Detruit v. Castle Rock

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

RENE DETRUIT, Plaintiff/Appellant,

v.

CASTLE ROCK HOMES LLC, Defendant/Appellee.

No. 1 CA-CV 18-0514
FILED 7-16-2019

Appeal from the Superior Court in Maricopa County
No. CV 2017-010438
The Honorable Hugh E. Hegyi, Judge, Retired

AFFIRMED

COUNSEL

Ivan & Associates, Glendale
By Florin V. Ivan
Counsel for Plaintiff/Appellant

Tiffany & Bosco PA, Phoenix
By Richard C. Gramlich
Counsel for Defendant/Appellee
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MEMORANDUM DECISION

Presiding Judge Jennifer B. Campbell delivered the decision of the Court,
in which Judge Maria Elena Cruz and Judge James B. Morse Jr. joined.

C A M P B E L L, Judge:

¶1 Rene Detruit appeals the dismissal of his civil complaint
against Castle Rock Homes, LLC for lack of standing and judicial estoppel.
A person has standing to sue in Arizona when he possesses an interest in
the outcome of the litigation. Because Detruit failed to disclose this cause of
action to the bankruptcy court when seeking Chapter 7 discharge, the claim
belongs to the bankruptcy trustee. We accordingly affirm that Detruit lacks
standing because he has no interest in the outcome of this suit.

BACKGROUND

¶2 In November 2012, Detruit entered into a contract with Castle
Rock to build his home. After construction was nearing completion, Castle
Rock received a demand letter from an attorney Detruit had retained to
pursue a breach of contract claim. The attorney listed several incomplete or
defective items related to construction covered under the contract.
Specifically, the attorney alleged Castle Rock failed to build garages
according to specifications in the contract and asserted that additional work
needed to be completed to re-stucco the south pool wall and finish the
exterior house painting. The letter also included a list of items Detruit
asserted Castle Rock had failed to complete or correct:

1. Foyer ceiling repair and paint, water damaged;

2. West entrance door hung incorrectly, hard to open, gasket
torn gap at the top;

3. Finish kitchen to garage door trim and paint, damaged by
water leak;

4. Garage east wall yellowing, water damaged, needs
painting;

5. Finish kitchen cabinet drawers and trim;

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6. The second entrance door missing trim plugs;

7. Master closet rod needs to be reinstalled, broken plastic end
caps;

8. Master bath floor drain, replace broken screw;

9. Small garage ceiling crack was repaired, needs painting;

10. Big garage electrical outlet cover 220v;

11. The pavers need repair on deck;

12. Holes in stucco on deck from temp fence, patch and paint
as needed.

¶3 The attorney laid out what he believed to be the facts—after
Detruit paid Castle Rock in full, Castle Rock had abandoned the job and
was now in breach of contract. The attorney concluded the letter by
demanding that Castle Rock contact Detruit to complete construction,
threatening suit and adding that if litigation were necessary, he would
“seek to recover all attorney’s fees . . . and Court and/or administrative law
costs incurred.”

¶4 Six months later, Detruit filed for Chapter 7 bankruptcy. In
completing the Debtors’ Schedules that he submitted to the bankruptcy
court, Detruit marked “NONE” in response to “[o]ther contingent and
unliquidated claims of every nature, including tax refunds, counterclaims
of the debtor, and rights of setoff claims.” Based on Detruit’s submissions,
the bankruptcy court granted a full discharge of his debts in March 2015.

¶5 About three months after the discharge, Detruit filed a
complaint against Castle Rock with the Arizona Registrar of Contractors
(“ROC”). He submitted an extensive list of complaints that included some
new issues, but also repeated many allegations from the 2014 demand
letter.

¶6 After investigation, the ROC issued a directive instructing
Castle Rock to remedy the following workmanship issues: deficient stucco
application that resulted in leaks throughout the house; mold present in
walls; water damage to interior sheetrock, stucco, tile grout, and paint;
mismatched stucco on an exterior wall; broken roof tiles and splattered
paint on driveway, pavers, and pony wall; closet doors in bedroom had
water damage and did not fit closet; roof damage from painters and paint

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overspray. The ROC also determined that any other workmanship
violations alleged by Detruit were unsubstantiated and did not require
corrective action.

