Schapker v. Ketzler-Naughton

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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

ALAN SCHAPKER, Plaintiff/Appellee,

v.

ELIZABETH KETZLER-NAUGHTON, et al., Defendants/Appellants.

No. 1 CA-CV 23-0309
FILED 08-20-2024

Appeal from the Superior Court in Maricopa County
No. CV2019-002654
The Honorable Dewain D. Fox, Judge

AFFIRMED IN PART, REVERSED IN PART

COUNSEL

Fennemore Craig, P.C., Phoenix,
By William G. Klain, Zachary W. Rosenberg
Counsel for Plaintiff/Appellee

Campbell, Yost, Clare & Norell, P.C., Phoenix
By Renee Coury
Counsel for Plaintiff/Appellee

Lang Thal King & Hanson, PC, Scottsdale
By George H. King, Andrew J. Wenker
Counsel for Plaintiff/Appellee

Udall Shumway PLC, Mesa
By H. Micheal Wright, Lincoln M. Wright
Counsel for Defendant/Appellants
 SCHAPKER v. KETZLER-NAUGHTON et al.
Decision of the Court

MEMORANDUM DECISION

Presiding Judge Andrew M. Jacobs delivered the decision of the Court, in
which Judge Jennifer M. Perkins and Judge David D. Weinzweig joined.

J A C O B S, Judge:

¶1 Josephine Naughton (“Josie”) was severely injured when she
was born on February 10, 2004, at Bethany Womens Healthcare (“BWH”),
a birthing center owned by obstetrician Dr. Alan Schapker. BWH’s midwife
Lynnette Casey attended her birth. In 2016, Schapker sold BWH to three
doctors in a Sale Agreement that obligated him to indemnify them against
claims but barred the doctors from assigning the agreement or their rights
under it. In a 2017 suit, Josie’s parents Shawn and Elizabeth sued Schapker,
BWH, and Casey over Josie’s injuries. In 2018, the Naughtons agreed to
settle their claims against BWH and Casey for $8.5 million, intending that
Schapker pay that sum. BWH and Casey attempted to tender the defense
of the Naughtons’ claims to Schapker, a process called “vouching in.”
Schapker refused the tender. The court later dismissed the 2017 suit.

¶2 In this suit, Schapker sought a declaration that the Sale
Agreement did not obligate him to indemnify BWH and Casey for the
Naughtons’ claims arising from Josie’s injuries. The court entered a Rule
54(b) judgment for Schapker, ruling: (1) the Sale Agreement barred BWH
from assigning to the Naughtons its claims against Schapker arising out of
Josie’s birth; (2) the Naughtons had not made Schapker an indemnitor for
Josie’s injuries by seeking to vouch him into the since-dismissed personal
injury suit; (3) the Naughtons were not entitled to recovery from Schapker
in light of any alleged duty on his part to maintain tail coverage that could
have satisfied claims relating to Josie’s birth; and (4) Schapker properly
sued Elizabeth, a party to the settlement, for declaratory relief.

¶3 Because the Sale Agreement may allow BWH to assign its
claims against Schapker arising out of Josie’s birth, we reverse the partial
summary judgment on those claims and the related fee award. Yet we
affirm the rest of the Rule 54(b) judgment because: (1) the Naughtons
sought only to vouch Schapker into a case that was later dismissed; (2) the
Naughtons never obtained the probate court’s approval required to settle a
minor’s claims; (3) Schapker did not owe BWH or Casey a duty to maintain
tail coverage; and (4) Elizabeth is a proper party to this suit.

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FACTS AND PROCEDURAL HISTORY

A. Josie Was Born with Severe and Permanent Injuries at a
Birthing Center Schapker Owned and Operated, After
Which Insurance Coverage for Related Claims Lapsed.

