Court Opinion

ID: 9841135
Source: CourtListenerOpinion
Date Created: 2023-09-21 15:04:03.835675+00
Date Added: 2024-06-11T08:39:42.779456
License: Public Domain

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

                                   IN THE
            ARIZONA COURT OF APPEALS
                               DIVISION ONE

                  CITY OF SURPRISE, Plaintiff/Appellee,

                                       v.

     CIRCLE CITY WATER COMPANY, LLC, Defendant/Appellee.

  CIRCLE CITY WATER COMPANY, LLC, Cross-Claimant/Appellee,

                                       v.

   LAKE PLEASANT 5000, LLC, et al., Cross-Defendants/Appellants.

   LAKE PLEASANT 5000, LLC, et al., Counter-Claimants/Appellants,

                                       v.

        CITY OF SURPRISE, et al., Counter-Defendants/Appellees.

                            No. 1 CA-CV 22-0532
                              FILED 9-21-2023

          Appeal from the Superior Court in Maricopa County
                         No. CV2018-011038
            The Honorable Connie Contes, Judge (Retired)
              The Honorable Joseph P. Mikitish, Judge

                                 AFFIRMED
                SURPRISE v. CIRCLE CITY WATER/LAKE
                         Decision of the Court

                                   COUNSEL

Zeitlin & Zeitlin PC, Phoenix
By Dale S. Zeitlin, Casandra C. Markoff
Counsel for Defendants/Appellants, Lake Pleasant 5000

Snell & Wilmer, Phoenix
By Robert A. Henry
Co-Counsel for Plaintiff/Appellee, City of Surprise

City of Surprise, Surprise
By Robert W. Wingo
Co-Counsel for Plaintiff/Appellee, City of Surprise

Osborn Maledon, PA, Phoenix
By Meghan Grabel, Phillip W. Londen, Elias J. Ancharski
Counsel for Defendant/Appellee, Circle City

                        MEMORANDUM DECISION

Judge Jennifer B. Campbell delivered the decision of the Court, in which
Presiding Judge Cynthia J. Bailey and Judge David D. Weinzweig joined.

C A M P B E L L, Judge:

¶1            Lake Pleasant 5000, L.L.C., Harvard Investments, Inc., Rex G.
Maughan and Ruth G. Maughan as Trustees for the Maughan Revocable
Trust of 2007, Dated August 24, 2007, Rex G. Maughan, and Ruth G.
Maughan (collectively, the Landowners) challenge the superior court’s
rulings in favor of the City of Surprise (Surprise) and Circle City Water
Company, LLC (Circle City) in this condemnation action. For the following
reasons, we affirm.

                               BACKGROUND

¶2            The United States Congress enacted the Colorado River Basin
Project Act (the Act) in 1968, providing for the construction, operation, and
maintenance of the Central Arizona Project (CAP). 43 U.S.C. § 1521 (“For
the purposes of furnishing irrigation water and municipal water supplies
to the water-deficient areas of Arizona . . . the Secretary [of the Interior]

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                SURPRISE v. CIRCLE CITY WATER/LAKE
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shall construct, operate, and maintain the Central Arizona Project[.]”). The
Act appropriated federal dollars to build CAP infrastructure, 43 U.S.C.
§ 1528, which the federal government may recover by entering water-
distribution “master contracts” with state political subdivisions. 43 U.S.C.
§ 1524(b)(1); see also Maricopa-Stanfield Irrigation & Drainage Dist. v.
Robertson, 211 Ariz. 485, 488-89, ¶¶ 16-18 (2005). State political subdivisions,
in turn, may then “make CAP water available to ‘users’ within [their]
boundaries through subcontracts.” Maricopa-Stanfield, 211 Ariz. at 488, ¶ 16
(citing 43 U.S.C. § 1524(b)(1)).

¶3             That is what happened here. In 1972, the federal government
entered a master contract with the Central Arizona Water Conservation
District (the conservation district) to facilitate the delivery of CAP water.
A.R.S. §§ 48-3701(12), -3702, and–3703. The conservation district is a multi-
county, special-purpose taxing district. A.R.S. § 48-3702. Under the master
contract, the federal government “agreed to construct and operate the CAP
water delivery system in exchange for repayment of the attendant costs,”
Maricopa-Stanfield, 211 Ariz. at 489, ¶ 17, but the contract (1) requires that
the United States “be a party to [any] subcontracts,” (2) prohibits the
assignment or transfer of contract rights without written approval from the
Secretary of the Interior, and (3) disclaims any guarantee of water
availability.

