DBT Yuma, L.L.C. v. Yuma County Airport Authority

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

DBT YUMA, L.L.C., an Arizona limited liability company; DBRT YUMA
FBO, LLC, an Arizona limited liability company; DBRT YUMA
HANGARS, LLC, an Arizona limited liability company; DBRT YUMA
MAINTENANCE, LLC, an Arizona limited liability company,
Plaintiffs/Appellants,

v.

YUMA COUNTY AIRPORT AUTHORITY, a body politic and corporate
pursuant to A.R.S. § 28-8424;1
YUMA COUNTY, a political subdivision of the State of Arizona,
Defendants/Appellees.

No. 1 CA-CV 13-0645
FILED 12-16-2014

Appeal from the Superior Court in Yuma County
No. S1400CV201001309
The Honorable John Neff Nelson, Presiding Judge

AFFIRMED

1 The original caption erroneously referred to the Yuma County
Airport Authority as “a political subdivision of the County of Yuma
pursuant to A.R.S. § 28-8423.” See A.R.S. § 28-8461(14) (“‘Political
subdivision’ means a city, town or county and includes a school district.”).
We therefore, sua sponte, amend the caption to reflect Yuma County Airport
Authority’s status as a body politic and corporate, and order the use of this
caption for all further proceedings on appeal.
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Opinion of the Court

COUNSEL

Baird, Williams & Greer, LLP, Phoenix
By Daryl M. Williams, Craig M. LaChance
Co-Counsel for Plaintiffs/Appellants

Torok Law Office, P.L.L.C.,Yuma
By Gregory T. Torok
Co-Counsel for Plaintiffs/Appellants

Yuma County Attorney’s Office, Yuma
By William J. Kerekes
Counsel for Defendant/Appellee Yuma County

Kutak Rock, LLP, Scottsdale
By Paul S. Gerding, Jr., Marc R. Lieberman, Kelley Braden
Co-Counsel for Defendant/Appellee Yuma County Airport Authority

Byrne, Benesch & Rice, PC, Yuma
By Wayne C. Benesch, Shawn D. Garner
Co-Counsel for Defendant/Appellee Yuma County Airport Authority

OPINION

Judge Kenton D. Jones delivered the Opinion of the Court, in which
Presiding Judge Peter B. Swann and Judge Michael J. Brown joined.

J O N E S, Judge:

¶1 This appeal requires us to determine whether Yuma County,
which leases its airport land to the Yuma County Airport Authority
(YCAA), a nonprofit corporation pursuant to Arizona Revised Statutes
(A.R.S.) sections 28-84232 and -8424, may be held vicariously liable for the
actions of that nonprofit lessee.

2 Absent material revisions after the relevant date, we cite a statute’s
current version.

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¶2 Plaintiffs, all Arizona limited liability companies, brought an
action against the Yuma County Airport Authority for breach of contract
and various torts. Plaintiffs later amended their complaint to add Yuma
County as a defendant under a theory of vicarious liability. Yuma County
moved for summary judgment, which the trial court granted. Because
A.R.S. § 28-8424 does not impose vicarious liability upon Yuma County for
the actions of YCAA, we affirm.

FACTS3 AND PROCEDURAL HISTORY

¶3 YCAA was formed as a nonprofit civic corporation in 1965 for
the purposes of, inter alia, operating and maintaining airports in southern
Arizona. By virtue of a lease agreement signed in 1966, and subsequent
amendments thereto (collectively, Lease Agreement), Yuma County leases
the land upon which the Yuma International Airport (Airport) is located to
YCAA for purposes of operating the Airport.

¶4 Plaintiffs collectively do business as Lux Air. To conduct their
operations, Plaintiffs entered into subleases and license agreements
(collectively, Subleases) with YCAA in 2008 and 2009. Following Lux Air’s
eviction from the Airport, Plaintiffs filed this action against YCAA and
Yuma County. With respect to the County, Plaintiffs raised a theory of
vicarious liability, alleging YCAA was a “political subdivision” and
“instrumentality and alter ego” of Yuma County.