¶4 On February 10, 2004, Josie was born at BWH. Casey, BWH’s
Certified Nurse Midwife, managed the labor and delivery. Schapker was
not present for Josie’s birth and did not personally provide healthcare to
the Naughtons. Josie suffered brain hypoxia, causing her to develop
cerebral palsy. She now requires full-time care, which Elizabeth provides.

¶5 Casey had insurance for liabilities arising from her midwifery
through Centurion Insurance, but it expired in 2009. Centurion offered to
extend tail coverage for BWH and its healthcare providers in 2009 and again
in 2014. BWH declined both offers. Casey testified BWH would not
purchase tail coverage for her because she was neither full-time nor retired,
and that she did not ask BWH to purchase tail coverage.

B. Schapker Sold BWH to Three Other Doctors in 2016 in a
Sale Agreement.

¶6 On December 15, 2016, Schapker sold BWH for $3,000 to Dr.
Giuseppe Ramunno, Dr. Thomas Le, and Dr. James Jew (“Buyers”) under
the Sale Agreement. John B. Even represented Schapker in the sale.
Schapker approved the form of the Sale Agreement, which contains many
provisions relevant to this appeal.

¶7 Page one of the Sale Agreement defines two “Parties.” They
are Dr. Alan Schapker as the “Seller” and Drs. Ramunno, Le, and Jew as the
“Buyer.” The Sale Agreement does not define BWH as a party to its own
sale, instead identifying it as the “Company.”

¶8 In Section 2 of the Sale Agreement, Schapker disclosed BWH’s
existing liabilities. Although he disclosed a property lease, a pending
lawsuit, and other contracts, he disclosed nothing about any potential claim
relating to Josie.

¶9 In Section 12 of the Sale Agreement, Schapker agreed to
indemnify BWH and Buyers against any: (a) breach of warranty or
representation in Section 6 of the Sale Agreement; (b) malpractice claims
arising out of matters Schapker handled directly; and (c) claims made
within one year of the Sale Agreement that Schapker committed fraud, or
intentional or willful misconduct.

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¶10 Section 15 of the Sale Agreement provides:

15. Assignment. This Agreement and the rights of the
Parties hereto may not be assigned, but this Agreement will
inure to the benefit of and be binding upon the Parties hereto
and their respective successors and legal representatives.

C. In 2017, the Naughtons Sued BWH, Casey, and Schapker for
Josie’s Injuries, Leading Casey and BWH to Tender the
Defense to Schapker, Who Declined to Accept the Tender.

¶11 On March 13, 2017, Shawn Naughton and Elizabeth Ketzler-
Naughton filed a personal injury suit on their own behalf and as guardians
ad litem for Josie, against BWH, CNM Casey and her husband, and
Schapker and his wife. In a July 18, 2017 letter, counsel for BWH and Casey
tendered defense of their claims to Schapker. On September 28, 2017,
Schapker rejected the tender, explaining he did so because the Naughtons
did not receive care under his “direction and control.” Schapker also
claimed he lacked notice of the Naughtons’ claims before selling BWH
because they sued after the sale, and asserted he was not responsible for
indemnifying BWH under the contract against the claims.

¶12 On October 24, 2018, the Naughtons filed a Notice of Intent to
Attend Mediation with BWH and Casey. On the day Schapker received the
Notice of Intent, counsel for BWH and Casey e-mailed Schapker’s counsel,
offering that Schapker could “still take over the litigation as initially
proposed.”

¶13 In December 2018, the Naughtons, BWH, and Casey signed
an agreement settling the 2017 suit. The Naughtons filed a Rule 80(a)
Settlement Memorandum, in which BWH agreed to settle all claims with
the Naughtons for $8,500,000, and to enter into a judgment in favor of the
Naughtons in that amount. On February 1, 2019, the Naughtons filed a
Motion for Determination of Good Faith Settlement under Rule 16.2 of the
Arizona Rules of Civil Procedure.