¶7 Four months after the ROC issued its directive, an inspector
conducted a site visit and determined that there were incomplete repairs,
so the ROC issued a citation against Castle Rock. In response, Castle Rock
explained it was not in violation of Arizona law because Detruit would only
allow them access to the jobsite on the condition that Castle Rock agreed to
re-stucco the entire house. The ROC referred the issue to the Office of
Administrative Hearings to be adjudicated by an Administrative Law
Judge (“ALJ”).

¶8 At that hearing, the ALJ determined that Castle Rock had
contacted Detruit with a plan that included applying waterproof stucco
over the house’s existing stucco, but that Detruit insisted that the ROC’s
directive required Castle Rock to remove all stucco, install a vapor barrier,
and re-stucco the house. The ALJ concluded that Detruit failed to provide
reasonable access to the house and that Castle Rock was thus unable to
comply with the ROC’s directive. The ALJ recommended closing the claim
without prejudice, allowing Detruit one final chance to give Castle Rock
unconditional and unrestricted access to the property.

¶9 The ROC modified the ALJ’s decision to close Detruit’s ROC
complaint with prejudice. The ROC added, however, that nothing in its
decision precluded Detruit from collecting from the Residential
Contractors’ Recovery Fund should he obtain a civil judgment against
Castle Rock.

¶10 Detruit filed a complaint in the superior court, initiating this
lawsuit. He asserted that Castle Rock failed to perform under the parties’
construction contract and that as a result, Castle Rock had been unjustly
enriched at Detruit’s expense. Castle Rock moved for summary judgment,
arguing that because Detruit failed to list the action among his assets during
the previous bankruptcy proceeding, only the bankruptcy trustee would
have standing to pursue the claim. Castle Rock also argued that Detruit was
judicially estopped from maintaining a claim of workmanship deficiencies
in a civil suit because he had affirmatively represented to the bankruptcy
court that he had no outstanding claims prior to discharge. After hearing
oral argument, the court granted summary judgment to Castle Rock “for
the reasons stated in the Motion, Reply, and by Defendants at argument.”

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DISCUSSION

¶11 The superior court must grant summary judgment if the
moving party shows that there is no genuine dispute of material fact and if
the moving party is entitled to judgment as a matter of law. Ariz. R. Civ. P.
56(a). We review a grant of summary judgment de novo, “view[ing] the
facts and any inferences drawn from those facts in the light most favorable
to the party against whom judgment was entered.” Tierra Ranchos
Homeowners Ass’n v. Kitchukov, 216 Ariz. 195, 199, ¶ 15 (App. 2007).

I. Standing

¶12 Detruit argues that the court erred in granting summary
judgment based on a lack of standing. We review de novo whether a party
has standing to pursue a cause of action. All. Marana v. Groseclose, 191 Ariz.
287, 289 (App. 1997). “A party has standing to sue in Arizona if, under all
circumstances, the party possesses an interest in the outcome of the
litigation.” Id. The question of standing in Arizona is not jurisdictional, but
merely “requires consideration of prudential and judicial restraint to ensure
that courts do not issue mere advisory opinions, that the case is not moot,
and that the issues will be fully developed by true adversaries.” Id.; see also
Town of Miami v. City of Globe, 195 Ariz. 176, 179, ¶ 8 n.3 (App. 1998).

¶13 Castle Rock urges us to apply federal law to determine
whether Detruit has standing to sue in this case. As an Arizona court, “we
are not bound by federal jurisprudence on the matter of standing.” Bennett
v. Napolitano, 206 Ariz. 520, 525, ¶ 22 (2003); see Citibank (Ariz.) v. Miller &
Schroeder Fin., Inc., 168 Ariz. 178, 184 (App. 1990) (“This is an Arizona state
court case and does not involve federal jurisdictional considerations.”).
Nevertheless, Arizona courts have found federal law instructive when
determining whether a party has standing to sue. Bennett, 206 Ariz. at 525,
¶ 22; Brush & Nib Studio, LC v. City of Phoenix, 244 Ariz. 59, 68, ¶ 14 (App.
2018) (review granted Nov. 20, 2018). For that reason, we turn to federal
bankruptcy law to determine whether Detruit retained his interest in this
claim post-discharge. See Stewart v. Underwood, 146 Ariz. 145, 147 (App.
1985) (“The effect of a discharge in bankruptcy is determined by the
bankruptcy [c]ode.”).

