Royster Guano
Co., 126 S.E. 678, 679 (Va. 1925) (“The proceeding by scire facias is not a new
suit . . . but a continuation of the old suit.”)).

¶14             Arizona’s 1913 Civil Code eliminated scire facias in favor of a
“simplified process under which a judgment was ‘revived by affidavit.’” Id.
¶ 8 (quoting 1913 Civ.Code § 1353). The affidavit, much like scire facias,
“continued the effectiveness of the original judgment so that the judgment
creditor could continue to execute upon it.” Id. But the 1913 Civil Code
preserved the common-law alternative of renewing the judgment by an
“action . . . brought thereon.” Id. ¶ 9 (quoting 1913 Civ.Code § 1353). Then-
Justice Hurwitz noted that “[t]hese provisions from the 1913 Civil Code
have been carried forward without material change into present law.”
Id. ¶ 10.

¶15           Section 12-1551(A), relevant here, now4 provides:
       The party in whose favor a judgment is given, at any time
       within five years after entry of the judgment and within five
       years after any renewal of the judgment either by affidavit or
       by an action brought on it, may have a writ of execution or
       other process issued for its enforcement.

§ 12-1551(A). That is, the statute imports both the common-law remedy of
bringing an action on a judgment, and the modified common-law remedy
of renewal by affidavit. And in Fidelity, this Court held that an action on

4 This quotation reflects the state of the law when Specialty filed suit in
                                                                      2009.
Section 12-1551(A)’s limitation period was extended to ten years in 2018.
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     SPECIALTY COMPANIES GROUP, LLC V. MERITAGE HOMES
                    Opinion of the Court

the judgment under § 12-1551(A) reflects the narrow common-law
“renewal” mechanism and does not allow for collateral “enforcement”
efforts such as garnishment. See Fidelity, 225 Ariz. at 312 ¶ 24 (citing In re
Smith, 209 Ariz. 343, 345 ¶ 13 (2004) (recognizing the difference between
enforcing and renewing a judgment)).

¶16            That the statute cannot serve as a vehicle to pierce the
corporate veil is evident from both its language and procedure. No
occasion existed for Specialty to renew the judgment because the suit here
was filed within five years of the judgment, and in fact plaintiff did not use
the phrase “action on a judgment” until its Second Amended Complaint.
Thus, this is not an action on the judgment because it does not seek to renew
the judgment.

¶17           The statute alternatively allows renewal of the judgment by
affidavit. An affidavit will never suffice to pierce the corporate veil, which,
as noted, involves complex matters of proof. It is therefore clear that § 12-
1551(A) was not designed or intended to create or support a standalone
veil-piercing action.

¶18            Further, as the trial court observed, § 12-1551(B) refers to
“execution or other process . . . issued on a judgment.” The statute does not
give rise to a new action. Thus, as the trial court stated, “while a plaintiff
can assert a writ of process within five years after entry or renewal of
judgment under § 12-1551, nothing in that statute permits a plaintiff to
bring a new action that would otherwise be barred by the Statute of
Limitations.”

¶19           We have emphasized that the renewal process is a
straightforward device that reliably notifies interested parties of the
continuing viability of the judgment. See Fidelity, 225 Ariz. at 311 ¶ 19; see
also In re Smith, 209 Ariz. 343, 345 (2004) (“[T]he filing of an affidavit of
renewal is simply a ministerial action intended in part to alert interested
parties to the existence of the judgment . . . [the affidavit] serves a notice
function and does not seek to enforce a judgment.”). Today we affirm the
narrow understanding of § 12-1551(A) as stated in Fidelity, which respects
common-law origins and aligns with the modern statute’s plain meaning
and statutory purpose. We are unpersuaded by out-of-state rulings to the
contrary, which do not reflect our state’s history and concept of an action
on a judgment.

                                      6
     SPECIALTY COMPANIES GROUP, LLC V. MERITAGE HOMES
                    Opinion of the Court

¶20            In particular, we disagree with the Southern District of New
York’s approach as stated in Wm. Passalacqua Builders, Inc. v. Resnick
Developers S., Inc., 608 F. Supp. 1261 (S.D.N.Y. 1985). Passalacqua analyzed
a similar scenario, but the district court chose without explanation to apply
New York’s limitation period for actions on a judgment. Id. at 1264–65. The
court merely stated that:

       Under the alter ego and instrumentality theories the
       corporation and those who have controlled the corporation
       are treated as but one entity . . . The action accrued against
       both the corporation and any alter egos when the judgment
       was entered.

Id. at 1264 (footnote omitted) (citation omitted).

¶21            Of course, we must interpret A.R.S. § 12-1551(A) in light of
Arizona’s common law, whereas Passalacqua applies New York’s distinct
legal framework, so the district court’s ruling is distinguishable on those
grounds.      But we also find the court’s limited reasoning internally
inconsistent. On one hand, the court was unprepared to find on the merits
that the defendant was an alter ego of the judgment creditor, noting several
outstanding issues of fact. Id. at 1265. But when asked whether the action
to enforce the money judgment was timely, the court assumed what it was
otherwise unwilling to establish and held that because “the action accrued
against both the corporation and any alter egos when the judgment was
entered . . . [t]he action to enforce the money judgment [was] therefore
timely.” Id. at 1264.

¶22            Specialty similarly seeks to put the cart before the horse. No
court has found that Maricopa Lakes is the alter ego of Meritage. We will
not base a timeliness ruling on such a critical unproven assumption,
especially given that Meritage was not a party to the original action that
produced the judgment Specialty seeks to enforce, and Meritage has had no
opportunity to defend against the underlying cause of action. We are
mindful of the general rule that “[i]t is a violation of due process for a
judgment to be binding on and enforceable against a litigant who was not
a party or a privy, and therefore has never had an opportunity to be heard.”
Associated Aviation Underwriters v. Wood, 209 Ariz. 137, 180 ¶ 151 (App. 2004)
(quoting Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 327 (1979)).

                                      7
     SPECIALTY COMPANIES GROUP, LLC V. MERITAGE HOMES
                    Opinion of the Court

¶23            The discourse above illustrates that Specialty’s alter ego claim
should not be viewed as a simple attempt to renew the judgment, but rather
a new collection action outside the purview of § 12-1551(A). Put as simply
as possible, Specialty seeks to hold Meritage liable for Maricopa Lakes’
breach of contract. It follows that Specialty was bound by the six-year
statute of limitations for breach of contract, the cause of action from which
the alter ego claim derives.

¶24            A claim for breach of contract accrues when the plaintiff knew
or should have known the facts giving rise to the claim. Gust Rosenfeld v.
Prudential Ins., 182 Ariz. 586, 588 (1995). The trial court heard evidence that
G&K had known the necessary facts to bring a breach-of-contract claim as
of late 2007 or early 2008 and found that Specialty’s 2015 suit was “barred
by the six-year Statute of Limitations.” We find no reason to disturb the
trial court’s ruling and thus affirm that Specialty’s alter ego claim is time-
barred.
                                CONCLUSION

¶25           We hold that the statute of limitations for alter ego actions is
determined by reference to the cause of action from which the alter ego
claim derives, and that, here, Specialty was bound by the six-year statute of
limitations for breach of contract. We reverse the court of appeals’ opinion
and affirm the trial court’s dismissal of the complaint and entry of judgment
for Meritage Homes.

¶26           Both parties seek an award of attorney fees pursuant to A.R.S.
§ 12-341.01. Neither party’s briefing was especially helpful to the Court.
Specialty is not the successful party here, and we therefore deny its request.
Although Meritage is the successful party, we exercise our discretion to
deny its request.

                                      8