¶5 Plaintiffs and Yuma County filed cross-motions for summary
judgment on the issue of Yuma County’s liability. Plaintiffs asserted Yuma
County created YCAA under A.R.S. § 28-8424, a statute that generally
describes, and sets forth the powers and duties of, nonprofit corporate
airport operators that lease airport land from counties. Plaintiffs argued the
statute, together with the Lease Agreement’s terms, granted YCAA “very
little autonomy and greatly restrict[ed] its rights in [A]irport property.”
According to Plaintiffs, Yuma County “maintain[ed] the right to do
whatever it want[ed] to the [A]irport” and, consequently, YCAA “[wa]s
really a shell.”

3 “On appeal from a grant of summary judgment, we view all facts
and reasonable inferences therefrom in the light most favorable to the party
against whom judgment was entered.” Bothell v. Two Point Acres, Inc., 192
Ariz. 313, 315, ¶ 2, 965 P.2d 47, 49 (App. 1998).

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¶6 Yuma County argued that no factual or legal basis existed to
support Plaintiffs’ contentions it had formed YCAA or exercised any
supervision or control over YCAA. Yuma County also asserted it was
entitled to summary judgment pursuant to A.R.S. § 28-8424. Specifically,
the County argued the statute does not impose vicarious liability upon
counties that contract with nonprofit corporations to lease and operate
county-owned airports.

¶7 The trial court granted summary judgment in favor of Yuma
County. Plaintiffs timely appealed. We have jurisdiction pursuant to
Article 6, Section 9, of the Arizona Constitution, and A.R.S. §§ 12-
120.21(A)(1) and -2101(A)(1).

DISCUSSION

¶8 We review de novo the grant of summary judgment. Tierra
Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 199, ¶ 15, 165 P.3d
173, 177 (App. 2007). Summary judgment is appropriate when “there is no
genuine dispute as to any material fact and the moving party is entitled to
judgment as a matter of law.” Ariz. R. Civ. P. 56(a). A defendant moving
for summary judgment “need merely point out by specific reference to the
relevant discovery that no evidence exist[s] to support an essential element
of the claim.” Orme Sch. v. Reeves, 166 Ariz. 301, 310, 802 P.2d 1000, 1009
(1990). The burden then shifts to the plaintiff to produce sufficient evidence
of a genuine issue of material fact as to one or more essential elements of
the claim or defense in order to defeat summary judgment. Id.; Ariz. R. Civ.
P. 56(c)(3). We “may affirm the trial court’s grant of summary judgment if
it is correct for any reason.” Chi. Ins. Co. v. Manterola, 191 Ariz. 344, 346, ¶ 7,
955 P.2d 982, 984 (App. 1998).

I. YCAA Was Not an Alter Ego of Yuma County.

¶9 Based upon the claims asserted against Yuma County,
Plaintiffs were required to show YCAA was “an alter ego” of Yuma County,
which would be demonstrated through evidence of YCAA and Yuma
County having “unity of control” and that “observance of [YCAA’s]
corporate form would sanction a fraud or promote injustice.” Gatecliff v.
Great Republic Life Ins. Co., 170 Ariz. 34, 37, 821 P.2d 725, 728 (1991) (setting
forth elements of alter ego and instrumentality theories of vicarious
liability). For vicarious liability to apply, Plaintiffs must show that the unity
of control between YCAA and Yuma County was so pronounced that “the
individuality or separateness” of the two “had ceased to exist.” Ferrarell v.
Robinson, 11 Ariz. App. 473, 476, 465 P.2d 610, 613 (1970); see also Gatecliff,