¶14 Shortly thereafter, on February 11, 2019, the superior court
dismissed the suit for lack of prosecution, while the Rule 16.2 motion was
pending. The court reinstated the case on its own motion after the
Naughtons filed their Rule 16.2 motion but reinstated the dismissal on April
11, 2019. The Naughtons never sought approval from the probate court of
the settlement.

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¶15 On May 15, 2019, the Naughtons filed a new personal injury
suit against BWH, Casey, and Schapker, again seeking compensation for
Josie’s injuries. The Naughtons never sought to vouch Schapker into the
2019 tort action.

D. Schapker Sought Declaratory Relief That He Had No
Obligation to Indemnify BWH for the Naughton Claims,
While the Naughtons Counterclaimed to the Contrary.

¶16 On February 20, 2019, Schapker filed an action seeking a
declaration that he had no obligation to indemnify BWH for claims made
against it concerning Josie’s birth. Count One alleged Schapker was not
liable to indemnify BWH for any claims relating to care for Josie or
Elizabeth. Count Two alleged Mrs. Schapker and the marital community
were not liable for any indemnity obligations under the Sale Agreement.
Count Three alleged Schapker was not liable to indemnify BWH under any
common law theory of liability relating to care for Josie or Elizabeth. Count
Four alleged BWH could not assign any of its rights under the Sale
Agreement.

¶17 On April 4, 2019, the Naughtons filed a Motion to Intervene
as Third-Party Defendants on their own behalf and as
guardians/conservators for Josie, but later withdrew this motion. On
January 7, 2020, Schapker filed a Second Amended Complaint (“SAC”),
which added the Naughtons as Defendants.

¶18 On February 10, 2020, the Naughtons filed a Counterclaim on
their own behalf and as guardians ad litem of Josie. Count One alleged
negligence and Count Two alleged a breach of duty and requested a
declaratory judgment regarding Schapker’s indemnity obligation. On
April 22, 2020, BWH assigned all rights and claims it had against Schapker
to the Naughtons.

¶19 On November 17, 2020, Schapker filed a Motion for Partial
Summary Judgment, urging that as a matter of law, BWH’s assignment was
invalid. Schapker’s position was that the phrase “[t]his Agreement and the
rights of the parties hereto may not be assigned,” could only mean that no
rights under the Agreement could be assigned, even by BWH, which was
not defined as one of the “Parties.” The Naughtons opposed, arguing the
nonassignment clause was ambiguous and susceptible of different
interpretations. They also argued that questions of fact precluded
summary judgment, including questions that would impact the
interpretation of the nonassignment clause, such as the Buyers’

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understanding of it, and whether Schapker drafted the agreement, making
it subject to construction against him. Drs. Ramunno, Le, and Jew argued
that they “did not understand the clause to include BWH, either at the time
of the sale or any time thereafter.” They would later argue in this court that
the fact of Dr. Ramunno signing the assignment for BWH evidenced the
doctors’ subjective understanding that the assignment would be legally
effective.

¶20 On May 19, 2021, the superior court adopted Schapker’s
interpretation of the nonassignment clause, and entered summary
judgment for Schapker on Counts Two, Three, and Four of the SAC and
Count Two of the Naughtons’ Amended Counterclaim. The superior court
found Mrs. Schapker and the marital community not liable for any
indemnity obligations under the Sale Agreement. As to Count Three, the
court found Schapker was not liable to indemnify BWH under any common
law theory relating to care provided to the Naughtons, and as to Count
Four, that the Sale Agreement was not assignable.

¶21 In May 2022, shortly after Josie turned 18, Elizabeth sought
court appointment to be Josie’s Guardian in the superior court. On August
3, 2022, Schapker filed another Motion for Summary Judgment on Count
One of his SAC, arguing he was not liable under the Sale Agreement to
indemnify BWH for any claim related to the Naughtons. On November 23,
2022, the superior court entered summary judgment for Schapker on Count
One of the SAC regarding declaratory relief as to the Naughtons’ alleged
contractual indemnity rights and ordered Schapker to lodge a proposed
form of judgment.