¶4             In 1999, the federal government and the conservation district
entered a subcontract with Circle City, which entitled Circle City to
purchase as much as 3,932 acre-feet of CAP water each year, subject to
availability. Like the master contract, the subcontract precludes Circle City
from assigning or transferring its water rights under the subcontract
without written approval from the Secretary of the Interior.

¶5            The Landowners contacted Circle City in 2004, requesting
water service for an undeveloped “master planned residential community”
comprised of thousands of residential units, a hotel, and commercial space
(the planned community). In March 2005, Circle City and the Landowners
entered a water facilities agreement, which required:

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    •   Circle City to apply with the Arizona Corporation Commission for
        an extension of its Certificate of Convenience and Necessity (CC&N)
        service area to include the planned community.1

    •   the Landowners to reimburse Circle City for any accounting,
        engineering, or legal expenses related to the expansion of the CC&N
        area;

    •   the Landowners to construct “both on-site distribution and off-site
        water infrastructure utility facilities necessary for Circle City to serve
        the [planned community]”; and

    •   Circle City “to provide potable domestic water service” to the
        planned community.

¶6            The facilities agreement did not specify the source of the
potable water to be supplied, but a Water Master Plan, attached as an
exhibit to the facilities agreement, added that the water supply “is
anticipated to come from a combination of groundwater wells and (CAP)
surface water supply.”

¶7            As required under the facilities agreement, Circle City
successfully petitioned to extend its CC&N area to include the planned
community, and the Landowners reimbursed Circle City for its legal and
engineering expenses ($67,782.61). From there, the Landowners did
nothing. They took no action to either construct the requisite water
infrastructure or develop the planned community. And in 2013, the
Landowners notified Circle City that the planned community was
“currently non-viable.”

¶8            A few years later, Surprise entered a settlement agreement
with Circle City for Surprise to condemn all of Circle City’s assets, including
the subcontract and the CC&N. While negotiating that settlement, Circle
City reached out to the Landowners and offered to return the
reimbursement monies for legal and engineering expenses that the

1      Ariz. Admin. Code R14-2-602(B)(2) (“Any utility that desires to
extend its CC&N service area shall file with the Commission an application
for a CC&N extension.”). “Once granted, [a] certificate [of convenience and
necessity] confers upon its holder an exclusive right to provide the relevant
service for as long as the grantee can provide adequate service at a
reasonable rate.” James P. Paul Water Co. v. Ariz. Corp. Comm’n, 137 Ariz. 426,
429 (1983).
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Landowners had previously remitted. The Landowners declined, and
Surprise filed a condemnation complaint against Circle City and the
Landowners. Surprise sought to acquire Circle City’s real and personal
property, as well as the CC&N and the subcontract, but disclaimed any
interest in Circle City’s obligations or liabilities, expressly excluding the
facilities agreement from the condemnation. Surprise also sought a
declaration that the facilities agreement granted the Landowners “no water
or other property rights” in the condemned assets.

¶9             The Landowners asserted four counterclaims: (1) interference
with contract (alleging Surprise agreed to pay Circle City “millions of
dollars for assets that are basically worthless” to acquire Circle City’s CAP
water rights and thwart Circle City’s fulfillment of its obligations to the
Landowners under the facilities agreement); (2) inverse condemnation
(alleging Surprise inversely condemned the Landowners’ “valuable
property right” by condemning Circle City’s CAP water rights); (3)
unconstitutional impairment of contract (alleging Surprise’s taking of
Circle City’s assets, except for the facilities agreement, “unconstitutionally
impairs” the Landowners’ contract with Circle City); and (4) violation of 42
U.S.C. § 1983 (alleging Surprise’s condemnation of Circle City’s assets,
except for the facilities agreement, violates the Landowners’ substantive
due process rights).

¶10          Circle City, in turn, crossclaimed for a declaratory judgment
against the Landowners that Circle City’s performance under the facilities
agreement “w[ould] be rendered impossible” by Surprise’s condemnation
action, excusing its nonperformance on that basis. Circle City also
requested an award of attorneys’ fees. To that, the Landowners added a
breach of contract crossclaim against Circle City.