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170 Ariz. at 38, 821 P.2d at 729 (“‘When one corporation so dominates and
controls another as to make that other a simple instrumentality or adjunct
to it, the courts will look beyond the legal fiction of distinct corporate
existence, as the interests of justice require.’”) (quoting Walker v. Sw. Mines
Dev. Co., 52 Ariz. 403, 414-15, 81 P.2d 90, 95 (1938)). The factors to determine
“substantially total control” include whether one entity owned stock in the
other entity; the two entities shared common officers or directors; one entity
financed the other entity or paid the other entity’s employees salaries or
other expenses; one entity failed to maintain the formalities of corporate
existence; the two entities shared similar logos; and the one entity did not
know it was a corporate entity separate from the other entity. See Gatecliff,
170 Ariz. at 37, 821 P.2d at 728.

¶10 The record is devoid of any such evidence. Indeed, pursuant
to a stipulation between the parties, Plaintiffs agreed that: (1) Yuma County
and YCAA have never shared common officers or directors; (2) Yuma
County has provided no financing of or for YCAA; (3) Yuma County has
paid no salaries to the officers or employees of YCAA; (4) Yuma County
has paid none of the ordinary operating expenses of YCAA; (5) YCAA has
maintained all legal formalities to continue its corporate existence; (6) the
corporate logos of Yuma County and YCAA are dissimilar; and (7) Plaintiffs
knew that YCAA maintained a separate corporate existence from Yuma
County.4 Furthermore, when Plaintiffs moved for summary judgment
against YCAA before adding Yuma County as a defendant, Plaintiffs
admitted: “[YCAA] is an independent public agency that is not really
answerable to anyone. [The Airport’s director] is answerable to the
[YCAA’s] board, but the members of the board are not answerable to
anyone else.”5

4 At oral argument, the parties were asked if a mechanism provided
for the replacement of YCAA’s corporate officers in the event they were all
lost in a single, catastrophic event. While unable to answer the question
directly, the parties agreed the Yuma County Board of Supervisors lacked
authority to fill those openings.

5 Despite Plaintiffs’ allegation to the contrary, no evidence of record
indicates Yuma County created YCAA. Indeed, the undisputed evidence
shows five private individuals did so. Also, although the Lease Agreement
requires Yuma County pay to insure the Airport, the uncontroverted
evidence established YCAA, alone, undertook that responsibility.
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II. A.R.S. § 28-8424 Does Not Impose Vicarious Liability upon Yuma
County.

¶11 Despite this factual record, Plaintiffs argue A.R.S. § 28-8424
imposes vicarious liability on Yuma County for YCAA’s alleged breach of
the Subleases. We disagree.

¶12 Arizona counties have a variety of means available to
construct, maintain, and operate airports. For instance, a county may elect
to do so itself with funds raised through taxation. A.R.S. § 28-8418(A), (C).
Alternatively, a county may enter into agreements with the State of
Arizona, federal agencies, persons, firms, corporations, or other counties for
such purposes. A.R.S. §§ 28-8420, -8421. And as relevant here, a county
may lease its land “to a nonprofit corporation for airport or air terminal
purposes.” A.R.S. § 28-8423. These lessees are described in A.R.S. § 28-
8424(A), which provides:

A. A nonprofit corporation that is a lessee as provided in
§ 28-8423:

1. Is a validly organized and existing body politic
and corporate exercising its powers for the benefit of the
people, for the improvement of the people’s health and
welfare and for the increase of the people’s traffic and
prosperity.

2. Is engaged in a public purpose essential to
transportation and communication.

3. Performs an essential governmental function as
an agency or instrumentality of the city, town, county or state.

4. Is exempt from property taxation by this state or
an agency of this state.

5. Possesses and may exercise police powers and
other governmental powers on the terms, conditions,
limitations, restrictions and agreements provided in the lease
agreements.

6. May issue bonds, incur obligations and pledge
its revenues as security for the payment of bonds and
obligations for airport and air terminal purposes to the extent
provided by the lease agreement as it exists or as it may be

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amended, without regard to any statutory limitation of
indebtedness of corporations having authorized capital stock.