E. Schapker Obtained Attorneys’ Fees and Costs Against the
Naughtons Under A.R.S. § 12-341.01(A).

¶22 Schapker applied for his attorneys’ fees and costs on
December 22, 2022. Elizabeth argued Schapker should not receive fees
under A.R.S. § 12-341.01(A) because the Naughtons were not parties to the
Sale Agreement and their claims did not arise from it. On February 14, 2023,
the superior court awarded Schapker $100,000 in fees and $3,514 in
Westlaw charges.

¶23 Josie and Elizabeth timely appealed. We have jurisdiction
under A.R.S. § 12-2101(A)(1) and Article 6, Section 9 of the Arizona
Constitution.

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DISCUSSION

¶24 Summary judgment is appropriate when “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.” Ariz. R. Civ. P.
56(a). We review de novo a grant of summary judgment by the superior
court. Jackson v. Eagle KMC L.L.C., 245 Ariz. 544, 545 ¶ 7 (2019). We construe
the facts in the light most favorable to the party against whom judgment
was entered. Ariz. Elec. Power Coop., Inc. v. DJL 2007 L.L.C., 246 Ariz. 534,
542 ¶ 29 (App. 2019).

I. The Superior Court Erred by Granting Schapker Partial Summary
Judgment on His Counts One and Four and the Naughtons’ Count
Two, Because There Are Fact Issues as to Whether BWH Was
Entitled to Assign its Indemnity Rights to the Naughtons.

¶25 We review contract interpretation de novo. Dunn v. FastMed
Urgent Care P.C., 245 Ariz. 35, 38 ¶ 10 (App. 2018). When interpreting a
contract, our purpose is to determine and give effect to the parties’ intent.
Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593 ¶ 9 (App. 2009). To
determine their intent, we first look to “the plain meaning of the words as
viewed in the context of the contract as a whole.” Earle Invs., L.L.C. v. S.
Desert Med. Ctr. Partners, 242 Ariz. 252, 255 ¶ 14 (App. 2017) (cleaned up).
“[E]ach part of a contract must be read together, ‘to bring harmony, if
possible, between all parts of the writing.’” ELM Ret. Ctr., L.P. v. Callaway, 226 Ariz. 287, 291 ¶ 18 (App. 2010) (cleaned up). We will not construe one
provision in a contract so as to render another meaningless. Chandler Med.
Bldg. Partners v. Chandler Dental Grp., 175 Ariz. 273, 277 (App. 1993).

¶26 Relevant here, rights and duties under a contract are freely
assignable. Highland Vill. Partners, L.L.C. v. Bradbury & Stamm Constr. Co.,
Inc., 219 Ariz. 147, 150 ¶ 11 (App. 2008) (citing 6A C.J.S. Assignments § 32
(2008)). A party like BWH can assign its contractual rights to a third party
unless: (1) the assignment materially changes the obligor’s duty or increases
the obligor’s burden or risk; (2) the assignment is prohibited by statute or
violates public policy; or (3) the contract validly precludes the assignment.
Id. (citing Restatement (Second) of Contracts § 317(2) (1981)). Schapker
argues the third circumstance is present.

¶27 But as we next explain, there are several reasons Section 15 of
the contract is ambiguous on this point, requiring us to vacate the grant of
partial summary judgment to Schapker on Counts One and Four of the
SAC, and Count Two of the Naughtons’ counterclaim. See Fadely v.

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Encompass Health Valley of Sun Rehab. Hosp., 253 Ariz. 515, 520 ¶ 19 (App.
2022) (explaining that whether a contract is ambiguous is a question of law);
Focus Point Props., L.L.C. v. Johnson, 235 Ariz. 170, 177 ¶ 32 (App. 2014)
(explaining that where contract is ambiguous, determining the parties’
intent is a question of fact for the jury).