¶11           In separate motions, Surprise and Circle City moved to
dismiss the Landowners’ crossclaims, arguing the Landowners had no
compensable property rights under the subcontract. Circle City also
reasserted that its nonperformance under the facilities agreement “would
be excused under the doctrine of impossibility.” Citing the same reasons,
Surprise and Circle City also separately moved for judgment on the
pleadings.

¶12         After briefing and oral argument, the superior court granted
judgment on the pleadings in favor of Surprise and dismissed the
Landowners’ counterclaims against it. The court held that the Landowners
had “no property right to the assets being condemned,” including “any
CAP water,” reasoning that the facilities agreement neither conveyed “any

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                        Decision of the Court

of Circle City’s rights to water” to the Landowners nor required Circle City
to provide the planned development with water from a specific source. The
court also noted that the federal government’s approval would have been
required if the facilities agreement had guaranteed CAP water. Because the
Landowners had no property interest in the condemned assets, the superior
court also found they lacked “standing to challenge the determination of
public use and necessity required for the condemnation.”

¶13             Concerning the Landowners’ claims against Circle City, the
court found that Circle City’s performance under the facilities agreement
was “impracticable” and “excused” once Surprise condemned Circle City’s
assets. But the superior court denied Circle City’s motions for dismissal and
judgment on the pleadings, reasoning that the Landowners “may be
entitled to restitution for amounts expended in part performance of the
[facilities] agreement.”

¶14            Following those rulings, Circle City moved for summary
judgment on restitution, acknowledging that it “should repay” the
Landowners the monies for costs incurred ($67,782.61) to expand its CC&N
service area. But Circle City denied the Landowners’ claim for $15 million
in restitution—the negotiated amount due Circle City under the
condemnation settlement agreement. In response to Circle City’s motion for
summary judgment, the Landowners requested “time and opportunity to
conduct discovery” to determine “the appropriate measure of restitution”
under Arizona Rule of Civil Procedure (Rule) 56(d). The superior court
denied the Landowners’ request for Rule 56(d) relief; instead, ordering
Circle City to “file a new motion for summary judgment on the issue of the
method and scope of restitution as a matter of law.”

¶15            Consistent with the superior court’s order, Circle City filed a
supplemental motion for summary judgment, arguing that the proper
scope of restitution when a party’s “duty to perform is excused under the
doctrine of impracticability” is the measure of benefits already “conferred”
on the nonperforming party “by way of part performance or reliance.” In
response, the Landowners challenged Circle City’s proposed measure of
restitution, alleging “that Circle City actively solicited the condemnation to
avoid its obligations to [the Landowners] under the [facilities agreement],”
and therefore, under theories of breach of contract and unjust enrichment,
the Landowners are entitled to the full amount ($15 million) Surprise
agreed to pay Circle City under the condemnation settlement agreement.
Agreeing with Circle City that the measure of restitution “does not include
expectation damages,” the superior court granted Circle City’s summary
judgment motion concerning the scope of restitution.

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               SURPRISE v. CIRCLE CITY WATER/LAKE
                        Decision of the Court

¶16            Upon the superior court’s adoption of its measure of
restitution, Circle City moved for summary judgment on the amount of
restitution, arguing the only benefit conferred by the Landowners in part
performance or reliance on the facilities agreement was the $67,782.61 the
Landowners paid Circle City to reimburse the engineering and legal costs
it expended to secure the expanded CC&N area. The Landowners cross-
moved for summary judgment on the amount of restitution, relying on an
expert’s valuation to support their contention that the expansion of the
CC&N area to include the planned community represented a $15 million
benefit conferred by the facilities agreement to Circle City.

¶17           After full briefing and oral argument, the superior court
granted Circle City’s motion for summary judgment and denied the
Landowners’ cross-motion for summary judgment. The superior court
found that the Landowners “present[ed] no evidence that [they] undertook
any action to expand the CC&N area.” In fact, to the contrary, the superior
court found that Circle City took all action related to the expansion of its
CC&N area. Noting the Landowners’ failure to construct water
infrastructure or otherwise develop the planned community, the superior
court found “that whatever benefit [] flowed from an expanded CC&N
resulted from Circle City’s actions and the [Arizona Corporation
Commission’s] approval, not [the Landowners’] actions.” Accordingly, the
superior court concluded that the CC&N expansion “[wa]s not a benefit
conferred by [the Landowners] on Circle City.”