A.R.S. § 28-8424(A). Plaintiffs rely upon subsection (A)(3) of the statute and
argue the phrase “agency or instrumentality” indicates a legislative intent
to impose vicarious liability on counties that lease land to nonprofit
corporations for purposes of operating airports.

¶13 We review issues of statutory interpretation de novo. State v.
Peek, 219 Ariz. 182, 183, ¶ 6, 195 P.3d 641, 642 (2008). When interpreting a
statute, “‘our primary goal . . . is to discern and give effect to legislative
intent.’” State v. Leonardo ex rel. Cnty. of Pima, 226 Ariz. 593, 595, ¶ 7, 250
P.3d 1222, 1224 (App. 2011) (quoting Norgord v. State ex rel. Berning, 201
Ariz. 228, 230, ¶ 7, 33 P.3d 1166, 1168 (App. 2001)). Our first step is to look
at the language of the statute as it is the “best indicator of that intent.” Mejak
v. Granville, 212 Ariz. 555, 557, ¶ 8, 136 P.3d 874, 876 (2006). If “‘the language
is clear and unequivocal, it is determinative of the statute’s construction.’”
State v. Hansen, 215 Ariz. 287, 289, ¶ 7, 160 P.3d 166, 168 (2007) (quoting Deer
Valley Unified Sch. Dist. No. 97 v. Houser, 214 Ariz. 293, 296, ¶ 8, 152 P.3d 490,
493 (2007)). “We must read the statute as a whole and give meaningful
operation to all of its provisions.” Higginbottom v. State, 203 Ariz. 139, 142,
¶ 13, 51 P.3d 972, 975 (App. 2002). Courts do not read into a statute
something that is not within the legislature’s intent as gleaned from the
statute, City of Phx. v. Donofrio, 99 Ariz. 130, 133, 407 P.2d 91, 93 (1965), or
construe a statute in a manner that will lead to absurd results. In re Estate
of Zaritsky, 198 Ariz. 599, 603, ¶ 11, 12 P.3d 1203, 1207 (App. 2000).

¶14 Under A.R.S. § 28-8423(A):

[I]f a . . . county has leased or leases land owned by it to a
nonprofit corporation for airport or air terminal purposes
pursuant to a lease agreement that provides that title to all
buildings, structures and additions made or added to the
leased premises by the nonprofit corporation vests in the . . .
county in the manner and subject to the restrictions contained
in the agreement, the agreement as it exists or as it may be
amended, renewed or extended is binding and effective
pursuant to its terms.

Id. Thus, the legislature clearly intended counties to have the authority to
enter into enforceable lease agreements with nonprofit corporations for
airport purposes, where, as here, the lease agreement vests title in
improvements in the county.

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¶15 No reported case has yet considered A.R.S. § 28-8424 with
respect to a county’s liability when it exercises its leasing authority under
A.R.S. § 28-8423.6 We note, however, that nothing in A.R.S. § 28-8424
expressly imposes vicarious liability upon counties that lease property to
nonprofit corporate operators of airports. To the contrary, by
characterizing such lessees as “body politic and corporate,” the legislature
shielded lessor counties from liability; such a limitation on liability is a
legitimate purpose of incorporation. See Dietel v. Day, 16 Ariz. App. 206,
208, 492 P.2d 455, 457 (1972) (noting “a legitimate purpose of incorporation
is to avoid personal liability and if the corporate fiction is too easily ignored
and personal liability imposed, then incorporation is discouraged”). The
Lease Agreement is consistent with this purpose as it provides that YCAA
“shall be responsible for and shall indemnify and hold the County harmless
from all claims arising out of or in respect to all leases, permits, licenses,
contracts and agreements made from and after the effective date of this
lease.”