¶14 When a debtor initiates a bankruptcy proceeding, all tangible
and intangible assets of the debtor become part of the bankruptcy estate.
Mobility Sys. & Equip. Co. v. United States, 51 Fed. Cl. 233, 236 (2001); Sierra
Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 707 (9th Cir. 1986);
see 11 U.S.C. § 541. To that end, federal law imposes “an express, affirmative

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duty to disclose all assets, including contingent and unliquidated claims.”
Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 785 (9th Cir. 2001)
(citation omitted). “The debtor need not know all the facts or even the legal
basis for the cause of action; rather, if the debtor has enough information . . .
prior to confirmation to suggest that it may have a possible cause of action,
then . . . it must be disclosed.” In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th
Cir. 1999) (citation omitted).

¶15 Upon conclusion of the proceedings, property of the estate
that is not administered in the case or abandoned to the debtor remains
property of the estate. 11 U.S.C. § 554(d); Mobility Sys. & Equip. Co., 51 Fed.
Cl. at 236. The debtor’s failure to list an interest on a bankruptcy schedule
also leaves that interest with the bankruptcy estate, within the control of the
bankruptcy trustee. Parker v. Wendy’s Int’l, Inc., 365 F.3d 1268, 1272 (11th
Cir. 2004); Mobility Sys. & Equip. Co., 51 Fed. Cl. at 236. This occurs
regardless of whether a claim is transferrable or assignable under state law.
See Sierra Switchboard Co., 789 F.2d at 709. For any claims that belong to the
bankruptcy estate, the bankruptcy estate trustee then has the exclusive
authority to sue on behalf of the bankruptcy estate. Estate of Spirtos v. One
San Bernardino Cty. Superior Court Case Numbered SPR 02211, 443 F.3d 1172,
1175-76 (9th Cir. 2006); DCFS USA, LLC v. Dist. of Columbia, 820 F. Supp. 2d
1, 3-4 (D.D.C. 2011); see 11 U.S.C. § 323. Thus, only the trustee has standing
to sue for a claim not disclosed to the bankruptcy court. Mobility Sys. &
Equip. Co., 51 Fed. Cl. at 236; see also Cusano v. Klein, 264 F.3d 936, 947-48 (9th
Cir. 2001) (finding that the debtor lacked standing to pursue a claim for
undisclosed pre-petition accrued royalties).

¶16 Arizona courts have recognized federal bankruptcy law and
granted standing to parties whose assets were abandoned to them by the
bankruptcy court or by function of law. Desert Palm Surgical Grp., P.L.C. v.
Petta, 236 Ariz. 568, 585-86, ¶¶ 53-54 (App. 2015) (holding that a party had
standing for a pre-petition claim of medical battery when the bankruptcy
court denied the bankruptcy trustee’s attempt to sell the claim); Foltin v.
Foltin, No. 1 CA-CV 14-0496 FC, 2016 WL 1329582, at *2, ¶ 7 n.1 (Ariz. Ct.
App. Apr. 5, 2016) (mem. decision) (explaining that a party had standing to
sue for mortgage payments despite filing for bankruptcy because the
property was abandoned to her under 11 U.S.C. § 554(C)). Consistent with
this principle, a party who did not disclose a potential cause of action to the
bankruptcy court does not have standing to sue, because all interest in the
undisclosed claim belongs to the bankruptcy trustee.

¶17 Here, Detruit failed to disclose the possibility of any cause of
action against Castle Rock on the Debtors’ Schedules he submitted to the

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bankruptcy court. The demand letter sent by Detruit’s attorney listing
workmanship deficiencies showed that Detruit had knowledge of his
breach of contract claim approximately six months before bankruptcy
proceedings began.1 In that letter, through his attorney, Detruit threatened
administrative and judicial action against Castle Rock, showing that he
knew a claim existed.