¶18           Having prevailed on summary judgment, Circle City
requested an award of its attorneys’ fees ($519,002.50) and costs under
A.R.S. §§ 12-341, -341.01, and -329. The superior court awarded Circle City
$150,000 in attorneys’ fees under both A.R.S. §§ 12-341.01 and -349, plus
costs, finding the Landowners’ claims arose out of contract—the facilities
agreement—and the Landowners made several “claims for restitution that
were inconsistent with . . . prior rulings.” Upon entry of final judgment, the
Landowners timely appealed.

                               DISCUSSION

   I.     Judgment on the Pleadings in Favor of Surprise and Dismissal
          of the Landowners’ Counterclaims Against Surprise

¶19          The Landowners first challenge the superior court’s entry of
judgment on the pleadings in favor of Surprise and its dismissal of their
counterclaims against Surprise. They contend that Surprise’s condemnation

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                SURPRISE v. CIRCLE CITY WATER/LAKE
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of Circle City’s assets stripped the planned community of all value—
effectuating a taking of their property.

¶20            “A motion for judgment on the pleadings pursuant to
[Arizona Rule of Civil Procedure 12(c)] tests the sufficiency of the
complaint, and judgment should be entered for the defendant if the
complaint fails to state a claim for relief.” Giles v. Hill Lewis Marce, 195 Ariz.
358, 359, ¶ 2 (App. 1999). We review the granting of a motion for judgment
on the pleadings de novo. Id.

¶21           We likewise review de novo whether issues of fact or law
preclude the dismissal of a counterclaim. Save Our Valley Ass’n v. Ariz. Corp.
Comm’n, 216 Ariz. 216, 218-19, ¶ 6 (App. 2007); Coleman v. City of Mesa, 230
Ariz. 352, 355, ¶ 7 (2012). A counterclaim is subject to dismissal if the
claimant “[would not be] entitled to relief under any interpretation of the
facts susceptible to proof.” Vortex Corp. v. Denkewicz, 235 Ariz. 551, 556,
 ¶ 17 (App. 2014) (quoting Coleman, 230 Ariz. at 355-56, ¶¶ 7-8 (internal
citation omitted)).

¶22          In reviewing a judgment on the pleadings or the dismissal of
a counterclaim, we assume the truth of all well-pled, material allegations in
the complaint, but “do not accept as true allegations consisting of
conclusions of law, inferences or deductions that are not necessarily
implied by well-pleaded facts, unreasonable inferences or unsupported
conclusions from such facts, or legal conclusions alleged as facts.” Jeter v.
Mayo Clinic Ariz., 211 Ariz. 386, 389, ¶ 4 (App. 2005).

¶23              Both the state and federal constitutions prohibit the
government from taking private property without just compensation. State
ex rel. Miller v. Gannett Outdoor Co. of Ariz. Inc., 164 Ariz. 578, 579 (App. 1990)
(citing U.S. Const. amend. V; Ariz. Const. art. 2, § 17). But the government
cannot effect a taking of a property interest from a party that “had no
property right to begin with.” State v. Mabery Ranch, Co., 216 Ariz. 233, 243,
¶ 39 (App. 2007). In other words, “the state is obligated to pay
compensation for the taking of legally cognizable property interests” only,
and “[a]ny other interests affected are non-compensable under the United
States Constitution and Arizona law.” Gannett Outdoor Co. of Ariz. Inc., 164
Ariz. at 584. Accordingly, to prevail on a claim that the government
unlawfully appropriated private property for public use without just
compensation, a claimant must demonstrate a “diminution in (or
elimination of) value” in “a protected property interest.” Mutschler v. City of
Phoenix, 212 Ariz. 160, 165, ¶ 16 (App. 2006) (emphasis added).

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               SURPRISE v. CIRCLE CITY WATER/LAKE
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¶24           Under this framework, we must determine, as a threshold
matter, whether a claimant has identified “a cognizable property interest”
before considering whether the government action amounted to a taking.
Air Pegasus of D.C., Inc. v. United States, 424 F.3d 1206, 1212-13 (Fed. Cir.
2005). To be clear, if a claimant fails to establish a legally recognized
property interest, we need not examine the nature of the government’s
action. Mutschler, 212 Ariz. at 165.

¶25          Here, under the facilities agreement, the Landowners
possessed the right to have Circle City provide water service to the
undeveloped planned community from a combination of groundwater and
surface water. That is not a protected property interest.