A. Section 15 Is Ambiguous, So Whether the Anti-Assignment
Provision Applies to BWH Is a Question of Fact.

¶28 The superior court’s partial summary judgment concerning
assignability rests on its adoption of Schapker’s theory that the plain
language of the anti-assignment clause unequivocally prohibits the transfer
of BWH’s claims against him.

¶29 The dispute centers on Section 15’s directive that “[t]his
Agreement and the rights of the Parties” cannot be assigned. Addressing
each component of this term, the Naughtons argue: (1) BWH is “the
Company” under the Sale Agreement, not one of the “Parties,” and (2)
Section 15 only prevents the entire agreement from being assigned, and
BWH did not assign the entire agreement to the Naughtons. Schapker
counters: (1) BWH is a “Party” under Sales Agreement, and (2) Section 15
prevents any part of the Sale Agreement from being assigned, including the
claim assigned here. As we explain next, the Naughtons are right about the
proper construction of the word “Parties,” but that still leaves an ambiguity
within Section 15’s anti-assignment language to be resolved on remand.

1. The Naughtons Are Correct That While Section 15
Bars the Parties From Assigning Their Rights Under
the Agreement, BWH Is Not a Party.

¶30 The Naughtons are right that the word “Parties” in the Sale
Agreement does not include BWH, and thus does not operate to bar the
assignment of its claims against Schapker to them. As such, when the
Agreement prohibited the assignment of “the rights of the Parties hereto,”
that prohibition barred the assignment of the rights of Drs. Schapker,
Ramunno, Le, and Jew – because they alone were “Parties” within that
term’s plain meaning. See Earle Invs., 242 Ariz. at 255 ¶ 14.

¶31 Accordingly, because BWH is not one of the “Parties” to the
Sales Agreement, the word “Parties” in Section 15 does not prohibit the
assignment at issue here. That, however, leaves open the question of
whether the prohibition of the assignment of “[t]his Agreement,” which is
untethered to “the Parties,” bars the assignment. We discuss that next.

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2. Section 15 Is Ambiguous as to Whether it Permits
BWH to Assign a Subset of its Rights under the Sale
Agreement.

¶32 The Sale Agreement is ambiguous because there are two ways
to read the prohibition in Section 15 of the assignment of “[t]his
Agreement.” Schapker argues that term includes the Sale Agreement itself,
and any rights under the Agreement. That interpretation is consistent with
the words of Section 15, and finds some support in case law. See Matter of
Featherfall Restoration LLC, 311 A.3d 437, 457–58 (Md. App. Ct. 2024) (where
insurance policy said “Assignment of this policy will not be valid unless we
[Travelers] give our written consent,” the court “agree[d] with Travelers
that the Policy’s anti-assignment clause should not be read to allow
assignment of any rights under the Policy so long as it does not amount to
an assignment of the entire Policy. As Travelers asserts, such a reading
would allow insured parties to assign as many of their rights under the
Policy as they desire so long as such assignment does not transfer the whole
of the Policy, or would allow piecemeal assignment of the whole Policy, all
without Travelers’ consent. This outcome would make the anti-assignment
clause meaningless.”).

¶33 Yet the Naughtons’ contrary position – that BWH did not seek
to assign the entire Sale Agreement to another party, and only a subset of
its rights – is likewise consistent with the language of Section 15. And like
Schapker’s position, the Naughtons’ position is supported by case law.
Farmers Ins. Exch. v. Udall, 245 Ariz. 19, 21, 22 ¶¶ 10, 14 (App. 2018)
(upholding four homeowners’ assignments of their rights under an
insurance policy containing an anti-assignment clause); see Givaudan
Fragrances Corp. v. Aetna Cas. & Sur. Co., 151 A.3d 576, 591 (N.J. 2017)
(explaining that anti-assignment clauses in insurance contracts “apply only
to assignments before loss, and do not prevent an assignment after loss.”)
(citation omitted). An assignment can transfer some rights without
transferring all of the rights within an agreement. Highland Vill. Parts., 219
Ariz. at 152 (holding the original owner of commercial property could
expressly assign its rights under an implied warranty of workmanship and
habitability); Republic Ins. Co. v. Feidler, 178 Ariz. 528, 534 (App. 1993)
(“When an insured assigns his right to sue his insurer under a liability
policy, the assignee takes only those rights that the defendant had.”).