¶16 To construe the phrase “agency or instrumentality” in A.R.S.
§ 28-8424(A)(3) as imposing vicarious liability on lessor counties that did
not create the corporate airport authority lessee, and that have no control
over the lessee, would collapse the distinction between a county’s operation
of its own airport as opposed to that operation occurring through a lease
arrangement pursuant to A.R.S. § 28-8423. Such would render the
distinctions within the statute meaningless, and likely result in few counties
choosing to operate their airports via a lease agreement with nonprofit
corporate operators. We therefore hold A.R.S. § 28-8424 does not impose
vicarious liability on Yuma County for YCAA’s actions.

6 The Arizona case law relied upon by Plaintiffs does not support their
position because those cases do not address the issue of vicarious liability
imputed to a county or city. See Hertz Drive-Ur-Self Sys., Inc. v. Tucson
Airport Auth., 81 Ariz. 80, 299 P.2d 1071 (1956) (considering mandamus
action to compel city airport authority’s cancellation of car rental franchise
based upon alleged improprieties in bidding procedure); Thompson v.
Tucson Airport Auth., Inc., 163 Ariz. 173, 173-74, 786 P.2d 1024, 1024-25 (App.
1989) (holding city’s airport authority not subject to Administrative
Procedure Act because authority was agent of the city); L.G. Lefler, Inc. v.
Tucson Airport Auth., 141 Ariz. 23, 684 P.2d 904 (App. 1984) (holding public
works statutes governed construction project at city-owned airport
operated by a nonprofit corporate lessee of airport property because
authority was an agent of the city).

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¶17 Our holding is consistent with at least one court’s
construction of a similar statute in another state. In Lock v. City of Imperial,
155 N.W.2d 924 (Neb. 1968), the Nebraska Supreme Court addressed
whether the City of Imperial (City) was a proper defendant in a personal
injury suit brought by individuals who were involved in a plane crash after
taking off from a nearby airport. Id. at 924. In that case, the City had created
an airport authority pursuant to Nebraska law for purposes of operating
and maintaining the airport. Id. The applicable statute provided cities the
authority to create airport authorities that are managed and controlled by a
board. Id. at 925. The statute also characterized such a board as “a body
corporate and politic, constituting a public corporation and an agency of
the city for which such board is established.” Id.

¶18 Similar to Plaintiffs here, the plaintiffs in Lock argued the
statutory language describing the board as “an agency of the city” should
result in liability imputed to the City under an alter ego theory. Id. The
Nebraska court rejected this argument and concluded the statute indicated
the state legislature “intend[ed] the normal corporate insulation of the
creator from liabilities of the authority.” Id. at 926. The court held “that an
airport authority, duly created by a city under the Cities Airport Authorities
Act, is a supplementary, separate, and independent public corporation, and
the parent municipal corporation is not liable for the torts of the authority.”
Id. at 927. Central to the court’s holding were statutory provisions (1)
granting an airport authority the power to issue bonds and levy taxes; (2)
requiring that all rights and properties pass to and vest in a city when the
authority ceases to exist; and (3) requiring cities to maintain “naked title”
in airport property transferred by a city to an authority. Id. at 925.

¶19 Arizona’s statutes pertaining to nonprofit corporate lessees of
county land for airport purposes contain provisions similar to those the Lock
court considered significant. See A.R.S. §§ 28-8423, -8424(A)(6). The one
meaningful distinction between the applicable Arizona and Nebraska
statutes is one that compellingly supports our interpretation of A.R.S. § 28-
8424. In Nebraska, cities themselves form the airport authorities that
operate city-owned airports; whereas under A.R.S. § 28-8424, Arizona
municipalities contract with independently incorporated airport operators.

CONCLUSION

¶20 Plaintiffs presented no evidence that Yuma County controlled
YCAA, and A.R.S. § 28-8424 does not impose vicarious liability on counties
for the activities of airport operators that are nonprofit corporate lessees of

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county airport land. Accordingly, the trial court’s order granting summary
judgment in favor of Yuma County is affirmed.

:gsh

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