¶26              First, the facilities agreement did not convey vested water
rights for either CAP water or groundwater. The agreement could not
convey a right to CAP water without written approval of the Secretary of
the Interior. See City of Phoenix v. South Bank Corp., 133 Ariz. 90, 94 (App.
1982); Maricopa-Stanfield, 211 Ariz. at 488, ¶ 16 (“The terms and conditions
of the [CAP] subcontracts were to be subject to the Secretary’s approval
. . . .”). And the agreement could not convey a right to groundwater because
any such right would be prospective. See Town of Chino Valley v. City of
Prescott, 131 Ariz. 78, 82 (1981) (“[T]here is no right of ownership of
groundwater in Arizona prior to its capture and withdrawal from the
common supply . . . .”); see also Davis v. Agua Sierra Res., L.L.C., 220 Ariz.
108, 112 (2009) (describing a landowner’s right to potential future
groundwater as “an unvested expectancy”).

¶27           Second, the facilities agreement provided the Landowners
with the right to a service—Circle City’s future delivery of potable water to
the planned community—not a property right in Circle City’s assets, and
contract expectancies are not compensable property interests.2 See Gannett
Outdoor Co. of Ariz. Inc., 164 Ariz. at 580 (noting expectant interests, those
that depend upon the occurrence of a future event, are not compensable);

2      Notably, the Landowners have not constructed any of the
infrastructure necessary to enable water delivery service to the planned
community. Cf. Gannett Outdoor Co. of Ariz. Inc., 164 Ariz. at 579-84
(recognizing “that a lease term containing an unconditional right to renew
in favor of the lessee may constitute a legally compensable interest” when
evidence demonstrates the lessee would likely exercise that right, but
concluding a lessee’s “mere expectancy of continued lease renewals” based
on previous conduct was insufficient to require compensation).

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                SURPRISE v. CIRCLE CITY WATER/LAKE
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Steinfeld v. Nielsen, 15 Ariz. 424, 465 (1913) (explaining contract rights “are
expectant[] when they depend upon the continued existence of the present
condition of things until the happening of some future event”).

¶28           Analogizing their contractual relationship with Circle City to
the contractual relationships at issue in International Paper Co. v. United
States, 282 U.S. 399 (1931), and City of Phoenix v. South Bank Corp., 133 Ariz.
90 (App. 1982), the Landowners nonetheless assert that their rights to
potable water service under the facilities agreement “are compensable
property interests.” But the Landowners’ reliance on these cases is
misplaced.

¶29          In International Paper, the claimant paper company petitioned
for compensation after the federal government requisitioned all waters
diverted through a river’s power canal—waters that the paper company
“was entitled, by conveyance and lease [with the power company], to
draw” on for a specified supply—a property right under the governing
state (New York) law. 282 U.S. at 405. Rejecting the government’s
“quibbling distinctions,” the United States Supreme Court found that the
government “took the property that [International Paper] owned as fully as”
the power company. Id. at 407-08 (emphasis added).

¶30           In South Bank, a city condemned certain private property for
a landfill site. 133 Ariz. at 91. “Just prior” to the condemnation, the
landowner “entered into a ‘material sales contract’” granting a mining
company “the right to purchase sand and gravel” from a “massive . . .
deposit” on the property. Id. Noting the contract authorized the mining
company to physically enter the landowner’s property and use its
machinery and equipment to remove “portions of the real estate,” this court
characterized the agreement as “a classic profit a prendre arrangement.” Id.
at 93. Because “profits a prendre are interests in real property,” this court held
that the mining company had “a legally cognizable interest in the property
for which compensation was payable upon taking.” Id. (emphasis added).

¶31           Both cases are readily distinguishable from the circumstances
here. Unlike the lease in International Paper, which gave the paper company
the legal right to draw a specified volume of the power company’s canal
water, and the profit a prendre agreement in South Bank, which gave the
mining company the right to remove certain deposits of sand and gravel
from the landowner’s real property, the facilities agreement gives the
Landowners no tangible property rights to Circle City’s condemned assets.
In fact, rather than authorizing the Landowners to directly make use of
Circle City’s property (draw from its water assets), the facilities agreement

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merely obligates Circle City to provide the Landowners with a service—the
delivery of potable water.