¶18 Detruit argues there is a genuine dispute of material fact as to
the accrual date of each injury alleged. He reasons that because the list of
workmanship deficiencies in the demand letter differs from the list in his
ROC complaint, each new problem constituted a separate claim. Even if all
aspects of the claim against Castle Rock were not known to Detruit at the
time of disclosure, the demand letter shows that he knew a claim existed,
and accordingly, he was required to disclose the claim. Hamilton, 270 F.3d
at 785 (“[The debtor’s] knowledge that a cause of action . . . existed at the
time he filed for bankruptcy and completed his bankruptcy schedules and
disclosure statements is clearly evidenced by the letters that his lawyers
wrote . . . , both of which contained threats of litigation.”); Hay v. First
Interstate Bank of Kalispell, N.A., 978 F.2d 555, 557 (9th Cir. 1992) (“We
recognize that all facts were not known . . . , but enough was known to
require notification of the existence of the asset to the bankruptcy court.”).

¶19 Because Detruit failed to disclose the claim against Castle
Rock to the bankruptcy court, the cause of action remains within the
bankruptcy estate. Accordingly, any damages awarded to Detruit in a civil
suit belong to the trustee. He therefore has no interest in the claim and lacks
standing.

¶20 Because we agree with the superior court that Detruit lacks
standing, we need not address his argument that the superior court erred
in granting summary judgment based on the doctrine of judicial estoppel.
See Logerquist v. Danforth, 188 Ariz. 16, 18 (App. 1996) (“We will affirm if the
trial court’s disposition is correct for any reason.”).

1 Detruit objects to admission of the attorney letter based on hearsay,
privileged settlement communication, and relevance. The letter is not
hearsay or privileged settlement communication because it was not offered
to prove the truth of the matter asserted or the validity or amount of a
disputed claim, but to show that Detruit knew of the claim’s existence. See
Ariz. R. Evid. 408, 801(c)(2). Further, the letter is relevant because at issue
was whether a cause of action existed before Detruit’s bankruptcy
proceedings.

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II. Attorney Fees

¶21 Detruit challenges the superior court’s award of attorney fees
and costs “pursuant to the terms of [the construction contract] and/or
[Arizona Revised Statutes (“A.R.S.”)] § 12-341.01.” We will enforce a
contractual provision for attorney fees when it is clear and unambiguous,
Mining Inv. Grp., LLC v. Roberts, 217 Ariz. 635, 639, 641, ¶¶ 16, 26 (App.
2008), and review de novo the applicability of A.R.S. § 12-341.01. Zeagler v.
Buckley, 223 Ariz. 37, 38, ¶ 5 (App. 2009). We review the amount of attorney
fees and costs for an abuse of discretion. Id.

¶22 The “Disputes” section of the construction contract details the
following in full:

Should any dispute arise relative to the performance of this
contract that the parties cannot resolve, the dispute shall be
referred to a single arbitrator acceptable to the builder and the
buyer. If the builder and the buyer cannot agree upon an
arbitrator, the dispute shall be referred to the American
Arbitration Association for resolution. All attorney fees that
shall be incurred in the resolution of disputes shall be the
responsibility of the party not prevailing in the dispute.

We agree with Detruit that this provision does not apply. Read in context,
the provision awards fees for disputes litigated at arbitration, not for
disputes in the superior court.

¶23 We nevertheless affirm the superior court’s award of attorney
fees and costs under A.R.S. § 12-341.01(A), which permits the court to
award fees and costs for “any contested action arising out of a contract.”
Detruit argues that because this suit turns on whether his bankruptcy
affects his ability to recover from Castle Rock, it does not arise out of a
contract. We disagree. Damages listed in the ROC complaint directly relate
to work performed under the construction contract. Detruit’s complaint
plainly asserts that as a result of Castle Rock’s failure to perform under the
construction contract, it was unjustly enriched—which could not have
occurred absent a breach of that contract. Thus, an award under A.R.S. § 12-
341.01 was not in error. As to the amount of the award, the superior court
properly considered an attorney affidavit and a detailed list of the work
performed. Given the broad discretion the superior court holds to award
fees, we detect no error. See Zeagler, 223 Ariz. at 40, ¶ 10.

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CONCLUSION

¶24 For the foregoing reasons, we affirm. Castle Rock asks us to
award attorney fees and costs on appeal under A.R.S. § 12-341.01. In our
discretion, we decline to award fees, but award costs upon compliance with
ARCAP 21. See A.R.S. § 12-341.

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

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