¶34 We thus find the contract ambiguous and remand for the jury
to determine the parties’ intent. Focus, 235 Ariz. at 177 ¶ 32.

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B. The Doctrine of Expressio Unius Est Exclusio Alterius Also
Suggests the Anti-Assignment Clause May Not Apply to
BWH.

¶35 The drafters’ choice to mention BWH in other places in the
Sale Agreement but not in Section 15’s anti-assignment clause likewise
makes plausible that BWH’s rights to assign claims are not limited by
Section 15. That choice implicates the doctrine of expressio unius est exclusio
alterius – that the expression of one thing in a class implies the exclusion of
all other things not expressed. Welch v. Cochise Cnty. Bd. of Supervisors, 251
Ariz. 519, 529 ¶ 36 (2021).

¶36 Section 15 states the Agreement and the rights of the Parties
may not be assigned but does not reference BWH. By contrast, Section 12
addresses indemnification by Seller and provides, “Seller will indemnify
Company [BWH] and Buyer and hold Company [BWH] and Buyer, and
Buyer’s heirs and representatives harmless from and against all liabilities,
losses, damages, costs, and expenses . . . incurred by Company [BWH] or
Buyer as a result.” Schapker and the other Parties to the Sale Agreement
could have included BWH in Section 15 as was done in Section 12 but failed
to do so. This omission can be argued to suggest that Section 15 does not
limit BWH’s rights.

¶37 For all of these reasons, we find the term “[t]his Agreement”
in Section 15 ambiguous as to whether it allows the assignment of any
rights, and remand for the jury to determine the parties’ intent. Focus, 235
Ariz. at 177 ¶ 32.

II. The Superior Court Correctly Granted Schapker Summary
Judgment on His Count Three Because the Settlement Lacked
Required Approvals, and BWH and Casey Only Vouched
Schapker into the 2017 Lawsuit.

¶38 Schapker moved for summary judgment on Count III of his
declaratory judgment action, arguing the Naughtons had not bound him to
pay the $8.5 million settlement they reached with BWH in 2018 by vouching
him into their 2017 suit. See Foremost-McKesson Corp. v. Allied Chem. Co., 140
Ariz. 108, 111 (App. 1983) (“‘Vouching in’ is a common law procedural
device that allows a defendant to conclusively bind a potential indemnitor
to the judgment if certain requirements are met.”).

¶39 The superior court agreed with Schapker that he had no
common law indemnity obligation to the Naughtons despite their attempt
to vouch him into the 2017 suit. The superior court’s reasons included: (1)

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the lack of required probate court approval of the settlement of Josie’s
claims; and (2) the termination of the 2017 action by dismissal. The
Naughtons argue on appeal: (1) they were not required to obtain probate
court approval of the settlement, and in any event sought approval of it
under Arizona Rule of Civil Procedure 16.2; and (2) that dismissing the 2017
suit was not fatal to their claim for common law indemnity. Even assuming
the Naughtons vouched Schapker into the 2017 suit, the superior court did
not err by granting Schapker summary judgment on Count Three.

A. Schapker Has No Common Law Obligation to Indemnify
the Naughtons for the Settlement, Because the Settlement
Requires – But Presently Lacks – Probate Court Approval.

¶40 Our law is clear that to settle the claim of a minor exceeding
$10,000, probate court approval is required. As Rule of Probate Procedure
53(b)(1) explains concerning the settlement of claims of minors, “[i]f the
settlement exceeds $10,000, it must be approved by a superior court judge
or judge pro tem in a probate proceeding under A.R.S. Title 14.” Id. The
Naughtons failed to seek this approval, and until they do it cannot be
effective under Arizona law. As such, Schapker is right that he has no
common law obligation to satisfy a presently invalid settlement.