¶32             Like the superior court, we are persuaded by Maricopa-
Stanfield Irrigation & Drainage District v. Robertson, 211 Ariz. 485 (2005). In
Maricopa-Stanfield, the United States and the conservation district entered
into subcontracts with two irrigation districts. Id. at 489, ¶¶ 18-19. “[T]he
subcontracts contemplated that CAP water would be delivered by the
districts to agricultural landowners for irrigation,” and each irrigation
district entered into separate water service agreements with its respective
landowners. Id. at ¶ 19. “[T]he water service agreements did not guarantee
the landowners access to CAP water; they instead allowed the [irrigation]
districts to deliver irrigation water without specifying its source.” Id. at ¶
20. But the parties “expected that the [irrigation] districts would deliver,
and the landowners would pay for, CAP water under the water service
agreements.” Id. “After the CAP [infrastructure] was completed, the
[irrigation] districts were unable to meet their financial obligations” to
repay the costs of constructing the irrigation distribution systems under the
subcontracts. Id. at ¶¶ 18, 21. “Facing financial collapse,” the irrigation
districts and the conservation district negotiated a comprehensive water
settlement. Id. at ¶¶ 21-23. Although most landowners in each district
approved the settlement agreement, the dissenting landowners pursued
litigation, “alleging that they had vested rights to CAP water that could not
be abrogated without their consent.” Id. at 487, 489, ¶¶ 5, 23. Because only
a contract with the Secretary of the Interior can “establish a right” to CAP
water, the supreme court found that the landowners’ water service
agreements with the irrigation districts did not “create a vested right to
CAP water.” Id. at 490-91, ¶¶ 27, 32. In concluding that entry of judgment
in favor of the irrigation districts was warranted, the supreme court
emphasized that the water service agreements obligated the irrigation
districts to deliver water only. Id. at 494, ¶ 54.

¶33           Applying Maricopa-Stanfield here, the Landowners have no
legally cognizable property right to CAP water, the subcontract, or any
other Circle City asset. Like the water service agreements at issue in
Maricopa-Stanfield, the facilities agreement here failed to specify the source
of the potable water to be delivered, and it did not convey any right to CAP
water (nor could it without written approval of the Secretary of the
Interior), any other water source, or any other Circle City asset to the
Landowners.

¶34           In sum, because the Landowners have no cognizable property
interest in Circle City’s CAP water rights or any other condemned asset,

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Surprise’s condemnation of those assets did not effect a compensable taking
of the Landowners’ property under the Arizona and United States
Constitutions. Therefore, we affirm the superior court’s judgment on the
pleadings in favor of Surprise and its dismissal of the Landowners’
counterclaims against Surprise.3

    II.   Summary Judgment on Restitution and Award of Attorneys’
          Fees

¶35           The Landowners next challenge the superior court’s
summary judgment rulings on restitution in favor of Circle City. In
reviewing a grant of summary judgment, we view the facts and the
reasonable inferences drawn from those facts in the light most favorable to
the non-moving party and affirm “if the evidence produced in support of
the defense or claim has so little probative value that no reasonable person
could find for its proponent.” State Comp. Fund v. Yellow Cab Co. of Phoenix,
197 Ariz. 120, 122, ¶ 5 (App. 1999). We review de novo the superior court’s
application of the law. Id.; see also Ariz. R. Civ. P. 56(a) (“The court shall
grant summary judgment if the moving party shows that there is no
genuine dispute as to any material fact and the moving party is entitled to
judgment as a matter of law.”). We also review de novo contract
interpretation. Dreamland Villa Cmty. Club, Inc. v. Raimey, 224 Ariz. 42, 46,
¶ 17 (App. 2010).

¶36            The Landowners contend the superior court improperly
limited their restitution relief to the monies they expended under the
facilities agreement, “denying [them] the right to collect the present value

3       The Landowners also argue that the superior court improperly
found they lacked standing to challenge the public use and necessity of the
condemnation action. By statute, any person “having or claiming an interest
in any of the property described in the [condemnation] complaint, or in the
damages for the taking thereof, . . . may appear, plead and defend in respect
to his property or interest, or that claimed by him.” A.R.S. § 12-1120. In this
case, the Landowners had the opportunity to appear in the condemnation
action and assert their claim of a property interest. But once the superior
court determined that they had no property interest in the condemned
assets, the Landowners had no standing to challenge the public use and
necessity of the condemnation action. For the same reason, to the extent the
Landowners challenge the legality of Surprise’s taking of the condemned
assets absent evidence of written authorization from the federal
government and conservation district, they similarly lack standing.