¶41 The Naughtons’ argument that moving for approval under
Arizona Rule of Civil Procedure 16.2 fulfilled the purpose of the required
probate court approval of Josie’s settlement fails because those approvals
are distinct and serve different purposes. Rule 16.2 does something
fundamentally different from approval in the probate court – determining
the good faith of a settlement as among a group of potential tortfeasors –
making it insufficient here, even had it been obtained. See Ariz. R. Civ. P.
16.2. The probate code, by contrast, requires approval of settlements like
Josie’s to protect vulnerable persons against unwise or unfair settlements of
significant claims – and the Naughtons have still not fulfilled this
requirement. See A.R.S. §§ 14-5417, 14-5424 (authorizing duly appointed
conservator to act as fiduciary in settling, with court approval, personal
injury claims of protected persons). Finally, the Naughtons’ argument also
fails because they have not yet obtained approval under Rule 16.2. The
court did not err by granting Schapker summary judgment on this claim.

B. Schapker Has No Common Law Obligation to Satisfy a
Claim Asserted in a Dismissed Case.

¶42 We also agree with the superior court and Schapker that “[a]t
most, Dr. Schapker was ‘vouched-in’ to a judgment of dismissal.” As noted,

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vouching in seeks to “bind a potential indemnitor to the judgment.” See
Foremost-McKesson, 140 Ariz. at 111. But there is no judgment in the 2017
suit, nor will there be. Other jurisdictions’ explanations of vouching in
reinforce this point. Universal Am. Barge Corp. v. J-Chem, Inc., 946 F.2d 1131,
1136 n.2 (5th Cir. 1991) (“Vouching in is a process whereby a civil defendant
notifies a nonparty that a suit is pending against the defendant and that if
liability is found, the defendant will look to the vouchee for indemnity and
hold him to the findings in that suit.”). Here, there were no operative
“findings in [the 2017] suit” and never will be – it was dismissed. The
Naughtons have thus not vouched Schapker into the defense of a matter
that may end in a judgment in their favor.

¶43 Arguing we should treat their tender in the 2017 suit as tender
in the 2019 suit, the Naughtons plausibly suggest Schapker would refuse a
tender of BWH’s defense in the 2019 suit if they made it. We cannot find
the lack of tender in the 2019 suit harmless for three reasons. First, it is
unclear why the Naughtons cannot simply tender the defense again, which
is neither burdensome nor complex. Second, no Arizona case states that a
party can vouch someone into a second lawsuit by tendering defense of
claims in a comparable prior lawsuit, and we decline to mint such a rule
today. Third, even when litigants invoke futility to excuse a demand the
law requires, they must do more than the Naughtons did here. For
example, before a stockholder can sue on behalf of a corporation, they must
“exhaust[] all available means” within the corporation to obtain redress of
their grievances or show that demand upon the corporation would be futile.
Rugee v. Hadley Prods., 73 Ariz. 362, 365-66 (1952). The Naughtons did not
plead that tender to Schapker would be futile, nor did they ask the court to
find as a fact that it would be. On that record, we cannot wave away their
failure to demand that Schapker defend BWH in the 2019 suit, or their
failure to plead and prove futility, as mere surplusage. For this reason too,
the court did not err in finding the Naughtons failed to vouch Schapker into
the defense of a suit in which he could face a judgment. We thus affirm the
partial summary judgment for Schapker on Count Three.

III. The Superior Court Did Not Err When It Granted Summary
Judgment as to the Count One of the Naughtons’ Counterclaim, to
the Extent It Assertedly Involved Tail Coverage.