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of [Circle City’s] enlarged CC&N.” According to the Landowners, the
facilities agreement conferred a substantial benefit on Circle City by
providing the predicate for its expanded CC&N service area.4

¶37            A party seeking restitution for damages under a contract
discharged for impracticability is entitled to compensation for the benefit
that his contractual performance or reliance has conferred on the other
party. See Restatement (Second) of Contracts § 377 (1981) (“A party whose
duty of performance does not arise or is discharged as a result of
impracticability of performance . . . is entitled to restitution for any benefit
that he has conferred on the other party by way of part performance or reliance.”)
(emphasis added). Thus, properly framed, the question here is what benefit,
if any, the Landowners conferred upon Circle City through their part
performance or reliance on the facilities agreement, not, as the Landowners
argue, whether Circle City derived any benefit from the facilities
agreement.

¶38           Examining the parties’ respective performances, Circle City
applied for and received an expanded CC&N service area and the
Landowners reimbursed Circle City for the expenses associated with that
application. But the Landowners never constructed the necessary
infrastructure for water delivery service, effectively preventing Circle City
from fulfilling its obligation to deliver potable water to the planned
community. In fact, it is undisputed that the Landowners never developed
the planned community to any degree.

¶39            On this uncontroverted record, any benefit accorded to Circle
City from its expanded CC&N service area was the result of its performance
under the facilities agreement, not the Landowners’ performance. Indeed,
consistent with the superior court’s findings, the record neither reflects that
the Landowners “undertook any action to expand the CC&N area” nor that
they otherwise conferred any benefit to Circle City. Because the
Landowners are not entitled to compensation, as a matter of law, for any
benefit conferred to Circle City by the expanded CC&N service area, we

4      The Landowners also assert that Circle City “is a conscious
wrongdoer,” having “actively solicit[ed] the condemnation” to avoid its
water service obligations under the facilities agreement. Citing principles
of unjust enrichment, the Landowners argue that Circle City should be
divested of any “benefits” it received under the facilities agreement. But as
Circle City points out, the Landowners only pled a crossclaim for breach of
contract, so disgorgement based on an allegation of unjust enrichment “is
not an available remedy here.”
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need not determine the CC&N’s increased value, if any.5 See A.R.S. § 40-287
(“Any portion of the certificated area of a private water company which
does not contain an operating distribution system . . . is presumed to have
de minimis value for the purposes of condemnation.”).

¶40             In sum, given the Landowners’ minimal performance under
the facilities agreement, the superior court properly limited restitution to
the amount they reimbursed Circle City for engineering and legal expenses
associated with the expanded CC&N. Therefore, the superior court did not
err by entering summary judgment on restitution in favor of Circle City and
denying the Landowners’ cross-motion for summary judgment.6

¶41          Finally, the Landowners challenge the superior court’s award
of attorneys’ fees to Circle City under A.R.S. § 12-349, arguing they
disagreed that the evidence was not substantially justifiable. But the
Landowners neither challenge the amount nor the other statutory basis for
the fee award. Because the Landowners do not contest the superior court’s
award of attorneys’ fees under A.R.S. § 12-341.01—arising out of a
contract—we uphold the attorneys’ fees award on that basis. Cf. White
Mountain Health Ctr., Inc. v. Maricopa Cnty., 241 Ariz. 230, 252, ¶ 80 (App.
2016) (uphold fee award on statutory bases not challenged).

5        Having found, as a matter of law, that the Landowners did not
confer upon Circle City the benefit of an expanded CC&N service area, we
need not address the Landowners’ contention that the superior court
improperly excluded their expert’s valuation opinion.
6        Although the Landowners contend that they have “rel[ied] on the
[facilities agreement] for more than fifteen years,” the record reflects no
evidence of their reliance apart from their reimbursement of engineering
and legal fees incurred by Circle City to expand its CC&N service area.
More importantly, the Landowners fail to identify any benefit their
purported reliance conferred on Circle City sufficient to justify restitution
on that basis.

                                     14
                SURPRISE v. CIRCLE CITY WATER/LAKE
                         Decision of the Court

                               CONCLUSION

¶42           For the foregoing reasons, we affirm. Both the Landowners
and Circle City request an award of their attorneys’ fees on appeal. This
dispute arises out of the facilities agreement and Circle City is the successful
party on appeal. See A.R.S. § 12-341.01. Accordingly, Circle City may
recover its reasonable attorneys’ fees and taxable costs incurred in this
appeal upon compliance with ARCAP 21.7

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

7      We deny the Landowners’ request to impose sanctions on Surprise.
                                        15