¶44 The superior court dismissed the Naughtons’ “novel theory,”
based on agency principles, that Schapker negligently operated BWH by
failing to provide it with tail coverage for claims against Casey arising out
of Josie’s birth. In their summary judgment briefing before the superior
court, the Naughtons painted this claim as one sounding in negligence and

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thus located within Count One of their Amended Counterclaim. In this
court, Schapker and the Naughtons dispute, among other things, whether
Casey’s tail-coverage claims the Naughtons would assert are time-barred,
and whether there is a duty to maintain tail coverage for Casey. We affirm
the superior court’s decision to dismiss any tail coverage claim in Count
One.

¶45 As Schapker correctly argues, the Naughtons fail to
demonstrate the existence of any legal duty to maintain tail coverage. They
cite no statute creating such a duty. The Naughtons’ attempt to cobble
together a duty from a variety of disparate out-of-state sources is
unavailing. Citing Section 8.15 of the Restatement (Third) of Agency that
does not discuss insurance to demonstrate a supposed legal obligation for
Schapker to purchase insurance when there is a Restatement of Insurance
available to cite is unpersuasive on its face. Moreover, the provision the
Naughtons cite applies where the risks of pecuniary loss are known only to
the principal and not to the agent. Since the Naughtons offer evidence
Casey previously had liability insurance for her professional acts and
omissions, she was well aware of these risks and their insurability. Marie
Deonier & Assocs. v. Paul Revere Life Ins. Co., 9 P.3d 622 (Mont. 2000), which
the Naughtons cite, is inapposite, as it concerns obligations between an
insurance broker and an insurance company, and creates no duty of a
former employer to maintain tail coverage indefinitely.

IV. The Superior Court Did Not Err in Finding That Elizabeth Was a
Proper Party in Her Personal Capacity, Given Schapker’s Claim
Against Her For Declaratory Judgment.

¶46 While determining the propriety of Elizabeth’s status as party
is not strictly necessary to deciding this appeal because we vacate the fee
award against Elizabeth, it is likely to recur upon remand, so we resolve it.

¶47 The Naughtons maintain Elizabeth is a proper party only as
guardian of Josie, but not on her own behalf. The Naughtons assert their
loss of consortium claim was dismissed in 2019, so Elizabeth never had
standing individually in this suit. Schapker counters that dismissing
Elizabeth as a party in the 2017 personal injury action did not exempt her
from party status in this indemnity action.

¶48 Schapker and the superior court are correct. Schapker sued
Elizabeth personally here, seeking a declaration as to his and her rights in
relation to the $8.5 million settlement to which she is a party. While that is
enough to justify her party status, Elizabeth also participated personally in

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 SCHAPKER v. KETZLER-NAUGHTON et al.
Decision of the Court

this suit in many ways. She responded to Schapker’s complaint, with
husband Shawn, “on their own behalf and as guardians ad litem of
Josephine Marie Naughton, a minor, herein referred to as ‘Naughtons.’”
She also stated affirmative defenses, asserted counterclaims, and filed a
complaint against Mrs. Schapker. We affirm on this point.

V. We Vacate the Award of Attorneys’ Fees to Schapker.

¶49 The superior court awarded Schapker $103,514.91 of
attorneys’ fees and Westlaw charges under A.R.S. § 12-341.01 and $2,657.37
of costs. Because that award rested on Schapker prevailing on a contract
claim, a result we undo, we likewise vacate the award of attorneys’ fees
without prejudice to either party pursuing fees under § 12-341.01 when
either prevails.

CONCLUSION

¶50 For the reasons stated above, we vacate the entry of partial
summary judgment for Schapker on Counts One and Four of his Second
Amended Complaint and Count Two of the Naughtons’ counterclaim. We
likewise vacate the award of attorneys’ fees and costs in favor of Schapker.
We affirm the partial summary judgment rulings for Schapker on Counts
Two and Three, and as to Elizabeth’s party status. We deny Schapker’s
requests for attorneys’ fees and costs in this court. We remand for further
proceedings consistent with this decision.

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

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